UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: JuneSeptember 30, 2023
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: 000-13789
ADHERA THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 11-2658569 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
8000 Innovation Parkway Baton Rouge, LA | 70820 | |
| (Address of principal executive offices) | (Zip Code) |
(919) 518-3748
(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. Yes ☒ No ☐
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). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth 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 to13(a) of the Exchange 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 August 18,November 20, 2023, there were shares of the registrant’s common stock outstanding.
ADHERA THERAPEUTICS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNESEPTEMBER 30, 2023
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
ITEM I – FINANCIAL INFORMATION
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
June 30, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 58 | $ | 32 | ||||
| Prepaid expenses | 24 | 47 | ||||||
| Total current assets | 82 | 79 | ||||||
| Total assets | $ | 82 | $ | 79 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 2,318 | $ | 2,397 | ||||
| Due to related parties | 16 | 26 | ||||||
| Accrued expenses | 5,139 | 4,373 | ||||||
| Accrued dividends | 551 | 498 | ||||||
| Term loans, net of discounts | 9,415 | 7,333 | ||||||
| Convertible notes payable | 1,176 | 1,252 | ||||||
| Derivative liability | 4,254 | 6,386 | ||||||
| Total current liabilities | 22,869 | 22,265 | ||||||
| Total liabilities | 22,869 | 22,265 | ||||||
| Commitments and contingencies (Note 9) | - | - | ||||||
| Stockholders’ deficit | ||||||||
| Preferred stock, $ par value; shares authorized | — | — | ||||||
| Series C convertible preferred stock, $ par value; shares designated; shares issued and outstanding as of June 30, 2023 and December 31, 2022. ($510,000 liquidation preference) | — | — | ||||||
| Series D convertible preferred stock, $ par value; shares designated; shares issued and outstanding as of June 30, 2023, and December 31, 2022. ($12,000 liquidation preference) | — | — | ||||||
| Series E convertible preferred stock, $ par value; shares designated; shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively. ($1,886,414 liquidation preference) | — | — | ||||||
| Series F convertible preferred stock, $ par value; shares designated; shares issued and outstanding as of June 30, 2023, and December 31, 2022. | — | — | ||||||
| Series G convertible preferred stock, $ par value; shares designated; shares issued and outstanding as of June 30, 2023, and December 31, 2022. | — | — | ||||||
| Preferred stock, value | — | — | ||||||
| Common stock, $ par value; shares authorized, and shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | 23 | 19 | ||||||
| Additional paid-in capital | 33,610 | 33,548 | ||||||
| Accumulated deficit | (56,418 | ) | (55,751 | ) | ||||
| Treasury Stock ( shares) | (2 | ) | (2 | ) | ||||
| Total stockholders’ deficit | (22,787 | ) | (22,186 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 82 | $ | 79 | ||||
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 32,388 | $ | 31,761 | ||||
| Prepaid expenses | 11,686 | 46,750 | ||||||
| Total Current Assets | 44,074 | 78,511 | ||||||
| Total Assets | $ | 44,074 | $ | 78,511 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 2,351,653 | $ | 2,396,716 | ||||
| Due to related parties | 61,892 | 25,568 | ||||||
| Accrued expenses | 5,545,905 | 4,372,366 | ||||||
| Accrued dividends | 578,333 | 498,453 | ||||||
| Term loans, net of discounts | 9,660,355 | 7,332,978 | ||||||
| Convertible notes payable | 1,168,765 | 1,251,696 | ||||||
| Contract liabilities | 100,000 | - | ||||||
| Derivative liabilities | 6,892,612 | 6,386,284 | ||||||
| Total Current Liabilities | 26,359,515 | 22,264,061 | ||||||
| Total Liabilities | 26,359,515 | 22,264,061 | ||||||
| Commitments and Contingencies (Note 9) | - | - | ||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Preferred stock: $ par value; authorized; | ||||||||
| Series C convertible preferred stock: $ par value; shares designated; shares issued and outstanding at September 30, 2023 and December 31, 2022 ($510,000 liquidation preference) | - | - | ||||||
| Series D convertible preferred stock: $ par value; shares designated; shares issued and outstanding at September 30, 2023 and December 31, 2022 ($12,000 liquidation preference) | - | - | ||||||
| Series E convertible preferred stock: $ par value; shares designated; shares issued and outstanding at September 30, 2023 and December 31, 2022 ($1,886,414 liquidation preference) | 3 | 3 | ||||||
| Series F convertible preferred stock: $ par value; shares designated; shares issued and outstanding at September 30, 2023 and December 31, 2022 | - | - | ||||||
| Series G convertible preferred stock: $ par value; shares designated; shares issued and outstanding at September 30, 2023 and December 31, 2022 | - | - | ||||||
| Preferred stock: $0.01 par value; 100,000 authorized; | ||||||||
| Common stock: $ par value, shares authorized; and shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | 31,014 | 18,938 | ||||||
| Additional paid-in capital | 33,636,179 | 33,547,890 | ||||||
| Treasury stock ( shares, at cost) | (2,000 | ) | (2,000 | ) | ||||
| Accumulated deficit | (59,980,637 | ) | (55,750,381 | ) | ||||
| Total Stockholders’ Deficit | (26,315,441 | ) | (22,185,550 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 44,074 | $ | 78,511 | ||||
TheSee accompanying condensed notes are an integral part of theseto unaudited consolidated financial statements.
| 3 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share data)(Unaudited)
(unaudited)
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| For the Three-Months Ended | For the Six-Months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | $ | 296 | $ | 449 | $ | 648 | $ | 709 | ||||||||
| Total operating expenses | 296 | 449 | 648 | 709 | ||||||||||||
| Loss from operations | (296 | ) | (449 | ) | (648 | ) | (709 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense, net | (357 | ) | (361 | ) | (692 | ) | (672 | ) | ||||||||
| Initial and change in the fair value of derivative liability | 1,742 | 1,012 | 2,459 | 1,679 | ||||||||||||
| Loan inducement expense | (462 | ) | - | (809 | ) | - | ||||||||||
| Gain on extiguishment of debt | 36 | 210 | 75 | 215 | ||||||||||||
| Amortization of debt discount | (392 | ) | (313 | ) | (1,000 | ) | (488 | ) | ||||||||
| Total other income (expense) | 567 | 548 | 33 | 734 | ||||||||||||
| Net income (loss) | 271 | 99 | (615 | ) | 25 | |||||||||||
| Accrued dividends | (26 | ) | (406 | ) | (53 | ) | (566 | ) | ||||||||
| Net Income (Loss) Applicable to Common Stockholders | $ | 245 | $ | (307 | ) | $ | (668 | ) | $ | (541 | ) | |||||
| Net loss per share – Common Stockholders - basic | $ | 0.07 | $ | (0.27 | ) | $ | (0.20 | ) | $ | (0.27 | ) | |||||
| Weighted average shares outstanding - basic | 3,462,539 | 1,140,083 | 3,260,540 | 2,003,921 | ||||||||||||
| Net loss per share – Common Stockholders - diluted | $ | (0.01 | ) | $ | (0.27 | ) | $ | (0.20 | ) | $ | (0.27 | ) | ||||
| Weighted average shares outstanding - diluted | 98,538,396 | 1,140,083 | 3,260,540 | 2,003,921 | ||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUES, NET | $ | - | $ | - | $ | - | $ | - | ||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Professional fees | 83,267 | 169,166 | 339,972 | 521,861 | ||||||||||||
| Compensation expense | 143,238 | 154,161 | 429,396 | 304,161 | ||||||||||||
| General and administrative expenses | 42,992 | 224,243 | 148,153 | 430,268 | ||||||||||||
| Total Operating Expenses | 269,497 | 547,570 | 917,521 | 1,256,290 | ||||||||||||
| LOSS FROM OPERATIONS | (269,497 | ) | (547,570 | ) | (917,521 | ) | (1,256,290 | ) | ||||||||
| OTHER INCOME (EXPENSES): | ||||||||||||||||
| Interest expense, net | (359,184 | ) | (317,045 | ) | (1,050,830 | ) | (989,288 | ) | ||||||||
| Amortization of debt discount | (245,839 | ) | (777,082 | ) | (1,245,825 | ) | (1,265,419 | ) | ||||||||
| Gain on debt extinguishment, net | 12,671 | 92,068 | 87,921 | 306,707 | ||||||||||||
| Loan inducement expense | - | - | (809,126 | ) | - | |||||||||||
| Derivative income (expense) | (2,673,966 | ) | (253,723 | ) | (214,994 | ) | 1,425,494 | |||||||||
| Total Other Income (Expenses), net | (3,266,318 | ) | (1,255,782 | ) | (3,232,854 | ) | (522,506 | ) | ||||||||
| NET LOSS | (3,535,815 | ) | (1,803,352 | ) | (4,150,375 | ) | (1,778,796 | ) | ||||||||
| Accrued preferred stock dividends | (26,920 | ) | (8,706 | ) | (79,881 | ) | (574,706 | ) | ||||||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | (3,562,735 | ) | $ | (1,812,058 | ) | $ | (4,230,256 | ) | $ | (2,353,502 | ) | ||||
| NET LOSS PER COMMON SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS: | ||||||||||||||||
| Basic | $ | (0.83 | ) | $ | (0.57 | ) | $ | (1.16 | ) | $ | (1.17 | ) | ||||
| Diluted | $ | (0.83 | ) | $ | (0.57 | ) | $ | (1.16 | ) | $ | (1.17 | ) | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic | 4,303,866 | 3,160,877 | 3,649,428 | 2,019,953 | ||||||||||||
| Diluted | 4,303,866 | 3,160,877 | 3,649,428 | 2,019,953 | ||||||||||||
TheSee accompanying condensed notes are an integral part of theseto unaudited consolidated financial statements.
| 4 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(in thousands, except share and per share amounts)FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(unaudited)(Unaudited)
| Number | Par Value | Number | Par Value | Number | Par Value | Number | Par Value | Number | Par Value | Capital | Deficit | Stock | Total | |||||||||||||||||||||||||||||||||||||||||||
| Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Series F Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Treasury | |||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Par Value | Number | Par Value | Number | Par Value | Number | Par Value | Number | Par Value | Capital | Deficit | Stock | Total | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | 100 | $ | - | 40 | $ | - | 3,326 | - | 358 | - | 853,946 | $ | 5 | $ | 27,906 | $ | (53,017 | ) | $ | - | $ | (25,106 | ) | |||||||||||||||||||||||||||||||||
| Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | (364 | ) | - | $ | (364 | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock with convertible notes | - | - | - | - | - | - | - | - | 12,500 | - | 18 | - | - | $ | 18 | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for convertible note conversions | - | - | - | - | - | - | - | - | 12,721 | - | 28 | - | - | $ | 28 | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | (74 | ) | - | $ | (74 | ) | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | 100 | $ | - | 40 | $ | - | 3,326 | $ | - | 358 | $ | - | 879,167 | 5 | $ | 27,952 | $ | (53,455 | ) | $ | - | $ | (25,498 | ) | ||||||||||||||||||||||||||||||||
| Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | (202 | ) | - | $ | (202 | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock with term loan | - | - | - | - | - | - | - | - | 19,231 | - | 11 | - | - | $ | 11 | |||||||||||||||||||||||||||||||||||||||||
| Conversion of Series E Preferred to common stock | - | - | - | - | (3,059 | ) | - | - | - | 2,035,306 | 12 | 5,044 | - | - | $ | 5,056 | ||||||||||||||||||||||||||||||||||||||||
| Conversion of Series F Preferred to common stock | - | - | - | - | - | - | (358 | ) | - | 233,127 | 1 | 540 | - | - | $ | 541 | ||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | - | - | - | - | - | -5,954 | - | - | - | (2 | ) | $ | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | 99 | - | $ | 99 | |||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | 100 | $ | - | 40 | $ | - | 267 | $ | - | - | $ | - | 3,160,877 | 18 | $ | 33,547 | $ | (53,558 | ) | $ | (2 | ) | $ | (19,995 | ) | |||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 100 | - | 40 | - | 267 | $ | - | - | $ | - | 3,160,877 | $ | 19 | $ | 33,548 | $ | (55,751 | ) | $ | (2 | ) | $ | (22,186 | ) | ||||||||||||||||||||||||||||||||
| Accrued dividends | - | - | - | - | - | - | - | - | - | - | - | (26 | ) | - | $ | (26 | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of Common stock for convertible note conversions | - | - | - | - | - | - | - | - | 17,861 | - | 5 | - | - | $ | 5 | |||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | - | - | - | - | - | (886 | ) | - | $ | (886 | ) | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | 100 | 40 | $ | - | 267 | $ | - | - | $ | - | 3,178,738 | $ | 19 | $ | 33,553 | $ | (56,663 | ) | $ | (2 | ) | $ | (23,093 | ) | ||||||||||||||||||||||||||||||||
| Beginning balance | 100 | 40 | $ | - | 267 | $ | - | - | $ | - | 3,178,738 | $ | 19 | $ | 33,553 | $ | (56,663 | ) | $ | (2 | ) | $ | (23,093 | ) | ||||||||||||||||||||||||||||||||
| Accrued dividends | - | - | - | - | - | - | - | - | - | - | - | (26 | ) | - | $ | (26 | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of Common stock for convertible note conversions | - | - | - | - | - | - | - | - | 660,716 | 4 | 57 | - | - | $ | 61 | |||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | - | - | - | - | - | 271 | - | $ | 271 | |||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | 100 | 40 | $ | - | 267 | $ | - | - | $ | - | 3,839,454 | $ | 23 | $ | 33,610 | $ | (56,418 | ) | $ | (2 | ) | $ | (22,787 | ) | ||||||||||||||||||||||||||||||||
| Ending balance | 100 | 40 | $ | - | 267 | $ | - | - | $ | - | 3,839,454 | $ | 23 | $ | 33,610 | $ | (56,418 | ) | $ | (2 | ) | $ | (22,787 | ) | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series C of Shares | Amount | Series D of Shares | Amount | Series E of Shares | Amount | Series F of Shares | Amount | of Shares | Amount | Paid-in Capital | of Shares | Amount | Accumulated Deficit | Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 100 | $ | - | 40 | $ | - | 267 | $ | 3 | - | $ | - | 3,160,877 | $ | 18,938 | $ | 33,547,890 | 5,954 | $ | (2,000 | ) | (55,750,381 | ) | $ | (22,185,550 | ) | ||||||||||||||||||||||||||||||||||
| Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | - | - | (26,334 | ) | (26,334 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for convertible note conversions | - | - | - | - | - | - | - | - | 17,861 | 107 | 4,893 | - | - | - | 5,000 | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | - | - | (885,839 | ) | (885,839 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 100 | - | 40 | - | 267 | 3 | - | - | 3,178,738 | 19,045 | 33,552,783 | 5,954 | (2,000 | ) | (56,662,554 | ) | (23,092,723 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | - | - | (26,627 | ) | (26,627 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for convertible note conversions | - | - | - | - | - | - | - | - | 660,716 | 3,964 | 56,883 | - | - | - | 60,847 | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | - | - | - | - | - | - | 271,279 | 271,279 | |||||||||||||||||||||||||||||||||||||||||||||
| Balance on June 30, 2023 | 100 | - | 40 | - | 267 | 3 | - | - | 3,839,454 | 23,009 | 33,609,666 | 5,954 | (2,000 | ) | (56,417,902 | ) | (22,787,224 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | - | - | (26,920 | ) | (26,920 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for convertible note and accrued interest conversions | - | - | - | - | - | - | - | - | 1,029,458 | 6,205 | 28,313 | - | - | - | 34,518 | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cashless warrant exercises | - | - | - | - | - | - | - | - | 300,000 | 1,800 | (1,800 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | - | - | (3,535,815 | ) | (3,535,815 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance on September 30, 2023 | 100 | $ | - | 40 | $ | - | 267 | $ | 3 | - | $ | - | 5,168,912 | $ | 31,014 | $ | 33,636,179 | 5,954 | $ | (2,000 | ) | $ | (59,980,637 | ) | $ | (26,315,441 | ) | |||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series C of Shares | Amount | Series D of Shares | Amount | Series E of Shares | Amount | Series F of Shares | Amount | of Shares | Amount | Paid-in Capital | of Shares | Amount | Accumulated Deficit | Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 100 | $ | - | 40 | $ | - | 3,326 | $ | 33 | 358 | $ | 3 | 853,946 | $ | 5,124 | $ | 27,905,994 | - | $ | - | $ | (53,016,772 | ) | $ | (25,105,618 | ) | ||||||||||||||||||||||||||||||||||
| Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | - | - | (364,166 | ) | (364,166 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock with convertible notes | - | - | - | - | - | - | - | - | 12,500 | 75 | 17,905 | - | - | - | 17,980 | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for convertible note conversions | - | - | - | - | - | - | - | - | 12,721 | 76 | 27,908 | - | - | - | 27,984 | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | - | - | (73,730 | ) | (73,730 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 100 | - | 40 | - | 3,326 | 33 | 358 | 3 | 879,167 | 5,275 | 27,951,807 | - | - | (53,454,668 | ) | (25,497,550 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | - | - | (201,834 | ) | (201,834 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock with term loan | - | - | - | - | - | - | - | - | 19,231 | 115 | 11,705 | - | - | - | 11,820 | |||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series E Preferred to common stock | - | - | - | - | (3,059 | ) | (30 | ) | - | - | 2,035,306 | 12,212 | 5,044,457 | - | - | - | 5,056,639 | |||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series F Preferred to common stock | - | - | - | - | - | - | (358 | ) | (3 | ) | 233,127 | 1,399 | 539,863 | - | - | - | 541,259 | |||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | 5,954 | (2,000 | ) | - | (2,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | - | - | 98,286 | 98,286 | |||||||||||||||||||||||||||||||||||||||||||||
| Balance on June 30, 2022 | 100 | - | 40 | - | 267 | 3 | - | - | 3,166,831 | 19,001 | 33,547,832 | 5,954 | (2,000 | ) | (53,558,216 | ) | (19,993,380 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balance | 100 | - | 40 | - | 267 | 3 | - | - | 3,166,831 | 19,001 | 33,547,832 | 5,954 | (2,000 | ) | (53,558,216 | ) | (19,993,380 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | - | - | (8,706 | ) | (8,706 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | - | - | (1,803,352 | ) | (1,803,352 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Net Income (loss) | - | - | - | - | - | - | - | - | - | - | - | - | - | (1,803,352 | ) | (1,803,352 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance on September 30, 2022 | 100 | - | 40 | - | 267 | 3 | - | - | 3,166,831 | 19,001 | 33,547,832 | 5,954 | (2,000 | ) | (55,370,274 | ) | (21,805,438 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balance | 100 | - | 40 | - | 267 | 3 | - | - | 3,166,831 | 19,001 | 33,547,832 | 5,954 | (2,000 | ) | (55,370,274 | ) | (21,805,438 | ) | ||||||||||||||||||||||||||||||||||||||||||
TheSee accompanying condensed notes are an integral part of theseto unaudited consolidated financial statements.
| 5 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)(Unaudited)
(unaudited)
| 2023 | 2022 | |||||||
| For the Six-Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows Used in Operating Activities: | ||||||||
| Net income (loss) | $ | (615 | ) | $ | 25 | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of debt discount and fees | 1,000 | 488 | ||||||
| Accrued interest expense | 692 | 672 | ||||||
| Derivative (income) expense | (2,459 | ) | (1,679 | ) | ||||
| Loan inducement fee | 809 | - | ||||||
| Gain on debt extinguishment | (75 | ) | (215 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | 23 | (7 | ) | |||||
| Accounts payable | (89 | ) | 30 | |||||
| Accrued expenses | 88 | (4 | ) | |||||
| Net Cash Used in Operating Activities | (626 | ) | (690 | ) | ||||
| Cash Flows Provided by Financing Activities: | ||||||||
| Proceeds from notes payable, net of original issue discounts | 805 | 2,200 | ||||||
| Notes payable issuance costs | (58 | ) | (328 | ) | ||||
| Repurchase of common stock | - | (2 | ) | |||||
| Repayment of principal and interest on notes payable | (95 | ) | (407 | ) | ||||
| Net Cash Provided by Financing Activities | 652 | 1,463 | ||||||
| Net increase (decrease) in cash | 26 | 773 | ||||||
| Cash – Beginning of Period | 32 | 76 | ||||||
| Cash - End of Period | $ | 58 | $ | 849 | ||||
| Supplementary Cash Flow Information: | ||||||||
| Cash paid for interest | $ | 4 | $ | 81 | ||||
| Cash paid for taxes | - | - | ||||||
| Non-cash Investing and Financing Activities: | ||||||||
| Conversion of Series E Preferred stock to Common stock | $ | - | $ | 5,056 | ||||
| Conversion of Serie F Preferred stock to Common stock | $ | - | $ | 541 | ||||
| Debt discounts for issuance costs, warrants and derivatives | $ | 407 | $ | 10 | ||||
| Issuance of common stock for conversion of convertible notes | $ | 4 | $ | 28 | ||||
| Issuance of common stock with convertible notes | $ | - | $ | 20 | ||||
| Accrued dividends | $ | 53 | $ | 566 | ||||
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (4,150,375 | ) | $ | (1,778,796 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Gain on debt extinguishment | (87,921 | ) | (306,707 | ) | ||||
| Derivative expense (income) | 214,994 | (1,425,494 | ) | |||||
| Amortization of debt discount and fees | 1,245,825 | 1,265,419 | ||||||
| Inducement expense | 809,126 | - | ||||||
| Change in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | 35,064 | (3,555 | ) | |||||
| Accounts payable | (8,739 | ) | (38,167 | ) | ||||
| Accrued expenses | 1,186,871 | 931,338 | ||||||
| Contract liabilities | 100,000 | - | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | (655,155 | ) | (1,355,962 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable | 788,900 | 2,000,000 | ||||||
| Proceeds from convertible notes payable | - | 200,000 | ||||||
| Notes payable and convertible notes issuance costs | (42,300 | ) | (327,800 | ) | ||||
| Repayment of convertible notes payable | (90,818 | ) | (456,954 | ) | ||||
| Purchase of treasury stock | - | (2,000 | ) | |||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 655,782 | 1,413,246 | ||||||
| NET INCREASE IN CASH | 627 | 57,284 | ||||||
| CASH, beginning of the period | 31,761 | 76,104 | ||||||
| CASH, end of the period | $ | 32,388 | $ | 133,388 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 17,513 | $ | 117,301 | ||||
| Income taxes | $ | - | $ | - | ||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of Series E to common stock | $ | - | $ | 5,056,635 | ||||
| Conversion of Series F to common stock | $ | - | $ | 541,258 | ||||
| Debt discounts for issuance costs, warrants and derivatives | $ | 406,846 | $ | 1,342,957 | ||||
| Issuance of common stock for conversion of convertible notes and accrued interest | $ | 72,774 | $ | 9,922 | ||||
| Accrued and deemed dividends | $ | 79,881 | $ | 574,705 | ||||
TheSee accompanying condensed notes are an integral part of theseto unaudited consolidated financial statements.
| 6 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2023 andAND 2022
(unaudited)(Unaudited)
NoteNOTE 1 – Organization and Business OperationsORGANIZATION AND BUSINESS OPERATIONS
Adhera Therapeutics, Inc. and its wholly-owned subsidiaries, MDRNA Research, Inc. (“MDRNA”), Cequent Pharmaceuticals, Inc. (“Cequent”), Atossa Healthcare, Inc. (“Atossa”), and IThenaPharma, Inc. (“IThena”) (collectivelysubsidiaries(collectively “Adhera,” we“we”, or the “Company”), is an emerging specialty biotech company that, to the extent that resources and opportunities become available, ishistorically focused on drug development and commercialization of “small molecule” drugs to treat Parkinson’s disease (PD) and Type 1 diabetes.
On July 28, 2021, the Company More recently, as licensee and Melior Pharmaceuticals II, LLC (“Melior II”) entered into an exclusiveit has struggled to operate with very limited working capital, it has been seeking to license agreement for the development, commercialization and exclusive license of MLR-1019. MLR-1019 is being developed as a new class of therapeutic and is,diabetes drug to the best of our knowledge, the only drug candidate today to address both movement and non-movement aspects of PD. Under the Agreement, the Company was granted an exclusive license to use the Melior II Patents and know-how to develop products in consideration for cash payments upon meeting certain performance milestones as well as a royalty of 5% of gross sales.
On August 20, 2021, the Company as licensee, entered into an exclusive license agreement regarding the development and commercialization of Melior’s MLR-1023 (the “MLR-1023 Agreement”) with Melior Pharmaceuticals I, Inc. (“MP1”). The Company refers to MP2 and MP1 as “MP” or “Melior”. This second license is for the development and commercialization of MLR-1023, which is being developed as a novel therapeutic for Type 1 diabetes.
Under the original terms of the MLR-1023 Agreement, if the Company failed to raise $4.0 million within 120 days of the effective date of the agreement, then the MLR-1023 Agreement would immediately terminate unless, by 120 days Adhera was in the process of completing transactions to complete the fundraising then an additional 30 days would be provided to allow for the completion of the raise (the “Raise Requirement”).
On October 20, 2021, the Company licensee expanded the exclusive licensing agreement with Melior I to include two additional clinical indications for Non-Alcoholic Steatohepatitis (NASH) and pulmonary inflammation.
On November 17, 2021, Melior I extended the Company’s timeline from 120 days to 180 days from the effective of the MLR-1023 Agreement for the Raise Requirement, if by 180 days Adhera is in the process of completing transactions to complete the fundraising then an additional 30 days shall be provided to allow for the completion of required fundraising.
On February 16, 2022, an addendum to the MLR-1023 Agreement dated August 4, 2021 (the “First Addendum”), was executed by the Company and Melior, which extended the Raise Requirement to June 16, 2022.
On July 18, 2022, the Company and Melior entered into the Second Addendum to the License Agreement (the “Second Addendum”). In accordance with the Second Addendum and subject to the terms and conditions therein, the Raise Requirement was extended to February 1, 2023, in exchange for a $136,921 licensing payment that was made by the Company on July 28, 2022. In addition, the Company was required to hire and retain a Chief Scientific Officer, and raise an additional $500,000 in capital in addition to other requirements set forth in the Second Addendum and MLR-1023 Agreement.
As of February 1, 2023, the Company had not raised the additional $500,000 of capital, commenced API manufacturing, nor completed the Raise Requirement. In March 2023, the Company obtained a verbal agreement with Melior to extend the terms of the MLR-1023 Agreement until such time that the milestones have been met. However, Melior may terminate the license of MLR-1023 at any time due to non-performance of continuing license obligations with a 60-day required notice to cure non-performance. (see Note 9)
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
As of June 30, 2023, no performance milestones requiring cash consideration had been met under the MLR-1023 Agreement.
To the extent that resources have been available, the Company has continued to work with its advisors in an effort to restructure our company and to identify potential strategic transactions to enhance the value of ourpublicly-traded Nasdaq company as such opportunities arise, including potential transactions and capital raising initiatives involving our current assets, 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,described in the immediate future, it is likely that the Company will discontinue all operations and seek bankruptcy protection.Note 9.
NoteNOTE 2 – Summary of Significant Accounting PoliciesSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 (the “SEC”). 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, 2022. 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 sixnine months ended JuneSeptember 30, 2023, are not necessarily indicative of the results for the year ending December 31, 2023, or for any future period.
Principles of Consolidation
The consolidated financial statements include the accounts of Adhera Therapeutics, Inc. and the wholly-owned subsidiaries Ithena, Cequent, MDRNA, and Atossa, and eliminateeliminates any inter-company balances and transactions. All wholly-owned subsidiaries of Adhera Therapeutics, Inc. are inactive.
Going Concern and Management’s Liquidity Plans
The accompanying unaudited 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 JuneSeptember 30, 2023, the Company had approximately $58,00032,000 of cash and has negative working capital of approximately $22.826.3 million.
The Company has no revenues and 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 and net cash used in operating activities of approximately $615,0004,150,375 and $626,000655,155, respectively, for the sixnine months ended JuneSeptember 30, 2023. The Company had a stockholders’ deficit of approximately $22.826.3 million and an accumulated deficit of approximately $56.460.0 million as of JuneSeptember 30, 2023.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
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 the Company or at all. General market conditions, as well as market conditions for companies in the Company’s financial and business position, as well as the ongoing issue arising from the COVID-19 pandemic, the war in Ukraine, the war in Israel, federal bank failures or other world-wide events, may make it difficult for the Company to seek financing from the capital markets, and the terms of any financing may adversely affect the holdings or the rights of its 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.it will cease operations. . 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 consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.
| 7 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
Reverse Stock-splitStock Split
On September 30, 2022, the Company filed a Certificate of Amendment to the Certificate of Incorporation with the Delaware Secretary of State to effect a reverse stock split of all outstanding shares of the Company’s common stock at a ratio of 1-for-20.1-for-20. On October 5, 2022, the Company effected the 1-for-20 reverse stock split of its common stock. The reverse stock split did not cause an adjustment to the par value or the authorized shares of the common stock. As a result of the reverse stock split, the Company retroactively adjusted all outstanding common stock equivalents including options, warrants, convertible notes and other agreements with third parties.
All disclosures of common shares and per common share data in the accompanying consolidated financial statements and related notes reflect the reverse stock split for all periods presented.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. As of JuneSeptember 30, 2023, the Company had approximately $58,00032,000 in cash.
The Company deposits its cash with a major financial institution that may at times exceed the federally insured limit. As of JuneSeptember 30, 2023, the Company’s cash balance did not exceed the federal deposit insurance limit.
Use of Estimates
The preparation of the accompanying 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, the fair value of derivative liabilities, and the valuation allowance on deferred tax assets. Actual results could differ materially from such estimates under different assumptions or circumstances.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
Fair Value of Financial Instruments
The Company considers the fair value of cash, accounts payable, debt, 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 six broad levels. The following is a brief description of those six levels:
| Level 1: | Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| 8 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
| 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. |
As of JuneSeptember 30, 2023, the Company measured conversion features on outstanding convertible notes and warrants as a derivative liability using significant unobservable prices that are based on little or no verifiable market data, which is Level 3 in the fair value hierarchy, resulting in a fair value estimate of approximately $4.3 million. The value of the derivative liability as of JuneSeptember 30, 2023, was determined by using the binomial lattice model using the following inputs: % to % risk free rate, volatility of % to % and time to maturity of – years. There were no liabilities or assets measured at fair value on a non-recurring basis as of JuneSeptember 30, 2023.
SCHEDULE OF FAIR VALUE MEASUREMENTSSchedule of Fair Value Measurements
| (in thousands) | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||||||||||||||||||
| Fair Value Measurements at June 30, 2023 | ||||||||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Other Observable Inputs | Significant Unobservable Inputs | Fair Value Measurements at September 30, 2023 | |||||||||||||||||||||||||||||
| (in thousands) | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||||||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||||||||||||||||||
| Derivative liability | $ | - | $ | - | $ | 4,254 | $ | 4,254 | $ | - | $ | - | $ | 6,892,612 | $ | 6,892,612 | ||||||||||||||||
| Total | $ | - | $ | - | $ | 4,254 | $ | 4,254 | $ | - | $ | - | $ | 6,892,612 | $ | 6,892,612 | ||||||||||||||||
A roll forward of the level 3 valuation financial instruments is as follows:
Schedule of Roll Forward of LevelSCHEDULE OF ROLL FORWARD OF LEVEL 3 Financial InstrumentsFINANCIAL INSTRUMENTS
| (In thousands) | Warrants | Notes | Total | |||||||||||||||||||||
Six Months Ended June 30, 2023 | ||||||||||||||||||||||||
| (In thousands) | Warrants | Notes | Total | |||||||||||||||||||||
Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||
| Warrants | Notes | Total | ||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 5,075 | $ | 1,311 | $ | 6,386 | $ | 5,074,915 | $ | 1,311,369 | $ | 6,386,284 | ||||||||||||
| Initial valuation of derivative liabilities included in debt discount | 407 | - | 407 | 406,846 | - | 406,846 | ||||||||||||||||||
| Initial valuation of derivative liabilities included in derivative expense | 565 | - | 565 | 564,483 | - | 564,483 | ||||||||||||||||||
| Reclassification of derivative liabilities to gain on debt extinguishment | - | (80 | ) | (80 | ) | - | (115,512 | ) | (115,512 | ) | ||||||||||||||
| Change in fair value included in derivative expense (income) | (2,782 | ) | (242 | ) | (3,024 | ) | (1,337,166 | ) | 987,677 | (349,489 | ) | |||||||||||||
| Balance at June 30, 2023 | $ | 3,265 | $ | 989 | $ | 4,254 | ||||||||||||||||||
| Balance at September 30, 2023 | $ | 4,709,078 | $ | 2,183,534 | $ | 6,892,612 | ||||||||||||||||||
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding equity instruments.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2023 andAND 2022
(unaudited)(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 relative fair value of 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”), the binomial model 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 warrant is treated as a derivative liability, the derivative liability is recorded at fair value and the difference between the derivative liability and debt discount is recorded as an initial derivative expense. 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 assesses whether the conversion feature meets the requirements to be accounted for as stock settled debt. If it does not meet those requirements then it is assessed on whether the conversion feature should be bifurcated and treated as a derivative liability, 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 stockholders’ equity in its statement of financial position.
Recently Issued Accounting Pronouncements
Recently Adopted
In May 2021, FASB issued ASU 2021-04: Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in ASU 2021-04 provide the following guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic:
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
An entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option to compensate for goods or services in accordance with the guidance in Topic 718, Compensation—Stock Compensation. In a multiple-element transaction (for example, one that includes both debt financing and equity financing), the total effect of the modification should be allocated to the respective elements in the transaction.
The amendments in ASU 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company adopted ASU No. 2021-04 on January 1, 2022. Management determined such adoption did not have a material impact on the overall stockholders’ equity (deficit) in the Company’s consolidated financial statements.
Not Yet Adopted
Other accountingAccounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
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, convertible notes 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.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
Schedule of Earnings Per Share, Basic and Diluted
| (in thousands except share and per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Three Months ended | Six Months ended | |||||||||||||||
| (in thousands except share and per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) | $ | 271 | $ | 99 | $ | (615 | ) | $ | 25 | |||||||
| Dividends | (26 | ) | (406 | ) | (53 | ) | (566 | ) | ||||||||
| Net Loss allocable to common stockholders | $ | 245 | $ | (307 | ) | $ | (668 | ) | $ | (541 | ) | |||||
| Denominator | ||||||||||||||||
| Weighted average common shares outstanding used to compute net loss per share, basic | 3,462,539 | 1,140,083 | 3,260,540 | 2,003,921 | ||||||||||||
| Net loss per share of common stock, basic | ||||||||||||||||
| Net loss per share | $ | 0.07 | $ | (0.27 | ) | $ | (0.20 | ) | $ | (0.27 | ) | |||||
| Income loss per share - diluted | ||||||||||||||||
| Numerator | ||||||||||||||||
| Net Loss allocable to common stockholders - basic | $ | 245 | $ | (307 | ) | $ | (668 | ) | $ | (541 | ) | |||||
| add back: | ||||||||||||||||
| Preferred stock dividends | 26 | |||||||||||||||
| Interest on convertible notes | 59 | |||||||||||||||
| Fair value adjustments on warrants and convertible notes | (1,742 | ) | ||||||||||||||
| Net Loss allocable to common stockholders - diluted | $ | (1,412 | ) | $ | (307 | ) | $ | (668 | ) | $ | (541 | ) | ||||
| Denominator | ||||||||||||||||
| Weight Average common share - basic | 3,462,539 | 1,140,083 | 3,260,540 | 2,003,921 | ||||||||||||
| add dilutive shares related to: | ||||||||||||||||
| Warrants | 33,292,474 | - | - | - | ||||||||||||
| Convertible notes | 61,591,569 | - | - | - | ||||||||||||
| Preferred stock | 191,814 | - | - | - | ||||||||||||
| Weighted average common shares outstanding used to compute net loss per share, diluted | 98,538,396 | 1,140,083 | 3,260,540 | 2,003,921 | ||||||||||||
| Net loss per share of common stock, diluted | ||||||||||||||||
| Net loss per share | $ | (0.01 | ) | $ | (0.27 | ) | $ | (0.20 | ) | $ | (0.27 | ) | ||||
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per ShareSCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE
| 2023 | 2022 | |||||||||||||||
| June 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Stock options outstanding | - | 19,000 | - | 19,000 | ||||||||||||
| Convertible notes | 2,138,951 | 2,440,137 | 111,743,222 | 2,389,770 | ||||||||||||
| Warrants | 32,252,367 | 5,132,784 | 161,984,924 | 5,192,652 | ||||||||||||
| Series C Preferred Stock | - | 3,334 | 3,334 | 3,334 | ||||||||||||
| Series D Preferred Stock | - | 2,500 | 2,500 | 2,500 | ||||||||||||
| Series E Preferred Stock | 2,663 | 177,961 | 191,335 | 178,833 | ||||||||||||
| Total | 34,393,981 | 7,775,716 | 273,925,315 | 7,786,089 | ||||||||||||
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The following number of shares for the six-month periods ended JuneADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 andAND 2022 have been excluded from diluted net (loss) since such inclusion would be anti-dilutive:
(Unaudited)
| 2023 | 2022 | |||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Stock options outstanding | - | 19,000 | ||||||
| Convertible notes | 63,730,520 | 2,440,137 | ||||||
| Warrants | 65,544,841 | 5,132,784 | ||||||
| Series C Preferred Stock | 3,334 | 3,334 | ||||||
| Series D Preferred Stock | 2,500 | 2,500 | ||||||
| Series E Preferred Stock | 188,643 | 177,961 | ||||||
| Total | 129,469,838 | 7,775,716 | ||||||
The Company applies the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and non-employees, including stock options, in the statements of operations.
For stock options issued, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised if and when a forfeiture becomes probable.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates.
Reclassifications
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNECertain reclassifications have been made in the consolidated financial statements to conform to the current period presentation. Such reclassifications had no impact on the Company’ previously reported consolidated financial position or results of operations. Specifically, on the consolidated financial statements, all amounts are now reflected in whole dollars and all rounding to thousands has been eliminated. Additionally, on the consolidated statements of operations, professional fees and compensation expense has been reclassified from general and administrative expenses and are shown separately as part of operating expenses. Furthermore, for the nine months ended September 30, 2023 2022, certain reclassifications were made on the consolidated statement of cash flows to conform to the current presentation. The reclassification on the 2022 consolidated statement of cash flow increased cash flows used in operations by approximately $94,000 and 2022increased net cash provided by financing activities by $94,000.
(unaudited)
NoteNOTE 3 – Prepaid ExpensesPREPAID EXPENSES
As of JuneSeptember 30, 2023, and December 31, 2022, prepaid expenses totaled approximately $24,00011,686 and $47,00046,750, respectively and included prepaid insurance and other prepaid operating expenses.
NoteNOTE 4 – Notes Payable and Convertible Promissory NotesNOTES PAYABLE AND CONVERTIBLE PROMISSORY NOTES
The following table summarizes the Company’s outstanding term loans:
Schedule of Outstanding Term LoansSCHEDULE OF OUTSTANDING TERM LOANS
| (in thousands) | June 30, 2023 | December 31, 2022 | ||||||||||||||
| September 30, 2023 | December 31, 2022 | |||||||||||||||
| 2019 Term Loan | $ | 5,677 | $ | 5,677 | $ | 5,676,900 | $ | 5,676,900 | ||||||||
| 2022 Term Loans | 3,046 | 2,365 | 3,045,634 | 2,365,079 | ||||||||||||
| 2023 Term Loans | 1,332 | - | 1,332,143 | - | ||||||||||||
| Notes payable | 10,055 | 8,042 | 10,054,677 | 8,041,979 | ||||||||||||
| Unamortized discounts and fees | (640 | ) | (709 | ) | (394,322 | ) | (709,001 | ) | ||||||||
| Loans payable | $ | 9,415 | $ | 7,333 | $ | 9,660,355 | $ | 7,332,978 | ||||||||
As of JuneSeptember 30, 2023, the 2019 Term Loan was in default.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
2019 Term Loan
During 2019, the Company entered into term loan subscription agreements with certain accredited investors, pursuant to which the Company issued secured promissory notes in the aggregate principal amount of approximately $5.7 million. The Company paid $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 straight-line method.
The promissory notes accrued interest at a rate of 12% per annum. Interest iswas payable quarterly with the first interest payment to be made on December 28, 2019, and each subsequent payment every six months thereafter. 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 15%.
The unpaid principal balance of the notes, plus accrued and unpaid interest thereon, matured on June 28, 2020. 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 June 28, 2020, the Company defaulted on the maturity date principal payment.
On June 26, 2021, the holders of the 2019 Term Loans agreed to subordinate their lien and security interest in the assets of the Company and its subsidiaries as set forth in the Security Agreement dated June 28, 2019, to the holders of the June 2021 convertible notes.
On April 19, 2022, a majority of the noteholders of the secured non-convertible promissory notes of the Company issued between June 18, 2019, and August 5, 2019, which matured on August 5, 2020, consented to forbear collection efforts until September 30, 2022. Accordingly, the collateral agent for the noteholders in consideration of the signed noteholder agreements agreed to forbear all notes outstanding.
On November 16, 2022, holders of outstanding promissory notes representing a majority of the outstanding principal and accrued interest of the Notes, agreed to amend the Notes to make them automatically convertible into units consisting of a new series of convertible preferred stock and warrants upon an up listing financing transaction in which the Company’s common stock is listed on The Nasdaq Capital Market or the NYSE American, in exchange for the Holders agreeing to forbear repayment of their Notes and accrued interest until the Up listing Transaction has been completed.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
The terms for the amendment of the Notes include no less than the following:
| ● | The Notes will automatically convert upon the Uplisting Transaction into the Preferred Stock at 90% of the public offering price; | |
| ● | In addition, each Holder will receive 0.3 Warrants for every $1.00 of principal on the Holder’s original Note; | |
| ● | The shares of Preferred Stock will be subject to a six-month lock-up period from date of issuance; and | |
| ● | The Company has agreed to register the Holders’ sale of the shares of common stock issuable upon conversion of the Preferred Stock and upon the exercise of the Warrants such that those shares will be freely tradeable following the up-list transaction and expiration of the lock-up period. |
The shares of the Preferred Stock will be entitled to vote on an as-converted-to-common basis together with the Company’s common stock. The shares of the Preferred Stock will automatically convert into shares of common stock upon expiration of the lock-up period at the conversion price of a percentage of a 30-day VWAP of common stock.
The interest on the Notes, as accrued through the date of conversion, will convert into common stock at the offering price for the up-list transaction.
The Company recognized approximately $212,300214,633 and $422,300636,902 in interest expense related to the 2019 Term Loan for both of the three and sixnine months ended JuneSeptember 30, 2023, and 2022. As of JuneSeptember 30, 2023, the debt discount and issuance costs for the term loan were fully amortized.
As of JuneSeptember 30, 2023, the Company had approximately $3.33,515,399 million of accrued interest on the notes included in accrued expenses and remains in default on the repayment of approximately $5.75,676,900 million in principal and $3.33,515,399 million in accrued interest on the 2019 Term Loan.
| 12 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
2022 Term Loan – May
On May 11, 2022, the Company entered into a Securities Purchase Agreement with investors whereby the Company issued the Purchasers Original Issue Discount Promissory Notes in the aggregate principal amount of $2,222,222, net of an original issue discount of $222,222for a purchase price of $2,000,000 and warrants to purchase 1,111,112 shares of the Company’s common stock, pursuant to the terms and conditions of the SPA and secured by a Security Agreement as described below. In addition, the Company issued commons shares to an investment banker as commission on the sale. The Company received total consideration of $1,692,200 after debt issuance costs of $307,800.
The Notes arewere due on the earliest to occur of (i) the 12-month anniversary of the original issuance date of the Notes, or May 11, 2023, (ii) a financing transaction which results in the Company’s common stock being listed on a national securities exchange, and (iii) an event of default. If an event of default occurs before the Company’s common stock is listed on a national securities exchange, the event of default would require a repayment of 125% of the outstanding principal, accrued interest and other amounts owing thereon unless the Company is trading on a national securities exchange in which case the repayment would be 100%. The Notes bear interest at 8% per annum, subject to an increase to 15% in case of an event of default as provided for therein. In addition, at any time before the 12-month anniversary of the date of issuance of the Notes, the Company may, upon five days’ prior written notice to the Purchaser, prepay all of the then outstanding principal amount of the Notes for cash in an amount equal to the sum of 105% of all amounts due and owing hereunder, including all accrued and unpaid interest.
The Company recorded a total debt discount of $1,693,000 including an original issue discount of $222,222, a discount related to issuance costs of $307,800, a discount related to the issuance of common stock of $11,820, and a $1,151,137 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.
The Company’s obligations under the Notes are secured by a first priority lien on all of the assets of the Company and its wholly-owned subsidiaries pursuant to a Security Agreement, dated May 11, 2022 and among the Company, its wholly-owned subsidiaries, the Purchasers, and the lead investor as the collateral agent.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
The Warrants were exercisable for a 66-month period (five years and six months) ending November 11, 2027, at an exercise price of $0.80 per share, subject to certain adjustments.
On January 10, 2023, the conversionexercise price of the warrants was adjusted to $0.56 as a result of issuing common stock for a convertible note conversion.
On April 14, 2023, the conversionexercise price of the warrants was adjusted to $0.279as a result of issuing common stock for a convertible note conversion.
On April 28, 2023, the conversionexercise price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.
On May 10, 2023, the conversionexercise price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.
On May 11, 2023, the Company elected to extend the maturity date on the loan by six-months to November 11, 2023.
| 13 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On June 23, 2023, the conversionexercise price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.
During the three and six months ended JuneSeptember 30, 2023, the exercise price of the warrants was adjusted from $0.036 to $0.00845 as a result of issuing common stock for convertible note conversions.
During the three and nine months ended September 30, 2023, the Company increased the outstanding principal amount of the notes by approximately $333,3000 and $680,600, respectively as an incentive to invest in the 2023 Bridge Loans and recorded a corresponding expense to loan inducement fees on the accompanying consolidated statement of operations.
For the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized approximately $185,5000 and $603,000602,979 of expense related to the amortization of debt discounts and fees and approximately $56,70057,272 and $106,300163,602 in interest expense, respectively. For both the three and sixnine months ended JuneSeptember 30, 2022, the Company recognized approximately $100,600562,300 and $663,300 related to the amortization of debt discounts and fees and approximately $25,20045,400 and $70,600 in interest expense related to the note.note, respectively.
As of JuneSeptember 30, 2023, the Company has recorded approximately $2.92,902,777 million of outstanding principal and approximately $222,400279,651 of accrued interest in accrued expenses on the accompanying consolidated balance sheet. As of JuneSeptember 30, 2023, the debt discounts on the loan were fully amortized.
2022 Term Loan – December
On December 14, 2022, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the Company issued and sold the investor a non-convertible Original Issue Discount Senior Secured Promissory Note in the principal amount of $142,857 and 158,537Common Stock Purchase Warrants (“Warrants”) for total purchase price of $100,000. The Company received total consideration of $82,400 after debt issuance costs of $17,600 and an original issue discount of $42,857.
The Notes are due on the earliest to occur of (i) the 12-month anniversary of the original issuance date of the Notes, or December 14, 2023, (ii) a financing transaction which results in the Company’s common stock being listed on a national securities exchange, and (iii) an event of default. If an event of default occurs before the Company’s common stock is listed on a national securities exchange, the event of default would require a repayment of 125% of the outstanding principal, accrued interest and other amounts owing thereon unless the Company is trading on a national securities exchange in which case the repayment would be 100%. The Notes bear interest at 8% per annum, subject to an increase to 15% in case of an event of default as provided for therein. In addition, at any time before the 12-month anniversary of the date of issuance of the Notes, the Company may, upon five days’ prior written notice to the Purchaser, prepay all of the then outstanding principal amount of the Notes for cash in an amount equal to the sum of 105% of all amounts due and owing hereunder, including all accrued and unpaid interest.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
The unpaid principal amount of this Note, together with any interest accrued but unpaid thereon, may, at the sole discretion of the Company, be converted into shares of a new class of convertible preferred stock of the Company on the closing date on which the Company completes a public offering for cash of common stock and/or common stock equivalents which results in the listing of the Company’s common stock on a “national securities exchange” as defined in the Securities Exchange Act of 1934 (a “Qualified Financing”).
The Company recorded a total debt discount of $111,523 including an original issue discount of $42,857, a discount related to issuance costs of $17,600, and a $51,066 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.
| 14 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
The Company’s obligations under the Notes are secured by a first priority lien on all of the assets of the Company and its wholly-owned subsidiaries pursuant to a Security Agreement, dated May 11, 2022 and among the Company, its wholly-owned subsidiaries, the Purchasers, and the lead investor as the collateral agent.
The Warrants were exercisable for a 66-month period (five years and six months) ending June 15, 2028, at an exercise price of $0.82 per share, subject to certain adjustments.
On January 10, 2023, the conversionexercise price of the warrants was adjusted to $0.56 as a result of issuing common stock for a convertible note conversion.
On April 14, 2023, the conversionexercise price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.
On April 28, 2023, the conversionexercise price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.
On May 10, 2023, the conversionexercise price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.
On June 23, 2023, the conversionexercise price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.
During the three months ended September 30, 2023, the exercise price of the warrants was adjusted from $0.036 to $0.00845 as a result of issuing common stock for convertible note conversions.
For the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized approximately $27,80028,109 and $55,30083,413 related to the amortization of debt discounts and fees and approximately $2,8002,921 and $5,7008,627 in interest expense, respectively. No interest expense or debt discount was recognized for the same period of 2022.
As of JuneSeptember 30, 2023, the Company has recorded $142,857 of outstanding principal, $6,3009,191 of accrued interest in accrued expenses on the accompanying consolidated balance sheet and approximately $50,70022,610 of unamortized discount and issuance expenses on the 2022 December Term Loan.
��
2023 Term Loans
January 18, 2023
On January 18, 2023, the Company entered into a Securities Purchase Agreement with two accredited investors pursuant to which the Company issued and sold the investors a non-convertible Original Issue 30% Discount Senior Secured Promissory Note in the principal amount of $285,714 and Common Stock Purchase Warrants for total purchase price of $200,000. The Company received total consideration of $173,850 after debt issuance costs of $26,150.
The Company also agreed to increase the principal amount of prior Original Issue Discount Promissory Notes issued to the investor in May 2022 by 25%. The principal increase in the May 2022 note totaled $277,777. The Company recorded $277,777 as a loan inducement fee related to the notes.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
The Notes are due on the earliest to occur of (i) the 12-month anniversary of the original issuance date of the Notes, or January 18, 2024, (ii) a financing transaction which results in the Company’s common stock being listed on a national securities exchange, and (iii) an event of default. If an event of default occurs before the Company’s common stock is listed on a national securities exchange, the event of default would require a repayment of 125% of the outstanding principal, accrued interest and other amounts owing thereon unless the Company is trading on a national securities exchange in which case the repayment would be 100%. The Notes bear interest at 8% per annum, subject to an increase to 15% in case of an event of default as provided for therein. In addition, at any time before the 12-month anniversary of the date of issuance of the Notes, the Company may, upon five days’ prior written notice to the Purchaser, prepay all of the then outstanding principal amount of the Notes for cash in an amount equal to the sum of 105% of all amounts due and owing hereunder, including all accrued and unpaid interest.
| 15 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
The unpaid principal amount of this Note, together with any interest accrued but unpaid thereon, may, at the sole discretion of the Company, be converted into shares of a new class of convertible preferred stock of the Company on the closing date on which the Company completes a public offering for cash of common stock and/or common stock equivalents which results in the listing of the Company’s common stock on a “national securities exchange” as defined in the Securities Exchange Act of 1934 (a “Qualified Financing”).
The Company recorded a total debt discount of $203,000 including an original issue discount of approximately $85,700, a discount related to issuance costs of $26,200, and a $91,100 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.
The Warrants were exercisable for a 66-month period (five years six months) ending July 18, 2028, at an exercise price of $0.82 per share, subject to certain adjustments.
On April 14, 2023, the conversion price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.
On April 28, 2023, the conversion price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.
On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.
On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.
During the three months ended September 30, 2023, the exercise price of the warrants was adjusted from $0.036 to $0.00845 as a result of issuing common stock for convertible note conversions.
During both the three and sixnine months ended JuneSeptember 30, 2023, the Company increased the outstanding principal amount of the notes by approximately $64,30064,286 as an incentive to invest in the April 2023 Bridge Loan and recorded a corresponding expense to loan inducement fees on the accompanying consolidated statement of operations.
For the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized approximately $50,60051,170 and $91,200142,386 related to the amortization of debt discounts and fees and approximately $6,8007,219 and $11,40018,609 in interest expense, respectively. No interest expense or debt discount was recognized for the same period of 2022.
As of JuneSeptember 30, 2023, the Company has recorded $350,000 of outstanding principal, $11,40018,609 of accrued interest in accrued expenses on the accompanying consolidated balance sheet and approximately $111,80060,625 of unamortized discount and issuance expenses on the note.
February 3, 2023
On February 3, 2023, the Company entered into a Securities Purchase Agreement with an affiliated accredited investor pursuant to which the Company issued and sold the investor a non-convertible Original Issue30% Discount Senior Secured Promissory Note in the principal amount of $267,857 and Common Stock Purchase Warrants for a total purchase price of $150,000. The Company received total consideration of $133,900133,850 after debt issuance costs of $16,10016,150.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2023 andAND 2022
(unaudited)(Unaudited)
The Notes are due on the earliest to occur of (i) the 12-month anniversary of the original issuance date of the Notes, or February 3, 2024, (ii) a financing transaction which results in the Company’s common stock being listed on a national securities exchange, and (iii) an event of default. If an event of default occurs before the Company’s common stock is listed on a national securities exchange, the event of default would require a repayment of 125% of the outstanding principal, accrued interest and other amounts owing thereon unless the Company is trading on a national securities exchange in which case the repayment would be 100%. The Notes bear interest at 8% per annum, subject to an increase to 15% in case of an event of default as provided for therein. In addition, at any time before the 12-month anniversary of the date of issuance of the Notes, the Company may, upon five days’ prior written notice to the Purchaser, prepay all of the then outstanding principal amount of the Notes for cash in an amount equal to the sum of 105% of all amounts due and owing hereunder, including all accrued and unpaid interest.
The unpaid principal amount of this Note, together with any interest accrued but unpaid thereon, may, at the sole discretion of the Company, be converted into shares of a new class of convertible preferred stock of the Company on the closing date on which the Company completes a public offering for cash of common stock and/or common stock equivalents which results in the listing of the Company’s common stock on a “national securities exchange” as defined in the Securities Exchange Act of 1934 (a “Qualified Financing”)
The Company recorded a total debt discount of approximately $224,000 including an original issue discount of approximately $64,30064,286, a discount of approximately $53,60053,571 as a loan inducement fee, a discount related to issuance costs of $16,100, and a $90,00090,049 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.
The Warrants were exercisable for a 66-month period (five years and six months) ending August 3, 2028, at an exercise price of $0.82 per share, subject to certain adjustments.
On April 14, 2023, the conversionexercise price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.
On April 28, 2023, the conversionexercise price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.
On May 10, 2023, the conversionexercise price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.
On June 23, 2023, the conversionexercise price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.
During the three months ended September 30, 2023, the exercise price of the warrants was adjusted from $0.036 to $0.00845 as a result of issuing common stock for convertible note conversions.
For the three sixand nine months ended JuneSeptember 30, 2023, the Company recognized approximately $55,80056,462 and $90,800147,292 related to the amortization of debt discounts and fees and approximately $5,5005,536 and $8,90014,405 in interest expense, respectively. No interest expense or debt discount was recognized for the same period of 2022.
As of JuneSeptember 30, 2023, the Company has recorded $267,857 of outstanding principal, $8,90014,405 of accrued interest in accrued expenses on the accompanying consolidated balance sheet and approximately $133,20076,714 of unamortized discount and issuance expenses on the note.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
February 16, 2023
On February 16, 2023, the Company entered into a Securities Purchase AgreementAgreements with an affiliatedtwo accredited investorinvestors pursuant to which the Company issued and sold the investor a non-convertible Original Issue 30% Discount Senior Secured Promissory NoteNotes in the aggregate principal amount of $214,286and Common Stock Purchase Warrants for a total purchase price of $150,000. The Company received total consideration of $133,850 after debt issuance costs of $16,150.
The Company also agreed to increase the principal amount of prior Original Issue Discount Promissory Notes issued to the investorinvestors in May 2022 by25%. The principal increase in the May 2022 notenotes totaled $69,444. The Company recorded $69,444 as a loan inducement fee related to the notes.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
The Notes are due on the earlier of (i) the 12 month anniversary of the issuance date, and (ii) the date on which the Company completes a public offering for cash of common stock and/or common stock equivalents which results in the listing of the Company’s common stock on a “national securities exchange” as defined in the Securities Exchange Act of 1934 (a “Qualified Financing”), provided that unless there is an event of default, the Company may extend the maturity date by six months in its discretion. The Notes bear interest at 8% per annum, payable monthly, subject to an increase to 15% in case of an event of default as provided for therein. Furthermore, at any time before the 12 month12-month anniversary of the date of issuance of a Note, the Company may, after providing written notice to the holder, prepay all of the then outstanding principal amount of the Note for cash in an amount equal to the sum of 105% of the then outstanding principal amount of the Note, accrued but unpaid interest and all liquidated damages and other amounts due in respect of the Note (if any).
The Notes may, at the discretion of the Company, be converted into shares of a new class of convertible preferred stock of the Company (the “Convertible Preferred Stock”) on the closing date of the Qualified Financing. In the event of the conversion, the holder will receive a number of shares of Convertible Preferred Stock equal to the quotient obtained by dividing (i) the unpaid principal amount of this Note (together with any interest accrued but unpaid thereon) by (ii) the closing price of the securities issued in the Qualified Financing on the closing date of the Qualified Financing. Upon issuance, the conversion price of the Convertible Preferred Stock will be equal to the closing price of the securities issued in the Qualified Financing, subject to adjustment.
The Company recorded a total debt discount of $163,600163,646 including an original issue discount of approximately $64,20064,286, a discount related to issuance costs of $16,20016,150, and an $83,20083,210 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.
The Warrants were exercisable for a 66-month period (five years six months) ending August 16, 2028, at an exercise price of $0.82 per share, subject to certain adjustments.
On April 14, 2023, the conversion price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.
On April 28, 2023, the conversion price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.
On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.
On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.
During boththe three months ended September 30, 2023, the exercise price of the warrants was adjusted from $0.036 to $0.00845 as a result of issuing common stock for convertible note conversions.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
During the three and sixnine months ended JuneSeptember 30, 2023, the Company increased the outstanding principal amount of the notes by approximately $0 and $64,30069,444, respectively, as an incentive to invest in the April 2023 Bridge Loan and recorded a corresponding expense to loan inducement fees on the accompanying consolidated statement of operations.
For the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized approximately $40,80041,248 and $60,500101,775, respectively, related to the amortization of debt discounts and fees and approximately $5,3005,757 and $7,40013,147 in interest expense, respectively. No interest expense or debt discount was recognized for the same period of 2022.
As of JuneSeptember 30, 2023, the Company has recorded $278,571 of outstanding principal, $7,40013,147 of accrued interest in accrued expenses on the accompanying consolidated balance sheet, and approximately $103,10061,872 of unamortized discount and issuance expenses on the note.
April 28, 2023
On April 28, 2023, the Company entered into a Securities Purchase AgreementAgreements with two affiliatedthree accredited investors pursuant to which the Company issued and sold the investors a non-convertible Original Issue 30% Discount Senior Secured Promissory NoteNotes in the aggregate principal amount of $285,714 and total Common Stock Purchase Warrants for a total purchase price of $200,000. The Company received total consideration of $200,000.
The Company also agreed to increase the principal amount of prior Original Issue Discount Promissory Notes issued to the investor in May 2022 and January 2023 by 30% as a loan inducement fee. The principal increases totaled $461,904.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
The Notes are due on the earlier of (i) the 12 month anniversary of the issuance date, and (ii) the date on which the Company completes a public offering for cash of common stock and/or common stock equivalents which results in the listing of the Company’s common stock on a “national securities exchange” as defined in the Securities Exchange Act of 1934 (a “Qualified Financing”), provided that unless there is an event of default, the Company may extend the maturity date by six months in its discretion. The Notes bear interest at 8% per annum, payable monthly, subject to an increase to 15% in case of an event of default as provided for therein. Furthermore, at any time before the 12 month12-month anniversary of the date of issuance of a Note, the Company may, after providing written notice to the holder, prepay all of the then outstanding principal amount of the Note for cash in an amount equal to the sum of 105% of the then outstanding principal amount of the Note, accrued but unpaid interest and all liquidated damages and other amounts due in respect of the Note (if any)..
The Notes may, at the discretion of the Company, be converted into shares of a new class of convertible preferred stock of the Company (the “Convertible Preferred Stock”) on the closing date of the Qualified Financing. In the event of the conversion, the holder will receive a number of shares of Convertible Preferred Stock equal to the quotient obtained by dividing (i) the unpaid principal amount of this Note (together with any interest accrued but unpaid thereon) by (ii) the closing price of the securities issued in the Qualified Financing on the closing date of the Qualified Financing. Upon issuance, the conversion price of the Convertible Preferred Stock will be equal to the closing price of the securities issued in the Qualified Financing, subject to adjustment.
The Company recorded a total debt discount of $166,400166,364 including an original issue discount of approximately $85,70085,714, and a $80,70080,650 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.
The Warrants issued with promissory notes were exercisable for a66-month period (five years and six months) at an exercise price of $0.82 per share, subject to certain adjustments.
On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.
During the three months ended September 30, 2023, the exercise price of the warrants was adjusted from $0.036 to $0.00845 as a result of issuing common stock for convertible note conversions.
For both the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized approximately $29,20041,933, respectively and $71,104 related to the amortization of debt discounts, and approximately $5,905 and $5,8009,968 in interest expense.expense, respectively. No interest expense or debt discount was recognized for the same period of 2022.
As of JuneSeptember 30, 2023, the Company has recorded $285,714 of outstanding principal, $5,8009,968 of accrued interest in accrued expenses on the accompanying consolidated balance sheet and approximately $137,20095,261 of unamortized discount and issuance expenses on the note.
June 22, 2023
On June 22, 2023, the Company entered into a Securities Purchase AgreementAgreements with four accredited investors pursuant to which the Company issued and sold the investors a non-convertible Original Issue Discount Senior Secured Promissory NoteNotes in the aggregate principal amount of $150,000 and Common Stock Purchase Warrants for total gross proceeds of $105,000.
The Notes are due on the earlier of (i) the 12 month anniversary of the issuance date, and (ii) the date on which the Company completes a public offering for cash of common stock and/or common stock equivalents which results in the listing of the Company’s common stock on a “national securities exchange” as defined in the Securities Exchange Act of 1934 (a “Qualified Financing”), provided that unless there is an event of default, the Company may extend the maturity date by six months in its discretion. The Notes bear interest at 8% per annum, payable monthly, subject to an increase to 15% in case of an event of default as provided for therein. Furthermore, at any time before the 12 month12-month anniversary of the date of issuance of a Note, the Company may, after providing written notice to the holder, prepay all of the then outstanding principal amount of the Note for cash in an amount equal to the sum of 105% of the then outstanding principal amount of the Note, accrued but unpaid interest and all liquidated damages and other amounts due in respect of the Note (if any).
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
The Notes may, at the discretion of the Company, be converted into shares of a new class of convertible preferred stock of the Company (the “Convertible Preferred Stock”) on the closing date of the Qualified Financing. In the event of the conversion, the holder will receive a number of shares of Convertible Preferred Stock equal to the quotient obtained by dividing (i) the unpaid principal amount of this Note (together with any interest accrued but unpaid thereon) by (ii) the closing price of the securities issued in the Qualified Financing on the closing date of the Qualified Financing. Upon issuance, the conversion price of the Convertible Preferred Stock (the “Preferred Conversion Price”) will be equal to the closing price of the securities issued in the Qualified Financing, subject to adjustment.
The Notes provide for certain customary events of default which include failure to maintain the required reserve of shares for the Warrants, a restatement of the financial statements of the Company resulting in a reduction to the stock price by an enumerated threshold, and certain other customary events of default, subject to certain exceptions and limitations. Upon an event of default, the Notes will become immediately due and payable at a 125% premium, which will be reduced to 100% if the event of default occurs while the Company’s common stock is listed on a national securities exchange.
The Notes contain customary restrictive covenants which apply for as long as at least 75% of the Notes remain outstanding, including covenants against incurring new indebtedness or liens, repurchasing shares of common stock or common stock equivalents, paying dividends or distributions on equity securities, and transactions with affiliates, subject to certain exceptions and limitations. In addition, the SPA imposes certain additional negative covenants and obligations on the Company, including a prohibition on filing a registration statement (other than on Form S-8) unless at least 30% of the Notes have been repaid as of such filing, a prohibition on incurring new indebtedness at any time while any Notes are outstanding, and a 90-day restriction against issuing shares of common stock or common stock equivalents, subject to certain exceptions and limitations.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
The Company recorded a total debt discount of $106,800106,790 including an original issue discount of approximately $45,000, and a $61,80061,790 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.
The Warrants issued with promissory notes were exercisable for a 66-month period (five years and six months) at an exercise price of $0.05 per share, subject to certain adjustments.
On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.
During the three months ended September 30, 2023, the exercise price of the warrants was adjusted from $0.036 to $0.00845 as a result of issuing common stock for convertible note conversions.
For both the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized approximately $26,917 and $2,60029,550 related to the amortization of debt discounts, and approximately $3,100 and $3,400 in interest expense.expense, respectively. No interest expense or debt discount was recognized for the same period of 2022.
As of JuneSeptember 30, 2023, the Company has recorded $150,000 of outstanding principal, $3,1003,400 of accrued interest in accrued expenses on the accompanying consolidated balance sheet, and approximately $104,00077,240 of unamortized discount and issuance expenses on the note.
Convertible Promissory NotesCONVERTIBLE PROMISSORY NOTES
The following table summarizes the Company’s outstanding convertible notes as of JuneSeptember 30, 2023, and December 31, 2022:
Schedule of Convertible Promissory NotesSCHEDULE OF CONVERTIBLE PROMISSORY NOTES
| (in thousands) | June 30, 2023 | December 31, 2022 | ||||||||||||||
September 30, 2023 | December 31, 2022 | |||||||||||||||
| Convertible Notes | $ | 1,176 | $ | 1,319 | $ | 1,168,765 | $ | 1,319,024 | ||||||||
| Unamortized discounts | - | (67 | ) | - | (67,328 | ) | ||||||||||
| Convertible notes payable, net | $ | 1,176 | $ | 1,252 | $ | 1,168,765 | $ | 1,251,696 | ||||||||
All convertible notes including accrued interest were in default as of the issuance date of this Report. As of JuneSeptember 30, 2023, accrued interest totaled approximately $532,900589,458 on all outstanding convertible notes.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
Secured Convertible Promissory Note – February 2020
On February 5, 2020, the Company entered into a Securities Purchase Agreement with accredited investors and issued the investors, (i) original issue discount Convertible Promissory Notes with a principal of $550,500 issued at a 10% original issue discount, for a total purchase price of $499,950, and (ii) warrants to purchase up to such number of shares of the common stock of the Company as is equal to the product obtained by multiplying 1.75 by the quotient obtained by dividing (A) the principal amount of the Notes by (B) the then applicable conversion price of the Notes.
The Convertible Notes matured on August 5, 2020. Prior to default, interest accrued to the Holders on the aggregate unconverted and then outstanding principal amount of the Notes at the rate of 10% per annum, calculated on the basis of a 360-day year and accrues daily. 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 18%.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
Until the Convertible Notes are no longer outstanding, the Convertible Notes are 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 is the lower of: (i) $10.00 per share of Common Stock and (ii) 70% of the volume weighted average price of the Common Stock on the trading market on which the Common Stock is then listed or quoted for trading for the prior ten (10) trading days (as adjusted for stock splits, stock combinations and similar events); provided, that if the Notes are not prepaid on or before May 5, 2020, then the conversion price shall be the lower of (x)60% of the conversion price as calculated above or (y) $ (as adjusted for stock splits, stock combinations and similar events). The conversion price of the Convertible Notes shall also be adjusted as a result of subsequent equity sales by the Company, with customary exceptions.
The exercise price of the Warrants shall be equal to the conversion price of the Convertible Notes, provided, that on the date that the Convertible Notes are no longer outstanding, the exercise price shall be fixed at the conversion price of the Convertible 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 5-year term.
The Company recorded a discount related to the Warrants of approximately $322,000, which includes an allocation of original issue discount (“OID”) and issue costs of $30,000 and $53,000 based on the relative fair value of the instruments as determined by using the Monte-Carlo simulation model. The Company also recorded the remaining debt discount related to the convertible debt OID of approximately $21,000 and debt issuance costs of $38,000 using the relative fair value method to be amortized as interest expense over the term of the loan using the straight-line method. Total discounts recorded were approximately $381,000.
On January 27, 2022, the conversion price of the notes and warrants was adjusted to be the lower of (x) 60% of the conversion price as calculated above or (y) $ as a result of issuance of common stock for a convertible note conversion.
On January 10, 2023, the conversion price of the notes and warrants was adjusted to be the lower of (x) 60% of the conversion price as calculated above or (y) $ as a result of issuance of common stock for a convertible note conversion.
On April 14, 2023, the conversion price of the notes and warrants was adjusted to be the lower of (x) 60% of the conversion price as calculated above or (y) $ as a result of issuance of common stock for a convertible note conversion.
On April 28, 2023, the conversion price of the notes and warrants was adjusted to be the lower of (x) 60% of the conversion price as calculated above or (y) $ as a result of issuance of common stock for a convertible note conversion.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
On May 10, 2023, the conversion price of the notes and warrants was adjusted to be the lower of (x) 60% of the conversion price as calculated above or (y) $ as a result of issuance of common stock for a convertible note conversion.
On June 23, 2023, the conversion price of the notes and warrants was adjusted to be the lower of (x)60% of the conversion price as calculated above or (y) $ as a result of issuance of common stock for a convertible note conversion.
During the three months ended September 30, 2023, the conversion price of the notes and exercise price of the warrants was adjusted from $ to $ as a result of issuing common stock for convertible note conversions.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
The Company recognized $20,80021,038 and $45,10062,429 in interest expense related to the notes for the three and sixnine months ended JuneSeptember 30, 2023, respectively. For the three and sixnine months ended JuneSeptember 30, 2022, the Company recognized approximately $20,80021,038 and $45,80066,846 in interest expense related to the note, respectively. As of JuneSeptember 30, 2023, the debt discounts were fully amortized.
As of JuneSeptember 30, 2023, the Company remains in default on the repayment of $457,359 in principal and $230,500251,493 of accrued interest on the February 2020 Convertible Notes. Upon demand for repayment at the election of the holder, the holder of the Convertible Note is due 140% of the aggregate of outstanding principal, interest, and other expenses due in respect of this Convertible Note. The 40% premium will be recorded once a demand occurs.
Secured Convertible Promissory Note – June 2020
On June 26, 2020, the Company issued to an existing investor in the Company a 10% original issue discount Senior Secured Convertible Promissory Note with a principal of $58,055, for a purchase price of $52,500, net of the original issue discount of $5,555. The Convertible Note matured on December 26, 2020. Prior to default, interest accrued 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 incurred approximately $14,000 in debt issuance costs. On August 5, 2020, the Company defaulted on certain covenants in the loan and the interest rate reset to the default rate of 18%.
The Note is 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 $0.40 (as(as adjusted for stock splits, stock combinations and similar events); provided, that if 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 its 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 delivered. The conversion price shall also be adjusted for subsequent equity sales by the Company. Because the share price on the commitment date was in excess of the conversion price, the Company recorded a beneficial conversion feature of $50,000 related to this note that was credited to additional paid in capital and reduced the carrying amount. At the commitment date, the actual intrinsic value of the beneficial conversion feature was approximately $203,000. The discount recorded is being amortized to interest expense over the life of the loan using the straight-line method.
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 $5.7 million agreed to subordinate their lien and security interest in the assets of the Company and its subsidiaries as set forth in the 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 the Note.
On January 27, 2022, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its 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 delivered or $0.78 as a result of issuance of common shares for a convertible note conversion.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
On January 10, 2023, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its 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 delivered or $0.56 as a result of issuance of common shares for a convertible note conversion.
On April 14, 2023, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its 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 delivered or $0.279 as a result of issuance of common shares for a convertible note conversion.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On April 28, 2023, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its 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 delivered or $0.18 as a result of issuance of common shares for a convertible note conversion.
On May 10, 2023, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its 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 delivered or $0.054as a result of issuance of common shares for a convertible note conversion.
On June 23, 2023, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its 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 delivered or $0.036as a result of issuance of common shares for a convertible note conversion.
During the three months ended September 30, 2023, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its 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 delivered or $0.00845 as a result of issuance of common shares for a convertible note conversion.
For both the sixthree months ended JuneSeptember 30, 2023 and June 30, 2022, the Company recognized approximately $2,6002,641and $2,670 in interest expense related to the notes. For the nine months ended September 30, 2023 and 2022, the Company recognized $7,925 and $5,3007,925 in interest expense related to the notes. As of JuneSeptember 30, 2023, the debt discount and issuance costs for the loan were fully amortized.
As of JuneSeptember 30, 2023, the Company remains in default on the repayment of principal of $58,055and approximately $31,40034,104 in accrued interest on the notes. Upon demand for repayment at the election of the holder, the holder of the note is due 140% of the aggregate of outstanding principal, interest, and other expenses due in respect of this Note. The 40% premium will be recorded once a demand occurs.
Secured Convertible Promissory Note – October 2020
On October 30, 2020, the Company issued to an existing investor in and lender to the Company a 10% original issue discount senior secured convertible promissory note with a principal of $111,111, for a purchase price of $100,000. The note is convertible into shares of common stock of the Company at the option of the noteholder at a conversion price of $1.40 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of default has occurred under the Note, then the conversion price shall be 70% of then conversion price. The conversion price of the notes is subject to anti-dilution price protection and on March 19, 2021, the conversion price of the notes was adjusted to $1.00 per share as a result of subsequent equity sales by the Company.
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.
The Company recorded approximately $9,000 in debt issuance cost to be amortized over the life of the loan using the straight-line method.
The interest rate on the note was 10% per annum, calculated on the basis of a 360-day year. On April 30, 2021, the note matured and the Company defaulted on the note and the interest rate on the loan reset to 18%.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2023 andAND 2022
(unaudited)(Unaudited)
Additionally, the Company issued the noteholder 79,366 warrants to purchase the Company’s common stock at $ per share subject to certain adjustments as defined in the agreement. Until the Notes are no longer outstanding, the warrants have full-ratchet protection, are exercisable for a period of five years, and contain customary exercise limitations. On March 19, 2021, the exercise price of the warrants was adjusted to $1.00 and the Company issued an additional 47,619 warrants to the note holder. The Company recorded approximately $57,000as a deemed dividend upon the repricing based upon the change in fair value of the warrants using a binomial valuation model. The Company used a risk-free rate of 0.16%, volatility of 262.27%, and expected term of 0.92 years in calculating the fair value of the warrants.
The Company recorded a discount related to the warrants of approximately $66,000, Including a discount of $6,000 and issuance costs of $5,000 based on the relative fair value of the instruments as determined by using the Black-Scholes valuation model. The Company recorded a beneficial conversion feature of $45,000 related to the note that was credited to additional paid in capital and reduced the carrying amount. The discount recorded is being amortized to interest expense over the life of the loan using the straight-line method. At the commitment date, the actual intrinsic value of the beneficial conversion feature was approximately $69,000. The Company also recorded a debt discount related to the convertible debt of approximately $5,000 and debt issuance cost of $4,000 using the relative fair value method to be amortized as interest expense over the term of the loan using the straight-line method.
On January 27, 2022, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.98 to $0.78 as a result of a convertible note exercise and the Company issued an additional 35,816 warrants to the note holder.
On January 10, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.78 to $0.56 as a result of a convertible note exercise and the Company issued an additional 64,001 warrants to the note holder.
On April 14, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.56 to $0.279 as a result of a convertible note exercise and the Company issued an additional 226,882 warrants to the note holder.
On April 28, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.279 to $0.18 as a result of a convertible note exercise and the Company issued an additional 251,794 warrants to the note holder.
On May 10, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.18 to $0.054as a result of a convertible note exercise and the Company issued an additional 1,642,202 warrants to the note holder.
On June 23, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.054 to $0.036as a result of a convertible note exercise and the Company issued an additional 1,170,913 warrants to the note holder.
During the three months ended September 30, 2023, the conversion price of the notes and exercise price of the warrants was adjusted from the default conversion price of $0.036 to $0.00845 as a result of a convertible note exercise and the Company issued an additional 11,509,337 warrants to the note holder.
As of JuneSeptember 30, 2023, 3,518,59215,027,929 warrants were outstanding that were issued with the October 2020 convertible note at an exercise price of $0.0360.00845.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
For both the sixnine months ended JuneSeptember 30, 2023 and June 30, 2022, the Company recognized approximately $5,0005,111 and $10,10015,167 in interest expense for the note. As of JuneSeptember 30, 2023, the debt discount and issuance costs for the note were fully amortized.
As of JuneSeptember 30, 2023, the Company has outstanding principal of $111,111 and accrued interest on the note of approximately $49,60054,704.
As of JuneSeptember 30, 2023, the Company remains in default on the repayment of principal and interest on the notes. Upon demand for repayment at the election of the holder, the holder of the note is due 125% of the aggregate of outstanding principal, interest, and other expenses due in respect of this Note. The 25% premium will be recorded once a demand occurs.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
Secured Convertible Promissory Note – January 2021
On January 31, 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 of $52,778, for a purchase price of $47,500, net of original issue discount of $5,278. The Note is convertible into shares of common stock of the Company at the option of the noteholder at a conversion price of $1.40 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of default has occurred under the Note, then the conversion price shall be 70% of the then conversion price. The conversion price of the notes is subject to anti-dilution price protection and will be adjusted upon subsequent equity sales by the Company.
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 37,699 warrants to purchase the Company’s common stock at an exercise price of $1.60 per share subject to certain adjustments as defined in the agreement. Until the Notes are no longer outstanding, the warrants have full-ratchet protection, are exercisable for a period of five years, and contain customary exercise limitations. On March 19, 2021, the exercise price of the warrants was adjusted to $1.00 and the Company issued an additional 22,619 warrants to the note holder. The Company recorded approximately $27,000 as a deemed dividend upon the repricing based upon the change in fair value of the warrants using a binomial valuation model. The Company used a risk-free rate of 0.16%, volatility of 262.27%, and expected term of 0.97 years in calculating the fair value of the warrants.
The Company recorded approximately $2,000 in debt issuance cost to be amortized over the life of the loan using the straight-line method.
The interest rate on the note was 10% per annum, calculated on the basis of a 360-day year. On July 31, 2021, the note matured and the Company defaulted on the note and the interest rate on the loan reset to the default rate of 18% per annum.
The Company recorded a discount related to the warrants of approximately $32,000, which includes an allocated original issue discount, of $3,000 and allocated issuance costs of $1,000based on the relative fair value of the instruments as determined by using the Black-Scholes valuation model. The assumptions used in the Black-Scholes model were a risk-free rate of 0.45%, volatility of 240.83%, and an expected term of one year in calculating the fair value of the warrants.
The Company also recorded a debt discount related to the convertible debt of approximately $2,000 remaining original issue discount and remaining debt issuance cost of $1,000 using the relative fair value method to be amortized as interest expense over the term of the loan using the straight-line method.
Total discounts recorded including the original issue discount were approximately $35,000.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On January 27, 2022, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.98 to $0.78, as a result of a convertible note exercise and the Company issued an additional 17,012 warrants to the note holder.
On January 10, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.78 to $0.56, as a result of a convertible note exercise and the Company issued an additional 30,398 warrants to the note holder.
On April 14, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.56 to $0.279 as a result of a convertible note exercise and the Company issued an additional 107,767 warrants to the note holder.
On April 28, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.279 to $0.18 as a result of a convertible note exercise and the Company issued an additional 119,600 warrants to the note holder.
On May 10, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.18 to $0.054 as a result of a convertible note exercise and the Company issued an additional 780,028 warrants to the note holder.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
On June 23, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.054 to $0.036as a result of a convertible note exercise and the Company issued an additional 556,171 warrants to the note holder.
During the three months ended September 30, 2023, the conversion price of the notes and exercise price of the warrants was adjusted from the default conversion price of $0.036 to $0.00845 as a result of a convertible note exercise and the Company issued an additional 5,466,813 warrants to the note holder.
As of JuneSeptember 30, 2023, 1,671,2947,138,107 warrants were outstanding that were issued with the January 2021 convertible note at an exercise price of $0.0360.00845.
For both sixnine months ended JuneSeptember 30, 2023 and June 30, 2022, the Company recognized approximately $2,4007,204 and $4,8007,204 in interest expense. As of JuneSeptember 30, 2023, the debt discount and issuance costs on the note were fully amortized.
As of JuneSeptember 30, 2023, the Company has outstanding principal of $52,778 on the note and has recorded approximately $21,10023,568 of accrued interest included in accrued expenses on the accompanying consolidated balance sheet.
As of JuneSeptember 30, 2023, the Company remains in default on the repayment of principal and accrued interest on the notes. Upon demand for repayment at the election of the holder, the holder of the note is due125% of the aggregate of outstanding principal, interest, and other expenses due in respect of this Note. The 25% premium will be recorded once a demand occurs.
Secured Convertible Promissory Note – April 2021
On April 12, 2021, the Company issued to an accredited investor in and lender to the Company a 10% original issue discounted Senior Secured Convertible Promissory Note with a principal amount of $66,667, for a purchase price of $60,000 net of an original discount of $6,667. Additionally, the Company issued to the investor 40,000 five-year warrants to purchase the Company’s common stock at an initial exercise price of $1.90 per share. The warrants have full ratchet protection.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
The note matured on October 12, 2021, prior to default, interest accrued 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. On October 12, 2021, the Company defaulted on the note and the interest rate on the note reset to 18% per annum.
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 $1.50 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of default has occurred under the Note, then the conversion price shall be 70% of the then conversion price. The conversion price shall also be adjusted upon subsequent equity sales by the Company. The obligations of the Company under the Note are secured by a senior lien and security interest in all assets of the Company.
The Company recorded a discount related to the warrants of approximately $34,000, which includes approximately $3,700 of OID discount allocated under the relative fair value method, and a remaining discount related to the OID of $3,000 based on the relative fair value of the instruments. The fair value of the warrants on which the relative fair value is based was determined by using the Black-Scholes valuation model. The assumptions used in the Black-Scholes model were a risk-free rate of 0.89%, volatility of 240.64%, and an expected term of one year in calculating the fair value of the warrants.
On June 25, 2021, the exercise price of the warrants was adjusted to $1.50 and the Company issued an additional 10,667 warrants to the note holder. The Company recorded approximately $11,000 as a deemed dividend upon the repricing based upon the change in fair value of the warrants using a binomial valuation model. The Company used a risk-free rate of 0.92%, volatility of 247.52%, and expected term of 0.96 years in calculating the fair value of the warrants.
On November 4, 2021, the Company issued shares of common stock upon a cashless exercise of 12,500 warrants issued with the April 2021 Convertible Note.
On November 30, 2021, the exercise price of the warrants was adjusted to $1.00 based on a note conversion at $1.00 and the Company issued an additional 19,084 warrants to the note holder.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
On January 27, 2022, the exercise price of the note and warrants was adjusted from the default conversion price of $1.05 to $0.78 based on a convertible note conversion at $0.78 and the Company issued an additional 16,147 warrants to the note holder.
During the year ended December 31, 2022, the Company repaid $25,000 of principal on the note. The Company recorded approximately $19,500 gain on debt extinguishment resulting from the settlement of the derivative as a result of repayment of the note.
On January 10, 2023, the exercise price of the note and warrants was adjusted from the default conversion price of $0.78 to $0.56based on a convertible note exercise at $0.56 and the Company issued an additional 28,834 warrants to the note holder.
On April 14, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.56 to $0.279 as a result of a convertible note exercise and the Company issued an additional 102,305 warrants to the note holder.
On April 28, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.279 to $0.18 as a result of a convertible note exercise and the Company issued an additional 113,518 warrants to the note holder.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On May 10, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.18 to $0.054 as a result of a convertible note exercise and the Company issued an additional 740,366 warrants to the note holder.
On June 23, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.054 to $0.036as a result of a convertible note exercise and the Company issued an additional 527,891 warrants to the note holder.
During the three months ended September 30, 2023, the conversion price of the notes and exercise price of the warrants was adjusted from the default conversion price of $0.036 to $0.00845 as a result of a convertible note exercise and the Company issued an additional 5,188,836 warrants to the note holder. Additionally, on September 8, 2023, the investor exercised warrants on a cashless basis and received shares of common stock.
As of JuneSeptember 30, 2023, 1,586,3116,025,148 warrants were outstanding that were issued with the April 2021 convertible note at an exercise price of $0.0360.00845.
For the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized approximately $1,9001,917 and $3,8005,687 in interest expense. respectively for the notes. For the three and sixnine months ended JuneSeptember 30, 2022, the Company recognized approximately $3,0001,812 and $6,0007,845 in interest expense for the notes. As of JuneSeptember 30, 2023, the debt discount and issuance costs on the note were fully amortized.
As of JuneSeptember 30, 2023, the Company has recorded $41,667 of principal and approximately $20,20022,148 of accrued interest for the note on the accompanying consolidated balance sheet.
As of JuneSeptember 30, 2023, the Company remains in default on the repayment of principal and accrued interest on the notes. Upon demand for repayment at the election of the holder, the holder of the note is due 125% of the aggregate of outstanding principal, interest, and other expenses due in respect of this Note.The 25% premium will be recorded once a demand occurs.
Secured Convertible Promissory Note – June 2021
On June 25, 2021, the Company issued to an accredited investor in and lender to the Company a 5% original issue discounted Senior Secured Convertible Promissory Note with a principal amount of $66,500, for a purchase price of $63,000, net of an original issue discount of $3,500. Additionally, the Company issued to the investor 40,000 six-year warrants to purchase the Company’s common stock at an exercise price of $1.90 per share. Upon subsequent down-round equity sales by the Company, the number of shares issuable upon exercise of the Warrant shall be proportionately adjusted such that the aggregate exercise price of this Warrant shall remain $76,000which is a full ratchet price protection provision.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
The note matures one year from issuance, 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 365-day year.
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 $1.50 (as adjusted for stock splits, stock combinations and similar events); provided, however that in the event, the Company’s Common Stock trades below $1.60 per share for more than six (3) consecutive trading days, the Holder of this Note is entitled, at its option, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company’s common stock at a price for each share of Common Stock equal to 65% of the lowest trading price of the Common Stock for the twenty prior trading days including the day upon which a Notice of Conversion is received. The conversion discount, look back period and other terms of the Note will be adjusted on a ratchet basis if the Company offers a more favorable conversion discount, prepayment rate, interest rate, (whether through a straight discount or in combination with an original issue discount), look back period or other more favorable term to another party for any financings while this Note is in effect.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
The obligations of the Company under the Note are secured by a senior lien and security interest in all assets of the Company.
The Company incurred approximately $9,300 in debt issuance costs.
The Company also issued shares of common stock as a commission fee to the investment banker. The fair value of the common stock which was approximately $5,040 was recorded as debt issuance expense.
Due to the variability in the conversion price of the Note the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $102,823 with $87,039 charged to derivative expense and $15,784 recorded as a debt discount.
Total discounts recorded were $66,500. The Company recorded an original issue discount of $3,500, a discount of $9,300 for issuance costs, a discount related to the warrants of approximately $37,916 and a discount related to the derivative of $15,784 based on the relative fair value of the instruments. The warrant fair value on which the relative fair value was based was determined by using a simple binomial lattice model. The assumptions used in the model were a risk-free rate of 0.48%, volatility of 302.11%, and an expected term of 0.60 years in calculating the fair value of the warrants.
On August 11, 2021, the exercise price of the warrants was adjusted to $1.50 and the Company issued an additional 10,667 warrants to the note holder. The Company recorded approximately $25,000 as a deemed dividend upon the repricing based upon the change in fair value of the warrants using a binomial valuation model. The Company used a risk-free rate of 0.81, volatility of 209%, and expected term of 0.57 years in calculating the fair value of the warrants.
On October 27, 2021, the Company and the institutional investor who holds the convertible promissory note agreed to extend the maturity date of the note by six months to December 25, 2022, for no consideration.
On November 30, 2021, the exercise price of the warrants was adjusted to $1.00 based on a note conversion at $1.00 and the Company issued an additional 25,333 warrants to the note holder.
On January 27, 2022, the holder of the June 25, 2021, convertible note converted $9,500 of principal and $421 of interest at $0.78 per share into shares of common stock that were valued at fair value based on the quoted trading prices on the conversion dates aggregating approximately $28,000 resulting in a loss on debt extinguishment of $18,000. In addition, derivative fair value of $23,000 relating to the portion of the Note converted was settled resulting in a gain on extinguishment of approximately $23,000. The net gain on extinguishment was approximately $5,000. In addition, the conversion price of the warrants issued with the notes were adjusted to $0.78 per share and the Company issued an additional 21,436 warrants to the holder of the note.
On December 25, 2022, the Company defaulted on the extended maturity date of the note.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
On January 10, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.78 to $0.56, as a result of a convertible note exercise and the Company issued an additional 38,303 warrants to the note holder.
On April 14, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.56 to $0.279 as a result of a convertible note exercise and the Company issued an additional 135,787 warrants to the note holder.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On April 28, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.279 to $0.18 as a result of a convertible note exercise and the Company issued an additional 150,697 warrants to the note holder.
On May 10, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.18 to $0.054 as a result of a convertible note exercise and the Company issued an additional 982,843 warrants to the note holder.
On June 23, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.054 to $0.036 as a result of a convertible note exercise and the Company issued an additional 700,781 warrants to the note holder.
During the three months ended September 30, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.036 to $0.00845 as a result of convertible note conversions and the Company issued an additional 6,888,236 warrants to the note holder.
As of JuneSeptember 30, 2023, 2,105,8468,994,083 warrants were outstanding that were issued with the June 2021 convertible note at an exercise price of $0.0360.00845.
During the three months ended September 30, 2023, the Company issued shares of common stock in connection with the conversion of $6,900 in principal balance and $2,568 of accrued interest payable.
The Company recognized approximately a $12,122 and $12,122 gain on extinguishment of debt for the three and nine months ended September 30, 2023 related to the settlement of the derivative liability as a result of conversions and repayments made on the note.
For the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized $3,4006,244 and $6,80013,028, respectively in interest expense related to the note. For the three and sixnine months ended JuneSeptember 30, 2022, the Company recognized approximately $9,90010,000 and $19,60029,600 related to the amortization of debt discounts and approximately $3,400and $7,00010,400 in interest expense related to the note. As of JuneSeptember 30, 2023, the debt discount on the note was fully amortized.
At JuneSeptember 30, 2023, the Company has recorded $57,00050,100 of outstanding principal and approximately $25,90029,595 of accrued interest.
Convertible Promissory Note – August 11, 2021
On August 11, 2021, the Company entered into a Securities Purchase Agreement with an accredited institutional investor pursuant to which the Company issued to the investor its Original Issue Discount Secured Convertible Promissory Note in the principal amount of $220,500 and warrants to purchase 40,000 shares of the common stock of the Company for which the Company received consideration of $210,000 net of an original issue discount of $10,500. In addition, the Company entered into a Registration Rights Agreement with the investor and issued the investor common shares as a commitment fee.
The note matured in August 2021 and absent an event of default provides for an interest rate of 10% per annum, payable at maturity, and is convertible into common stock of the Company at a price of $1.50 per share, subject to anti-dilution adjustments in the event of certain corporate events as set forth in the Note, provided that if the average closing price of the Company’s common stock during any Nine consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. On November 9, 2021, the Company defaulted on certain covenants in the note and the interest rate on the note reset to 24% per annum.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
In addition to customary anti-dilution adjustments the Note provides, subject to certain limited exceptions, that if the Company issues any common stock or common stock equivalents, as defined in the Note, at a per share price lower than the conversion price then in effect, the conversion price will be reduced to the per share price at which such shares or common share equivalents were sold.
The Warrants are initially exercisable for a period of five years at a price of $1.90 per share, subject to customary anti-dilution adjustments upon the occurrence of certain corporate events as set forth in the Warrant.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
The Company incurred approximately $30,000 in debt issuance costs.
The Company also issued shares of common stock to the investment banker as a commission on the note.
Due to the variability in the conversion price of the Note the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $340,893 with $234,388 charged to derivative expense and $106,505 recorded as a debt discount.
The Company recorded a total debt discount of $220,500 including an original issue discount of $10,500, a discount related to the warrants of approximately $56,454 a discount related to issuance costs of $30,000 and a discount related to the issuance of common stock of approximately $17,041, and a $106,505 discount related to the initial derivative value of the embedded conversion feature on the note all based on the relative fair value of the instruments,
The fair value of the warrants on which the relative fair value was based was determined by using a simple binomial lattice model. The assumptions used in the model were a risk-free rate of 0.81%, volatility of 253%, and an expected term of one year in calculating the fair value of the warrants. The discounts are being amortized over the term of the convertible note.
On November 30, 2021, the exercise price of the warrants was adjusted to $1.00 based on a note conversion at $1.00 and the Company issued an additional 36,000 warrants to the note holder.
On January 27, 2022, the conversion price of the notes was adjusted to the lower of $0.78 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $0.78 per share and the Company issued an additional 21,436 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.78 per share.
On May 12, 2022, the Company repaid $135,695 of principal and $64,305 of interest including $54,278 of interest due as a result of early redemption on the note. In addition, the holder of the note extended the maturity date on the note to September 30, 2022, when the outstanding balance of principal and interest of $128,502 is due on the note. The Company recorded a $45,200 gain on debt extinguishment as a result of repayment of the note. On September 30, 2022, the Company defaulted on the outstanding balance of principal and interest on the note.
On January 10, 2023, the conversion price of the notes was adjusted to the lower of $0.56 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $0.56 per share and the Company issued an additional 38,303 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.56per share.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On April 14, 2023, the conversion price of the notes was adjusted to the lower of $0.279 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.279 per share and the Company issued an additional 135,787 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.279per share.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
On April 28, 2023, the conversion price of the notes was adjusted to the lower of $0.18 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.18 per share and the Company issued an additional 150,697 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.18per share.
On May 10, 2023, the conversion price of the notes was adjusted to the lower of $0.054 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.054 per share and the Company issued an additional 982,843 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.054 per share.
On June 23, 2023, the conversion price of the notes was adjusted to the lower of $0.036 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.036 per share and the Company issued an additional 700,781 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.036 per share.
During the three months ended September 30, 2023, the conversion price of the notes was adjusted to the lower of $0.00845 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.00845 per share and the Company issued an additional 6,888,236 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.00845 per share.
As of JuneSeptember 30, 2023, 2,105,8468,994,083 warrants were outstanding that were issued with the August 11, 2021 convertible note at an exercise price of $0.0360.00845.
For the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized approximately $5,1005,130 and $10,10015,223, respectively, of interest expense related to the note. For the three and sixnine months ended JuneSeptember 30, 2022, the Company recognized approximately $40,00039,900 and $94,000134,000 related to the amortization of debt discount and approximately $73,0006,800 and $85,40092,000 in interest expense related to the note. Interest expense for the three months ended JuneSeptember 30, 2022, included approximately $67,000 in additional interest accrued due to penalties incurred for early redemption of the note. As of JuneSeptember 30, 2023, the debt discount on the note was fully amortized.
At JuneSeptember 30, 2023, the Company has remaining $84,80084,805 of outstanding principal and approximately $58,90064,051 of accrued interest.
Convertible Promissory Note – August 17, 2021
On August 17, 2021, the Company entered into a Securities Purchase Agreement with an accredited institutional investor pursuant to which the Company issued to the investor its Original Issue Discount Secured Convertible Promissory Note in the principal amount of $220,500 and warrants to purchase 40,000 shares of the common stock of the Company for which the Company received consideration of $210,000 net of original discount of $10,500. In addition, the Company entered into a Registration Rights Agreement with the investor and issued the investor common shares as a commitment fee.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
The note matures one year from issuance and provides for an interest rate of 10% per annum, payable at maturity, and is convertible into common stock of the Company at a price of $1.50 per share, subject to anti-dilution adjustments in the event of certain corporate events as set forth in the Note, provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. The embedded conversion option will be treated as a bifurcated derivative liability.
In addition to customary anti-dilution adjustments the Note provides, subject to certain limited exceptions, that if the Company issues any common stock or common stock equivalents, as defined in the Note, at a per share price lower than the conversion price then in effect, the conversion price will be reduced to the per share price at which such shares or common share equivalents were sold.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
The Warrants are initially exercisable for a period of five years at a price of $1.90 per share, subject to customary anti-dilution adjustments upon the occurrence of certain corporate events as set forth in the warrant.
The Company incurred approximately $30,000 in debt issuance costs. The Company also issued shares of common stock to the investment banker as a commission on the note.
Due to the variability in the conversion price of the Note, the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $398,404 with $297,833 charged to derivative expense and $100,571 recorded as a debt discount.
The Company recorded a total debt discount of $220,500 including an original issue discount of $10,500, a discount related to the warrants of approximately $62,220 a discount related to issuance costs of $30,000 a discount related to the issuance of common stock of approximately $17,209, and a $100,571discount related to the initial derivative value of the embedded conversion feature on the Note all based on the relative fair value of the instruments.
The fair value of the warrants on which the relative fair value was based was determined by using a simple binomial lattice model. The assumptions used in the model were a risk-free rate of0.77%, volatility of 254%, and an expected term of one year in calculating the fair value of the warrants. The discounts are being amortized over the life of the convertible note.
On October 27, 2021, the Company and the institutional investor who holds the promissory note agreed to extend the maturity date the notes by six months to February 17, 2023, for no consideration.
On November 15, 2021, the Company defaulted on certain covenants in the note and the interest rate on the note reset to 24% per annum.
On November 30, 2021, the exercise price of the warrants was adjusted to $1.00 based on a note conversion at $1.00 and the Company issued an additional 36,000 warrants to the note holder.
On January 27, 2022, the conversion price of the notes was adjusted to the lower of $0.78 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $0.78 per share and the Company issued an additional 21,436 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.78$0.78 per share.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On January 10, 2023, the conversion price of the notes was adjusted to the lower of $0.56 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $0.56 per share and the Company issued an additional 38,303 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.56 per share.
On April 14, 2023, the conversion price of the notes was adjusted to the lower of $0.279 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.279 per share and the Company issued an additional 135,787 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.279 per share.
On April 28, 2023, the conversion price of the notes was adjusted to the lower of $0.18 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.18 per share and the Company issued an additional 150,697 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.18per share.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
On May 10, 2023, the conversion price of the notes was adjusted to the lower of $0.054 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.054 per share and the Company issued an additional 982,843 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.054per share.
On June 23, 2023, the conversion price of the notes was adjusted to the lower of $0.036 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.036 per share and the Company issued an additional 700,781 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.036 per share.
During the three months ended September 30, 2023, the conversion price of the notes was adjusted to the lower of $0.00845 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.00845 per share and the Company issued an additional 6,888,236 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.00845 per share.
On February 17, 2023, the Company defaulted on the extended maturity date for the convertible note.
As of JuneSeptember 30, 2023, 2,105,8468,994,083 warrants were outstanding that were issued with the convertible note at an exercise price of $0.0360.00845.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
For the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized approximately $12,60012,703 and $25,00037,696, respectively in interest expense related to the note. For the three and sixnine months ended JuneSeptember 30, 2022, the Company recognized approximately $32,70035,400 and $65,000105,000 related to the amortization of debt discount and approximately $24412,700 and $5,20037,700 in interest expense related to the note, respectively. As of JuneSeptember 30, 2023, the debt discount on the note was fully amortized.
As of JuneSeptember 30, 2023, the Company has recorded $220,500 of outstanding principal and approximately $90,800103,518 of accrued interest on the note.
Convertible Promissory Note – October 4, 2021
On October 4, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional investor pursuant to which the Company issued the Buyer a 10% Convertible Redeemable Note in the principal amount of $131,250and a six-year warrant to purchase 23,810 shares of common stock of the Company for which the Company received proceeds of $110,000. In addition, the Company entered into a Registration Rights Agreement with the investor and issued the investor common shares as a commitment fee.
The Note is due October 4, 2022. The Note provides for interest at the rate of 10% per annum, payable in seven equal monthly payments beginning on August 15, 2022, through the maturity date. The Note is convertible into shares of common stock at any time following the date of cash payment at the Buyer’s option at a conversion price of $1.50 per share, subject to certain adjustments.
The warrants are exercisable for six-years from October 4, 2021, at an exercise price of $1.90 per share, subject to certain adjustments, which exercise price may be paid on a cashless basis. The aggregate exercise price is $45,238.
The Company incurred approximately $15,000 in debt issuance costs. The Company also issued shares of common stock to the investment banker as a commission on the note.
Due to the lack of authorized shares, the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $564,943 with $487,052 charged to derivative expense and $77,891 recorded as a debt discount.
The Company recorded a total debt discount of $131,250 including an original issue discount of $6,250, a discount related to issuance costs of $15,000, a discount related to the issuance of common stock of $32,109, and a $77,891 discount related to the initial derivative value of the embedded conversion feature on the Note all based on the relative fair value of the instruments. The discounts are being amortized over the life of the convertible note.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
On January 2, 2022, the Company defaulted on certain covenants contained in the October 4, 2021, convertible note and the interest rate reset to 16%.
On January 27, 2022, the exercise price of the note was adjusted to $0.78 based on a convertible note conversion at $0.78.
On May 12, 2022, the Company repaid $83,500of principal on the note and repurchased shares of common stock issued to the holder as an original commitment fee on the note for $1,000. The repurchase was recorded at cost as treasury stock on the accompanying consolidated balance sheet. In addition during 2022, the Company repaid an additional $31,042 of principal and $8,905 of interest on the note. The Company recorded approximately $96,000 gain on debt extinguishment resulting from the settlement of the derivative as a result of repayment of the note.
On January 10, 2023, the exercise price of the note was adjusted to $0.56based on a convertible note conversion at $0.56.
On March 9, 2023, the Company repaid $2,500 of principal on the note.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On April 14, 2023, the exercise price of the note was adjusted from the default conversion price of $0.56 to $0.279 as a result of a convertible note exercise.
On April 28, 2023, the exercise price of the note was adjusted from the default conversion price of $0.279 to $0.18 as a result of a convertible note exercise.
On May 10, 2023, the exercise price of the note was adjusted from the default conversion price of $0.18 to $0.054 as a result of a convertible note exercise.
On June 23, 2023, the exercise price of the note was adjusted from the default conversion price of $0.054 to $0.036as a result of a convertible note exercise.
During the three months ended September 30, 2023, the exercise price of the note was adjusted from the default conversion price of $0.036 to $0.00845 as a result of convertible note conversions.
For the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized approximately $600573 and $1,2001,775, respectively, in interest expense related to the note. For the three and sixnine months ended JuneSeptember 30, 2022, the Company recognized approximately $32,70033,100 and $65,00098,200 related to the amortization of debt discount and approximately $244500 and $5,2005,700 in interest expense related to the note, respectively. As of JuneSeptember 30, 2023, the debt discount on the note was fully amortized.
As of JuneSeptember 30, 2023, the Company has recorded approximately $14,20014,208 of outstanding principal and approximately $2,0002,586 of accrued interest.
Convertible Promissory Note – October 7, 2021
On October 7, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional investor pursuant to which the Company issued the investor a 10% Convertible Redeemable Note in the principal amount of $131,250 and a six-year warrant to purchase 23,810 shares of common stock of the Company for which the Company received proceeds of $110,000. In addition, the Company entered into a Registration Rights Agreement with the investor and issued the investor common shares as a commitment fee and an additional 2,632 shares as a commission to the broker.
The Note is due October 7, 2022. The Note provides for interest at the rate of10% per annum, payable at maturity. The Note is convertible into shares of common stock at any time following the date of cash payment at the Buyer’s option at a conversion price of $1.50 per share, subject to certain adjustments.
The warrants are exercisable for six-years from October 7, 2021, at an exercise price of $1.90 per share, subject to certain adjustments, which exercise price may be paid on a cashless basis. The aggregate exercise price is $45,238.
The Company incurred approximately $15,000 in debt issuance costs.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
Due to the lack of authorized shares, the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $564,184 with $487,667 charged to derivative expense and $76,517 recorded as a debt discount.
The Company recorded a total debt discount of $131,250 including an original issue discount of $6,250, a discount related to issuance costs of $15,000, a discount related to the issuance of common stock of approximately $33,483, and a $76,517 discount related to the initial derivative value of the embedded conversion feature on the Note all based on the relative fair value of the instruments. The discounts are being amortized over the life of the convertible note.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On January 5, 2022, the Company defaulted on certain covenants contained in the October 7, 2021, convertible note and the interest rate reset to 16%.
On January 27, 2022, the exercise price of the note was adjusted to $0.78 based on a convertible note conversion at $0.78.
On May 12, 2022, the Company repaid $83,500 of principal on the note and repurchased shares of common stock issued to the holder as an original commitment fee on the note for $1,000. The repurchase was recorded at cost as treasury stock on the accompanying consolidated balance sheet. In addition, the Company repaid an additional $31,042 of principal and $8,905 of interest on the note during the year ended December 31, 2022. The Company recorded approximately $98,000 gain on debt extinguishment related to the settlement of the derivative liability as a result of repayment of the note.
On January 10, 2023, the exercise price of the note was adjusted to $0.56 based on a convertible note conversion at $0.56.
On April 14, 2023, the exercise price of the note was adjusted from the default conversion price of $0.56 to $0.279 as a result of a convertible note exercise.
On April 28, 2023, the exercise price of the note was adjusted from the default conversion price of $0.279to $0.18 as a result of a convertible note exercise.
On May 10, 2023, the exercise price of the note was adjusted from the default conversion price of $0.18 to $0.054 as a result of a convertible note exercise.
On June 23, 2023, the exercise price of the note was adjusted from the default conversion price of $0.054 to $0.036as a result of a convertible note exercise.
During the three months ended September 30, 2023, the exercise price of the note was adjusted from the default conversion price of $0.036 to $0.00845 as a result of convertible note conversions.
For the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized approximately $700674 and $1,3001,999, respectively, in interest expense related to the note. For the three and sixnine months ended JuneSeptember 30, 2022, the Company recognized approximately $32,70033,100 and $65,10098,200 related to the amortization of debt discounts and approximately $295500 and $5,3005,800 in interest expense related to the note. As of JuneSeptember 30, 2023, the debt discount on the note was fully amortized.
As of JuneSeptember 30, 2023, the Company has recorded $16,70016,708 of outstanding principal and approximately $2,1002,811 of accrued interest.
Convertible Promissory Note – March 15, 2022
On March 15, 2022, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional investor pursuant to which the Company issued the investor a 10% Convertible Note in the principal amount of $250,000for a purchase price of $200,000 reflecting a $50,000 original issue discount. The Company received total consideration of $180,000 after debt issuance costs of $20,000. In addition, the Company issued shares of common stock as a commitment fee to the investor. The Company also issued shares to the broker as a commission on the sale.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
The Note provides for guaranteed interest at the rate of 10% per annum for the 12 months from and after the original issue date of the Note for an aggregate guaranteed interest of $25,000, all of which guaranteed interest shall be deemed earned as of the date of the note. The principal amount and the guaranteed interest shall be due and payable in seven equal monthly payments each, $39,285, commencing on August 15, 2022, and continuing on the 15th day of each month until paid in full not later than March 15, 2023, the maturity date.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
The Note is convertible into shares of common stock at any time following any event of default at the investor’s option at a conversion price of ninety percent (90%) per share of the lowest per-share trading price of the Company; stock during the ten trading day periods before the conversion, subject to certain adjustments.
The Company recorded a total debt discount of $250,000 including an original issue discount of $50,000, a discount related to issuance costs of $34,384, a discount related to the issuance of common stock of approximately $3,596, and a $162,020 discount related to the initial derivative value of the embedded conversion feature on the Note all based on the relative fair value of the instruments. The discounts are being amortized over the life of the convertible note.
On September 16, 2022, the Company defaulted on the repayment of the note and the interest rate reset to 18%. In addition, the Company recognized approximately $32,000 of additional interest expense related to default provisions contained in the note.
For the year ended December 31, 2022, the Company repaid $43,828 of principal and $31,400 of interest on the note. The Company recorded approximately $68,600 gain on debt extinguishment resulting from the settlement of the derivative as a result of repayments on the note.
On January 10, 2023, the holder of the March 15, 2022, convertible note converted $3,839 of principal and $1,6616,161 of interest at $0.56per share into shares of common stock. (see note 7)
On January 23, 2023, the Company repaid $10,819 in principal and $4,191 in interest on the note.
On February 1, 2023, the Company repaid $15,000 of outstanding principal on the note.
On February 17, 2023, the Company repaid $32,500of outstanding principal.
On March 13, 2023, the Company repaid $30,000 of outstanding principal on the note.
On April 14, 2023, the holder of the March 15, 2022, convertible note converted $10,000 of principal of interest at $0.28 per share into shares of common stock.
On April 28, 2023, the holder of the March 15, 2022, convertible note converted $21,314 of principal and $6,586 of interest at $0.18per share into shares of common stock.
On May 10, 2023, the holder of the March 15, 2022, convertible note converted $6,001 of principal and $489 of interest at $0.054 per share into shares of common stock.
On May 30, 2023, the holder of the March 15, 2022, convertible note converted $9,203 of principal and $756of interest at $0.059 per share into shares of common stock.
On June 23, 2023, the holder of the March 15, 2022, convertible note converted $5,697 of principal and $799 of interest at $0.036 per share into shares of common stock.
On September 1, 2023, the holder of the March 15, 2022, convertible note converted $324 of principal and $2,133 of interest at $0.0117 per share into shares of common stock.
During the three months ended September 30, 2023, the exercise price of the note was adjusted from the default conversion price of $0.0117 to $0.00845 as a result of convertible note conversions.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
The Company recognized approximately a $36,400784 and $75,00076,034 gain on extinguishment of debt for the three and sixnine months ended JuneSeptember 30, 2023 related to the settlement of the derivative liability as a result of conversions and repayments made on the note.
For the three and sixnine months ended JuneSeptember 30, 2023, the Company recognized zero and $50,000 related to the amortization of debt discounts and approximately $3,9003,763 and $11,10013,938 in interest expense related to the note. For the three and sixnine months ended JuneSeptember 30, 2022, the Company recognized approximately $62,30063,000 and $74,000137,000 related to the amortization of debt discounts and approximately $25,000 in interest expense related to the note that was deemed earned as of the date of issuance. As of JuneSeptember 30, 2023, the debt discount on the note was fully amortized.
As of JuneSeptember 30, 2023, the Company has recorded approximately $61,80061,473 of outstanding principal and $200879 of accrued interest on the note.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
Derivative Liabilities Pursuant to Convertible Notes and Warrants
In connection with the issuance of the unrelated party convertible notes (collectively referred to as “Notes”) and warrants (collectively referred to as “Warrants”), discussed above, the Company determined that the terms of certain Notes and Warrants contain an embedded conversion options to be accounted for as derivative liabilities due to the holder having the potential to gain value upon conversion and provisions which includes events not within the control of the Company. Due to the fact that the number of shares of common stock that may be issuable for warrants and notes with variable conversion features may exceed the Company’s authorized share limit as of JuneSeptember 30, 2023, the equity environment was tainted and all convertible debentures and warrants were included in the value of the derivative. Accordingly, for existing embedded conversion options and existing warrants that were not previously accounted for as derivatives, the Company reclassified $3,462,000 from additional paid-in capital to derivative liability on December 31, 2021. In accordance with ASC 815-40 –Derivatives and Hedging – Contracts in an Entity’s Own Stock, the embedded conversion options contained in the Notes and the Warrants were accounted for as derivative liabilities at the date of issuance or on the reclassification date and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion options and the warrants was determined using the Binomial Lattice valuation model. At the end of each period and on note conversion, repayment or on the warrant exercise date, the Company revalues the derivative liabilities resulting from the embedded option.
During the period ended JuneSeptember 30, 2023, in connection with the issuance of the Notes and Warrants, on the initial measurement dates, the fair values of the embedded conversion options and warrants of approximately $972,000 was recorded as derivative liabilities of which $407,000406,846 was allocated as a debt discount and $565,000564,483 as derivative expense.
At the end of each reporting period, the Company revalued the embedded conversion option and warrants as derivative liabilities. In connection with the initial valuations and these revaluations, the Company recorded a gainloss from the initial and change in the derivative liabilities fair value of approximately $2.5214,994 million for the sixnine months ended JuneSeptember 30, 2023, including a $3.0349,489 million gain for the change in the fair value of derivative liabilities for the period and a $565,000564,483 initial derivative expense.
During the sixnine months ended JuneSeptember 30, 2023, the fair value of the derivative liabilities was estimated at issuance and at the JuneSeptember 30, 2023, using the Binomial Lattice valuation model with the following assumptions:
Schedule of Fair Value of Derivative liabilities Estimated Issuance and Valuation ModeSCHEDULE OF FAIR VALUE OF DERIVATIVE LIABILITIES ESTIMATED ISSUANCE AND VALUATION MODE
| Dividend rate | — | % | ||
| Term (in years) | 0.00 to 1.10 year | |||
| Volatility | 178.2% to 409 | % | ||
| Risk-free interest rate | 3.36% to 5.55 | % |
| 40 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
During the six monthnine-month period ended JunaSeptember 30, 2023, other than the effect on the derivative valuation recognized in operations, there was no accounting effect to the ratchet adjustments of certain convertible notes and warrants since all of the embedded conversion options in the convertible notes were treated as derivatives which are reported at fair value.
NoteNOTE 5 - Licensing AgreementsLICENSING 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).
On January 4, 2021, the licensor terminated the licensing agreement with the Company for the commercialization of Prestalia®. As of JuneSeptember 30, 2023 and December 31, 2022, the Company had $24,500 recorded as a liability on the accompanying consolidated balance sheet for royalties due under the agreement.
No royalties were incurred for the six-monthnine-month periods ended JuneSeptember 30, 2023, or 2022.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
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 $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. The Company has not obtained consent for the sublicense and has classified the upfront payment it had previously recorded as an accrued liability on its consolidated balance sheet.
NoteNOTE 6 - Related Party TransactionsRELATED 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. would provide business functions and services to the Company and allowed Autotelic Inc. to charge the Company for these expenses paid on its behalf. Dr. Trieu resigned as a director of our company effective October 1, 2018. The Company and Autotelic Inc. agreed to terminate the MSA effective October 31, 2018. An unpaid balance for previous years services performed under the agreement of approximately $4,000 4,392is included in due to related party in the accompanying consolidated balance sheets at JuneSeptember 30, 2023 and December 31, 2022.
In addition, as of JuneSeptember 30, 2023 and December 31, 2022 the Company owed various officers and directors approximately $12,00057,500 and $26,00021,176, respectively for services rendered which is included as due to related party on the accompanying consolidated balance sheet.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
NoteNOTE 7 - Stockholders’ EquitySTOCKHOLDERS’ 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 A Preferred or Series B 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”). In December 2019, Adhera designated shares of Series G Convertible Preferred Stock (“Series G Preferred”). The Company plans to file a certificate of elimination with respect to the Series A and Series B stock and a certificate of decrease with respect to each of its Series C, D and F Preferred stock. As of JuneSeptember 30, 2023, the Company has not filed the certificate of elimination. Each subsequent authorization of Preferred Stock has liquidation preference over the previous Series.
Series C Preferred
Each share of Series C Preferred has a stated value of $ per share, has a $5,100 liquidation preference per share, has voting rights of 33.33 votes per Series C Preferred share, and is convertible into shares of common stock at a conversion price of $150.00 per share.
As of JuneSeptember 30, 2023, shares of Series C Preferred stock were outstanding.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
Series D Preferred
Each share of Series D Preferred has a stated value of $ per share, has a liquidation preference of $300 per share, has voting rights of 62.5 votes per Series D Preferred share and is convertible into shares of common stock at a conversion price of $80.00 per share. The Series D Preferred has a 5% stated dividend rate when, and if declared by the Board of Directors, is not redeemable and has voting rights on an as-converted basis.
As of JuneSeptember 30, 2023, shares of Series D Preferred were outstanding.
Series E Convertible Preferred Stock and Warrants
The Series E Preferred Stock has a stated value of $ per share and accrues 8% dividends per annum that are payable in cash or stock at the Company’s discretion. The Series E Preferred has voting rights, dividend rights, liquidation preferences, conversion rights at the option of the holder and anti-dilution rights. Series E Preferred stock is convertible into shares of common stock at $10.00. Anti-dilution price protection on Series E Preferred stock expired on February 10, 2020. Warrants issued with Series E Convertible Preferred Stock had anti-dilution price protection, were exercisable for a period of five years, and contain customary exercise limitations.
On March 19, 2021, the exercise price of the Series E warrants was adjusted from $10.00 to $1.00per share upon the conversion of $25,900 debt for shares common stock.
On January 27, 2022, the exercise price of the Series E warrants was adjusted to $0.78 per share as a result of a convertible note exercise at $0.78 per share.
On May 17, 2022, the Company effected the conversion of shares of Series E Preferred stock and accrued dividends of approximately $5.1 million into shares of unregistered common stock at a conversion price of $ per share in accordance with the conversion provisions of the certificate of designation.
On January 10, 2023, the exercise price of the Series E warrants was adjusted to $0.56 per share as a result of a convertible note exercise at $0.56per share.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On April 14, 2023, the conversion price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.
On April 28, 2023, the conversion price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.
On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.
On May 17, 2023, a total of1,453,028 warrants issued with Series E Preferred stock expired.
The Company had accrued dividends on the Series E Preferred stock of approximately $525,000 578,333as of JuneSeptember 30, 2023.
At JuneSeptember 30, 2023, there wereSeries E shares outstanding.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
Series F Convertible Preferred Shares and Warrants
The Series F Preferred Stock has a stated value of $ per share and accrues 8% dividends per annum that are payable in cash or stock at the Company’s discretion. The Series F Preferred has voting rights, dividend rights, liquidation preferences, conversion rights at the holdersholder’s option and anti-dilution rights. Series F Preferred stock is convertible into shares of common stock at $10.00 Anti-dilution price protection on Series F Preferred stock expired on February 10, 2020. Warrants issued with Series F Convertible Preferred Stock have anti-dilution price protection, are exercisable for a period of five years, and contain customary exercise limitations.
On March 19, 2021, the exercise price of the Series F warrants was adjusted from $10.00to $1.00upon the conversion of $25,900of debt for shares of common stock. The Company recorded approximately $31,000 as a deemed dividend based upon the change in fair value of the Series F Preferred stock using a binomial valuation model. The Company used a risk-free rate of 0.16%, volatility of 262.27%, and an expected term of .46 to .53 years in calculating the fair value of the warrants.
On January 27, 2022, the exercise price of the Series F warrants was adjusted to $0.78 per share as a result of a convertible note exercise at $0.78 per share.
On May 17, 2022, the Company effected the conversion of shares of Series F Preferred stock and accrued dividends of approximately $543,000 into shares of unregistered common stock at a conversion rate of $ per share in accordance with the conversion provisions of the certificate of designation.
On January 10, 2023, the exercise price of the Series F warrants was adjusted to $0.56 per share as a result of a convertible note exercise at $0.56 per share.
On April 14, 2023, the conversion price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.
On April 28, 2023, the conversion price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.
On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.
On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
During the three months ended September 30, 2023, the conversion price of the warrants was adjusted to $0.00845 as a result of issuing common stock for convertible note conversions.
As of JuneSeptember 30, 2023, the Company had a total of 154,425 Series F Preferred stock warrants outstanding. The warrants expire on November 9, 2023.
At JuneSeptember 30, 2023, and December 31, 2022, there were Series F Preferred shares outstanding.
Series G Convertible Preferred Shares
The Series G Preferred Stock has a stated value of $ per share and accrues % dividends per annum that are payable in cash or stock at the Company’s discretion. The Series G Preferred has voting rights, dividend rights, liquidation preferences, conversion rights and anti-dilution rights. Series G Preferred stock is convertible into shares of common stock at $.
As of JuneSeptember 30, 2023, and December 31, 2022, Series G Preferred Stock has been issued by the Company.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
Common Stock
On January 27, 2022, the Company issued shares of common stock upon the conversion of $9,500 principal and $422 of interest on the June 2021 convertible note that were valued at fair value based on the quoted trading prices on the conversion dates aggregating approximately $28,000 resulting in a loss on debt extinguishment of $18,000. In addition, derivative fair value of $23,000 relating to the portion of the Note converted was settled resulting in a gain on extinguishment of approximately $23,000. The net gain on extinguishment was approximately $5,000.
On March 15, 2022, the Company issued shares of common stock to a convertible note investor as a commitment fee which was valued at its relative fair value of $3,596.
On March 15, 2022, the Company issued shares of common stock to an investment banker for commissions due under a banking agreement for issuance of a convertible note. The shares were recorded at their fair value of approximately $14,384.
On May 11, 2022, the Company issued shares of common stock to an investment banker for commissions due under a banking agreement for issuance of a convertible note. The shares were recorded at a fair value of approximately $11,820.
On May 17, 2022, the Company effected the conversion of shares of Series E Preferred stock and accrued dividends of approximately $5.1 million into shares of unregistered common stock at a conversion price of $ per share.
On May 17, 2022, the Company effected the conversion of shares of Series F Preferred stock and accrued dividends of approximately $541,000 into shares of unregistered common stock at a conversion rate price $ per share in accordance with the conversion provisions in the certificate of designation.
On January 10, 2023, the Company issued shares of common stock for the conversion of $3,839 of principal and $6,161 of interest on the March 2022 convertible note. The shares were issued at a conversion price of $ per share. The Company recognized a $5,5005,000 loss on extinguishment of the debt. (see note 4).
On April 14, 2023, the holder of the March 15, 2022, convertible note converted $10,000 of principal of interest at $0.28 per share into shares of common stock.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On April 28, 2023, the holder of the March 15, 2022, convertible note converted $21,314 of principal and $6,586 of interest at $0.18 per share into shares of common stock.
On May 10, 2023, the holder of the March 15, 2022, convertible note converted $6,001 of principal and $489of interest at $0.054per share into shares of common stock.
On May 30, 2023, the holder of the March 15, 2022, convertible note converted $9,203 of principal and $756 of interest at $0.059 per share into shares of common stock.
On June 23, 2023, the holder of the March 15, 2022, convertible note converted $5,697 of principal and $799 of interest at $0.039 per share into shares of common stock.
During the three months ended September 30, 2023, the Company issued shares of common stock in connection with the conversion of $6,900 in principal balance and $2,568 of accrued interest payable related to the Secured Convertible Promissory Note – June 2021.
On September 1, 2023 the holder of the March 15, 2022, convertible note converted $324 of principal and $2,133 of interest at $0.0117 per share into shares of common stock.
During the nine months ended September 30, 2023, the Company recorded the difference between the converted amount and the fair value of the common stock issued as a loss from extinguishment of debt which amounted to $22,591, and upon conversion of convertible notes to common shares, on the conversion dates, the Company revalued the derivative liabilities and recorded a gain from extinguishment of debt of $110,512 related to the removal of derivative liabilities, for a net gain on debt extinguishment of $87,921. In summary, the net loss on extinguishment of debt upon the conversion of debt to common shares of $22,591 plus the gain on extinguishment of debt of $110,512 aggregates to a net gain on debt extinguishment of $87,921 which is reflected on the accompanying unaudited consolidated statement of operations for the nine months ended September 30, 2023.
On September 8, 2023, an investor exercised 750,000 warrants on a cashless basis and received shares of common stock.
Treasury Stock
On May 12, 2022, the Company repurchased shares of common stock issued to the holders of outstanding notes as an original commitment fee on the notes for a total purchase price of $2,000. The repurchase was recorded at cost as treasury stock on the accompanying consolidated balance sheet.
Warrants
As of September 30, 2023, there were 161,984,924 common stock warrants outstanding, with a weighted average exercise price of $ per share, that have annual expirations as follows:
SCHEDULE OF STOCKHOLDER’ EQUITY NOTE, WARRANTS OR RIGHTS
| Warrants issued with: | Shares | 2023 | 2024 | 2025 | 2026 | 2027 and After | ||||||||||||||||||
| Series F Preferred Stock | 154,425 | 154,425 | - | - | - | - | ||||||||||||||||||
| Bridge Loans | 5,939,950 | - | - | - | - | 5,939,950 | ||||||||||||||||||
| Convertible Notes (CVN) | 155,873,108 | - | 9,041,703 | 115,679,985 | 31,151,420 | - | ||||||||||||||||||
| Other | 17,441 | 504 | 16,937 | - | - | - | ||||||||||||||||||
| Total Warrants | 161,984,924 | 154,929 | 9,058,640 | 115,679,985 | 31,151,420 | 5,939,950 | ||||||||||||||||||
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2023 andAND 2022
(unaudited)(Unaudited)
Warrants
As of June 30, 2023, there were 65,544,841 common stock warrants outstanding, with a weighted average exercise price of $ per share, that have annual expirations as follows:
Schedule of Stockholder’ Equity Note, Warrants or Rights
| Warrants issued with: | Shares | 2023 | 2024 | 2025 | 2026 | 2027 and After | ||||||||||||||||||
| Series F Preferred Stock | 154,425 | 154,425 | - | - | - | - | ||||||||||||||||||
| Bridge Loans | 5,939,950 | - | - | - | - | 5,939,950 | ||||||||||||||||||
| Convertible Notes (CVN) | 59,433,025 | - | 2,153,466 | 49,810,259 | 7,469,299 | - | ||||||||||||||||||
| Other | 17,441 | 504 | 16,775 | 162 | - | - | ||||||||||||||||||
| Total Warrants | 65,544,841 | 1,54,929 | 2,170,241 | 49,810,421 | 7,469,299 | 5,939,950 | ||||||||||||||||||
The above table includes price adjustable warrants including warrants with variable conversion rates and full ratchet protection.
Schedule of WarrantsSCHEDULE OF WARRANTS
| Warrants as of December 31, 2022 | 6,785,914 | |||
| Issued as a result of price adjustments on convertible notes | ||||
| Variable quantity of warrants related to the February 2020 note | ||||
| Warrants issued with 2023 Bridge Notes | 4,670,301 | |||
| ( | ) | |||
| Expirations | (1,520,280 | ) | ||
| Warrants as of | ||||
The intrinsic value of outstanding warrants as of JuneSeptember 30, 2023, was approximately $ million.
As discussed in Note 2 above, the Company has issued convertible notes and warrants with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock and various default provisions related to the payment of the notes in Company stock. The number of shares of common stock to be issued under the convertible notes and warrants is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the convertible notes is therefore, indeterminate. Due to the fact that the number of shares of common stock are indeterminable, the equity environment was tainted and all convertible debentures and warrants were included in the value of the derivative as of that date. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the warrants were recorded as derivative liabilities. On JuneSeptember 30, 2023, the Company evaluated all outstanding warrants to determine whether these instruments are tainted and, due to reasons discussed above, all warrants outstanding were considered tainted and were therefore, accounted for as derivative liabilities.
Other than the effect on the derivative valuation recognized in operations, there was no accounting effect to the ratchet adjustments of certain warrants to reduce certain conversion prices during the six-month period to $0.036 since all of the embedded conversion options in the warrants were treated as derivatives.
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
Stock Options
Schedule of Share Based Payments Arrangement, Option ActivitySCHEDULE OF SHARE BASED PAYMENTS ARRANGEMENT, OPTION ACTIVITY
| Options Outstanding | Options Outstanding | |||||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||
| Outstanding, December 31, 2022 | $ | $ | ||||||||||||||
| Options expired / forfeited | ) | $ | ) | $ | ||||||||||||
| Outstanding, June 30, 2023 | $ | |||||||||||||||
| Exercisable, June 30, 2023 | $ | |||||||||||||||
| Outstanding, September 30, 2023 | $ | |||||||||||||||
| Exercisable, September 30, 2023 | $ | |||||||||||||||
stock options were granted during the sixnine months ended JuneSeptember 30, 2023.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
NoteNOTE 9 - Commitments and ContingenciesCOMMITMENTS 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.
Licensing Agreement – MLR 1019
On July 28, 2021, the Company and Melior Pharmaceuticals II, LLC (“Melior II”) entered into an exclusive license agreement for the development, commercialization and exclusive license of MLR-1019. MLR-1019 is being developed as a new class of therapeutic for Parkinson’s disease (PD) and is, to the best of the Company’s knowledge, the only drug candidate today to address both movement and non-movement aspects of PD. Under the Agreement, the Company was granted an exclusive license to use Melior II’s Patents and know-how to develop products in consideration for cash payments up to approximately $21.8 million upon meeting certain performance milestones, as well as a royalty of 5% of gross sales.
The license agreement terminates upon the last expiration of the patents licensed by the Company, which is presently 2038 subject to any potential extensions and renewals of any of such patents. If the Company fails to have its common stock listed on Nasdaq or the NYSE (an “Uplisting Event”) within 12 months after the Company receives a Clinical Trial Authorization from the European Medicines Agency, then the Company’s commercial license and rights for using Melior II’s data shall terminate. Additionally, if the Company has completed the necessary steps to effect an Uplisting Event, the Company will have the option to purchase all rights held by Melior II on the MLR-1019 licensed products in consideration for 10% of the outstanding shares of the Company’s common stock (immediately post Uplisting Event) and 2.5% royalty of future gross product sales.
As of JuneSeptember 30, 2023, no performance milestones requiring cash consideration had been met under the agreement.
Licensing Agreement – MLR 1023
On August 20, 2021, we as licensee entered into the exclusive license agreement regarding the development and commercialization of Melior’s MLR-1023 (the “MLR-1023 Agreement”) with Melior Pharmaceuticals I, Inc. (“MP1”). regarding the development and commercialization of MPI’s MLR-1023 (the “MLR-1023 Agreement”) We refer to MP2MelliorII and MP1MPI as “MP” or “Melior”. This second license is for the development and commercialization of MLR-1023, which is being developed as a novel therapeutic for Type 1 diabetes.
Under the original terms of the MLR-1023 Agreement, if the Company failed to raise $4.0 million within 120 days of the effective date of the agreement then the MLR-1023 Agreement would immediately terminate unless, by 120 days Adhera was in the process of completing transactions to complete the fundraising then an additional 30 days would be provided to allow for the completion of the raise (the “Raise Requirement”).
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022
(unaudited)
On October 20, 2021, we as licensee expanded the exclusive licensing agreement with Melior I to include two additional clinical indications for Non-Alcoholic Steatohepatitis (NASH) and pulmonary inflammation.
On November 17, 2021, Melior I extended the Company’s timeline from 120 days to 180 days from the effective of the MLR-1023 Agreement for the Raise Requirement, by 180 days Adhera is in the process of completing transactions to complete the fundraising then an additional 30 days shall be provided to allow for the completion of required fundraising.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
On February 16, 2022, an addendum to the MLR-1023 Agreement dated August 4, 2021 (the “First Addendum”), was executed by the Company and Melior, which extended the Raise Requirement to June 16, 2022.
On July 20, 2022, the Company and Melior entered into the Second Addendum to the License Agreement (the “Second Addendum”). In accordance with the Second Addendum and subject to the terms and conditions therein, the Raise Requirement was extended to February 1, 2023, in exchange for a $136,921 licensing payment that was made by the Company on July 28, 2022. In addition, the Company was required to hire and retain a Chief Scientific Officer, and raise an additional $500,000 in capital in addition to other requirements set forth in the Second Addendum and MLR-1023 Agreement.
As of February 1, 2023, the Company had not raised the additional $500,000 of capital, commenced API manufacturing, nor completed the Raise Requirement. In March 2023, the Company obtained a verbal agreement with Melior to extend the terms of the MLR-1023 Agreement until such time that the milestones have been met and the Company pays outstanding patent maintenance costs. However, Melior may terminate the license of MLR-1023 at any time due to non-performance of continuing license obligations with a 60-day required notice to cure non-performance.
On February 16, 2022, an addendum to the MLR-1023 Agreement dated August 4, 2021 (the “First Addendum”), was executed by the Company and Melior, which extended the requirement by thethe Company to raise $4 million (the “Raise Requirement”) to June 16, 2022.
On July 18, 2022, the Company and Melior entered into the Second Addendum to the License Agreement (the “Second Addendum”). In accordance with the Second Addendum and subject to the terms and conditions therein, the Raise Requirement was extended to February 1, 2023, in exchange for a $136,921 licensing payment that was made by the Company on July 28, 2022. In addition, the Company was required to hire and retain a Chief Scientific Officer, and raise an additional $500,000 in capital in addition to other requirements set forth in the Second Addendum and MLR-1023 Agreement.
As of February 1, 2023, the Company had not raised the additional $500,000 of capital, commenced API manufacturing, nor completed the Raise Requirement. In March 2023, the Company obtained a verbal agreement with Melior to extend the terms of the MLR-1023 Agreement until such time that the milestones have been met and the Company pays outstanding patent maintenance costs. However, Melior may terminate the license of MLR-1023 at any time due to non-performance of continuing license obligations with a 60-day required notice to cure non-performance. If this license is terminated, we will lose the ability to continue the development and potential commercialization of MLR-1023 and it is likely that the Company will discontinue all operations and seek bankruptcy protection.
On August 11, 2023, the Company and Biodexa Pharmaceuticals PLC (“Biodexa”) entered into a non-binding summary of proposals for the assignment of the MLR-1023 Agreement to Biodexa. In connection with the summary of proposals, in August 2023, the Company received a $100,000 deposit which is reflected as a contract liability on the accompanying consolidated balance sheet as of September 30, 2023.
As of JuneSeptember 30, 2023, no performance milestones requiring cash consideration had been met under the agreement.
NoteNOTE 10 - Subsequent EventsSUBSEQUENT EVENTS
Conversion of Principal on Convertible Note
On July 27,From October 1, 2023 the holder of the June 25, 2021,to November 17, 2023, certain convertible notenoteholders converted $2,25020,749 of principal and $8053,654 of interest at $0.016 per share into shares of common stock.
On August 10,October 2, 2023, the holder of the June 25, 2021, convertible note converted $Company issued of principal and $734 of interest at $0.013 per share into shares of common stock.stock upon the cashless exercise of 750,000 warrants.
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 forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect management’s current views with respect to future events and financial performance including meeting our obligations under the MeliorMP I and Melior II license agreements and our liquidity. The following discussion should be read in conjunction with the financial statements and related notes and the Risk Factors contained in our Annual Report on Form 10-K, for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on JuneSeptember 30, 2023. 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 failure to consummate the proposed transaction with Biodexa; | |
| the inability to comply with or obtain waivers or extensions under our current license agreements which Melior, in which case we will lack any intellectual property rights; |
| ● | our ability to obtain additional funding for our | |
| ● | our ability to attract and retain qualified officers, directors, employees and consultants as necessary; | |
| ● | failure to meet our financial obligations under outstanding loans and other financing documents. |
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, 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.
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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 amounts are expressed in United States dollars. Our common stock is currently quoted on the OTCQB, under the symbol “ATRX.”
Corporate Overview
Nature of Business
We are an emerging specialty biotech companydependent upon closing the previously announced transaction with a focus on drug development and commercialization of “small molecule” drugsBiodexa. See Note 9 to treat Parkinson’s disease (PD) and Type 1 diabetes. Companies operating in the drug development and biotech sectors typically in-license early-stage inventions or pre-clinical (stage) compounds from universities and other companies and apply their own drug discovery and development expertise and resources to further these drug candidates towards regulatory approval by the Food and Drug Administration (FDA), and potentially other regulatory bodies overseas. The ultimate objectives are to secure regulatory authorizations in the USA and territories internationally, and to generate revenues from marketing activities. Drug candidates may also be licensed (out) to pharmaceutical companies prior to obtaining final regulatory approvals and marketing authorizations for valuable consideration, including upfront payments, milestone payments and royalties.our Consolidated Financial Statements.
We utilize a “virtual” drug development model, also prevalent in this industry sector. In this model, Contract Research Organizations (CROs) are typically employed to undertake certain drug discoveryGoing Concern and development services on the Company’s behalf and under the Company’s direct supervision.Management’s Liquidity Plans
On July 28, 2021, we as licensee and MP2 entered into an exclusive license agreement forThe accompanying unaudited condensed consolidated financial statements have been prepared on the development and commercialization of MLR-1019. MLR-1019 is being developedbasis that the Company will continue as a new classgoing concern, which contemplates realization of therapeutic for PDassets and is, to the bestsatisfaction of our knowledge,liabilities in the only drug candidate today to address both movementnormal course of business. As of September 30, 2023, the Company had approximately $32,000 of cash and non-movement aspectshas negative working capital of PD. Under the Agreement, we were granted an exclusive license to use MP’s patents and know-how related to MLR-1019 to develop products in consideration for cash payments upon meeting certain performance milestones as well as a royalty of 5% of gross sales.approximately $26.3 million.
On August 20, 2021, we as licensee entered into an exclusive license agreement regardingThe Company has no revenues and has incurred recurring losses and negative cash flows from operations since inception and has funded its operating losses through the developmentsale of common stock, preferred stock, warrants to purchase common stock, convertible notes and commercializationsecured promissory notes. The Company incurred a net loss and net cash used in operating activities of Melior’s MLR-1023 (the “MLR-1023 Agreement”) with Melior Pharmaceuticals I, Inc. (“MP1”). In this 10-Q Report, we refer to MP2$4,150,375 and MP1 as “MP” or “Melior”. This second license is$655,155, respectively, for the developmentnine months ended September 30, 2023. The Company had a stockholders’ deficit of approximately $26.3 million and commercializationan accumulated deficit of MLR-1023, which is being developedapproximately $60.0 million as a novel therapeutic for Type 1 diabetes.of September 30, 2023.
On October 20, 2021, weIn 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 the Company or at all. General market conditions, as licensee expanded the exclusive MLR-1023 Agreement with MP1 to include two additional clinical indications, onewell as market conditions for Non-Alcoholic Steatohepatitis (NASH) and the other for pulmonary inflammation.
On November 17, 2021, Melior extendedcompanies in the Company’s timeline underfinancial and business position, as well as the MLR-1023 Agreement from 120 days to 180 daysongoing issue arising from the effective ofCOVID-19 pandemic, the MLR-1023 Agreementwar in Ukraine and Israel, federal bank failures or other world-wide events, may make it difficult for the Company to raise $4 million unless, by 180 days Adhera is inseek financing from the process of completing transactions to complete the fundraising, then an additional 30 days would be provided to allow for the completion of required fundraising. On February 16, 2022, an addendum to the MLR-1023 Agreement dated August 4, 2021 (the “First Addendum”), was executed by the Companycapital markets, and Melior, which extended the requirement by the Company to raise $4 million (the “Raise Requirement”) to June 16, 2022.
On July 18, 2022, the Company and Melior entered into the Second Addendum to the License Agreement (the “Second Addendum”). In accordance with the Second Addendum and subject to the terms and conditions therein, the Raise Requirement was extended to February 1, 2023. Pursuant to the Second Addendum, Melior has a right to terminate the MLR-1023 Agreement as a result of the Company’s inability to achieve certain milestones, including the requirement to:
As of February 1, 2023, the Company had not raised the additional $500,000 of capital, commenced API manufacturing, nor completed the Raise Requirement as defined in the original MLR-1023 Agreement. In March 2023, the Company obtained a verbal agreement with Melior to extend the terms of any financing may adversely affect the MLR-1023 Agreement until such timeholdings or the rights of its stockholders. If the Company is unable to obtain additional financing in the future, it will be required to cease operations. 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 consolidated financial statements do not contain any adjustments that might result from the milestones have been met, including paymentresolution of any of the maintenance costs of the MLR-1023 patent. However, Melior may terminate our license of MLR-1023 at any time but only in response to non-performance of continuing license obligations and with the required notice to cure non-performance. Any termination or loss of use of MLR-1023 would have a material adverse effect on our business, which would likely result in the Company discontinuing all operations and seeking bankruptcy protection.above uncertainties.
To the extent that resources have been available, we have continued to work with our advisors to restructure our Company and to identify potential strategic transactions, including the Melior transaction described above to enhance the value of the Company. Because of our substantial unpaid debt, if we do not raise substantial additional capital in the immediate future, it is likely that the company will discontinue all operations or seek bankruptcy protection.
Results of Operations
Comparison of the Three and Nine Months Ended JuneSeptember 30, 2023 to the Three and Nine Months Ended JuneSeptember 30, 2022
Revenues
During the three and nine months ended September 30, 2023 and 2022, we did not generate revenues.
Operating Expenses
OurFor the three and nine months ended September 30, 2023 and 2022, total operating expenses forconsisted of the following:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Professional fees | $ | 83,267 | $ | 169,166 | $ | 339,972 | $ | 521,861 | ||||||||
| Compensation expense | 143,238 | 154,161 | 429,396 | 304,161 | ||||||||||||
| General and administrative expenses | 42,992 | 224,243 | 148,153 | 430,268 | ||||||||||||
| Total operating expenses | $ | 269,497 | $ | 547,570 | $ | 917,521 | $ | 1,256,290 | ||||||||
| 50 |
Professional Fees
For the three months ended JuneSeptember 30, 2023, professional fees decreased by $85,899, or 50.8%, as compared to the three months ended September 30, 2022. For the nine months ended September 30, 2023, professional fees decreased by $181,889, or 34.9%, as compared to the nine months ended September 30, 2022. The decreases are attributable to an overall decrease in legal fees, consulting fees and 2022 are summarized as follows:investor relation fees.
| Three Months Ended | ||||||||||||
| (in thousands) | June 30, 2023 | June 30, 2022 | Increase/ (Decrease) | |||||||||
| General and administrative expenses | 296 | 449 | (153 | ) | ||||||||
| Total operating expenses | $ | 296 | $ | 449 | $ | (153 | ) | |||||
Compensation Expense
For the three months ended September 30, 2023, compensation expense decreased by $10,923, or 7.1%, as compared to the three months ended September 30, 2022. The decrease was attributable to a decrease in executive compensation. For the nine months ended September 30, 2023, compensation expense increased by $125,235, or 41.2%, as compared to the nine months ended September 30, 2022. The increase was attributable to an increase in executive compensation due to an increase in compensation to our chief executive office offset by a decrease in compensation to our chief financial officer.
General and Administrative
General and administrative expenses decreased by approximately $153,000 forFor the three months ended JuneSeptember 30, 2023, general and administrative expense decreased by $181,251, or 80.8%, as compared to the three months ended JuneSeptember 30, 2022. The decrease was primarily dueattributable to a decrease in expenses related to our public company activities including legallicensing fees and investor relations.
Other Expense
| Three Months Ended | ||||||||||||
| (in thousands) | June 30, 2023 | June 30, 2022 | Increase/ (Decrease) | |||||||||
| Interest expense | $ | (357 | ) | $ | (361 | ) | $ | (4 | ) | |||
| Gain on extinguishment of debt | 36 | 210 | 174 | |||||||||
| Initial and change in derivative liability | 1,742 | 1,012 | (730 | ) | ||||||||
| Loan inducement fee | (462 | ) | - | 462 | ||||||||
| Amortization of debt discount | (392 | ) | (313 | ) | 79 | |||||||
| Total other income (expense) | $ | 567 | $ | 548 | $ | 19 | ||||||
Interest expense for the three months ended June 30, 2023, decreased by $4,000 compared to the three months ended June 30, 2022, primarily due to a decrease in interest expense related to our outstanding term loans. The derivative liability forinsurance expense. For the quarternine months ended JuneSeptember 30, 2023, general and administrative expense decreased by $730,000 as a result of a decrease in the fair value of our convertible notes and warrants that were classified as a derivative on our consolidated balance sheet as of June 30, 2023. The gain on extinguishment of debt was due to the payment and conversion of principal and interest on our outstanding convertible notes. The increase of $79,000 for the amortization of debt discounts was due to an increase in our term notes outstanding. The loan inducement fee of approximately $462,000 was related to our 2023 Term Loans.
Comparison of the Six Months Ended June 30, 2023 to the Six Months Ended June 30, 2022
Operating Expenses
Our operating expenses for the six months ended June 30, 2023, and 2022 are summarized as follows:
| Six Months Ended | ||||||||||||
| (in thousands) | June 30, 2023 | June 30, 2022 | Increase/ (Decrease) | |||||||||
| General and administrative expenses | 648 | 709 | (61 | ) | ||||||||
| Total operating expenses | $ | 648 | $ | 709 | $ | (61 | ) | |||||
General and Administrative
General and administrative expenses increased by approximately $61,000 for the six months ended June 30, 2023,$282,115, or 65.6%, as compared to the sixnine months ended JuneSeptember 30, 2022. The decrease was primarily dueattributable to a decrease in expenses related to our public company activities including legal fees, board of directorlicensing fees and investor relations.a decrease in insurance expense.
Other ExpenseIncome (Expenses), net
| Six Months Ended | ||||||||||||
| (in thousands) | June 30, 2023 | June 30, 2022 | Increase/ (Decrease) | |||||||||
| Interest expense | $ | (692 | ) | $ | (672 | ) | $ | 20 | ||||
| Gain on extinguishment of debt | 75 | 215 | 140 | |||||||||
| Initial and change in derivative liability | 2,459 | 1,679 | (780 | ) | ||||||||
| Loan inducement fee | (809 | ) | - | 809 | ||||||||
| Amortization of debt discount | (1,000 | ) | (488 | ) | 512 | |||||||
| Total other income (expense) | $ | 33 | $ | 734 | $ | 701 | ||||||
| ● | For the three months ended September 30, 2023 and 2022, total other expenses, net, amounted to $3,266,318 and $1,255,782, respectively, an increase of $2,010,536, or 160.1%. The increase was primarily due to an increase in derivatives expense of $2,420,243 resulting from the change in fair value of derivative liabilities, and a decrease in gain of debt extinguishment of $79,397, offset by a decrease in interest expense of $489,104 resulting from a decrease in amortization of debt discount and an increase in interest bearing debt. | |
| ● | For the nine months ended September 30, 2023 and 2022, total other expenses, net amounted to $3,232,854 and $522,506, respectively, an increase of $2,710,348, or 518.7%. The increase was primarily due to an increase in in derivatives expense of $1,640,488 resulting from the change in fair value of derivative liabilities, a decrease in gain of debt extinguishment of $218,786, an increase in loan inducement expense of $809,126, and an increase in interest expense of $41,948 due to an increase in interest bearing debt and a decrease in amortization of debt discount. |
Interest expense for the six months ended June 30, 2023, increased by $20,000 compared to the six months ended June 30, 2022, primarily due to an increase in interest expense related to our outstanding term loans. The derivative liability for the quarter ended June 30, 2023, decreased by $780,000 as a result of a decrease in the fair value of our convertible notes and warrants that were classified as a derivative on our consolidated balance sheet as of June 30, 2023. The gain on extinguishment of debt was due to the payment and conversion of principal and interest on our outstanding convertible notes. The increase of $512,000 for the amortization of debt discounts was due to an increase in our term notes outstanding. The loan inducement fee of approximately $809,000 was related to our 2023 Term Loans.
LiquidityLIQUIDITY & Capital ResourcesCAPITAL RESOURCES
WorkingLiquidity and Capital Resources
| (in thousands) | June 30, 2023 | December 31, 2022 | ||||||
| Current assets | $ | 82 | $ | 79 | ||||
| Current liabilities | (22,869 | ) | (22,265 | ) | ||||
| Working capital deficit | $ | (22,787 | ) | $ | (22,186 | ) | ||
Negative working capital as of June 30, 2023, was approximately $22.8 million as compared to negative working capital of approximately $22.2 million as of December 31, 2022. The decrease in working capital is primarily related to an increase in in current liabilities of approximately $604,000 including an increase of approximately $2.0 million in our promissory notes payable, net of discounts an increase in our accrued expenses of $766,000 including interest for our outstanding notes, offset by a $2.1 million decrease in our derivative liability for our convertible notes and warrants.
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had cash of $32,388 as of September 30, 2023.
Our primary uses of cash have been for compensation and related benefits, fees paid to third parties for professional services, and general and administrative expenses. We have received funds from debt financings. The following trends are reasonably likely to result in changes in our liquidity over the near to long term:
| ● | An increase in working capital requirements to finance our current business, | |
| ● | Research and development fees; | |
| ● | Addition of administrative and sales personnel needed for business growth; | |
| ● | The cost of being a public company; |
Since inception, we have raised proceeds from debt to fund our operations.
Cash Flows and Liquidity
Net cash used in Operating Activities
Net cash used in operating activities was approximately $626,000$655,155 during the sixnine months ended JuneSeptember 30, 2023. This was primarily due to our net operating loss of approximately $615,000,$4,150,375 and a non-cash gain on debt extinguishment of $87,921, partially offset by a $2.5$214,994 non-cash loss related to an increase in the fair value of our outstanding derivative liability related to our convertible notes and warrants, non-cash amortization of debt discount of $1,245,825, and $809,126 of expense related to a loan inducement fee related to our 2023 term loans, and change in operating assets and liabilities of $1,313,196 including an increase in accrued expenses of $1,186,871.
Net cash used in operating activities was approximately $1.36 million during the nine months ended September 30, 2022. This was primarily due to our net operating loss of approximately $1.8 million and a non-cash gain on debt extinguishment of approximately $307,000, partially offset by a $1.4 million gain related to a decrease in the fair value of our outstanding derivative liability forrelated to our convertible notes and warrants, offset by a non-cash interest expense related to term loan and outstanding convertible notes of $1.0 million, non-cash amortization of debt discount of approximately $692,000$1.3 million, and approximately $809,000 of expense related to a loan inducement fee for our 2023 Term Loans.
Net cash used in operating activities was approximately $690,000 during the six months ended June 30, 2022. This was primarily due to our net operating income of approximately $25,000, partially offset by a $1,679,000 gain related to a decrease in the fair value of our outstanding derivative liability for our convertible notes and warrants, non-cash interest expense related to term loan and outstanding convertible notes of $672,000, non-cash amortization of debt discount of $488,000 and other changes in operating assets and liabilities of approximately $19,000.$890,000 including an increase in accrued expenses of $931,000.
Net cash used in Investing Activities
There was no cash used in or provided by investing activities for the sixnine months ended JuneSeptember 30, 2023, or 2022.
Net cash provided by Financing Activities
Net cash provided by financing activities for the sixnine months ended JuneSeptember 30, 2023, was approximately $652,000.$655,782. Net cash provided by financing activities for the six-monthsnine months ended JuneSeptember 30, 2023, included approximately $747,000$746,600 from the sale of promissory notes and warrants, net of issuance costs of $42,300 to certain accredited investors, offset by the repayment of principal and interest on outstanding convertible notes of $95,000.$90,818.
Net cash provided by financing activities for the sixnine months ended JuneSeptember 30, 2022, was approximately $1,463,000.$1,413,246. Net cash provided by financing activities for the six-monthsnine months ended JuneSeptember 30, 2022 included $1,872,000$1,872,200 from the sale of promissory notes and warrants, net of issuance costs of $327,800 to certain accredited investors, offset by the repayment of principal and interest on outstanding convertible notes of $407,000$456,954 and $2,000 for the repurchase of common stock outstanding.
We will need to raise additional operating capital within the next several months 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.
FinancingLiquidity
We do not have sufficient funds to meet our working capital needs for the next 12 months. We will require additional funds in the near future 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, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available 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.
Off-Balance Sheet Arrangements
As of JuneSeptember 30, 2023, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
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Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our consolidated financial statements included herein for the period ended JuneSeptember 30, 2023, and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.
New and Recently Adopted Accounting Pronouncements
Any new and recently adopted accounting pronouncements are more fully described in Note 1 to our consolidated financial statements included herein for the period ended JuneSeptember 30, 2023.
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 weaknesses in internal controls 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 JuneSeptember 30, 2023, 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 JuneSeptember 30, 2023, 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, and lack of monitoring controls over the accounting function as the Company has limited accounting staff.; | |
| ● | Lack of qualified accounting personnel to prepare and report financial information in accordance with GAAP; |
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| ● | Lack of a separate Audit Committee of the Board of Directors; and | |
| ● | Lack of documentation on policies and procedures that are critical to the accomplishment of financial reporting objectives. |
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 include:
| ● | Identifying gaps in our skills base and the expertise of our personnel necessary to meet the financial reporting requirements of a public company; | |
| ● | Developing written policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures; and | |
| ● | Establishing a separate Audit Committee of the Board of Directors. |
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. However, our significant working capital deficiency may delay remediation.
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 JuneSeptember 30, 2023, 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.
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, 2022 (the “Annual Report”), as filed with the SEC on March 31, 2023, 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.
Item 6. Exhibits
| * | Filed herewith. | |
| ** | This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation |
Copies of this Report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to our Corporate Secretary at Adhera Therapeutics, Inc., 8000 Innovation Parkway, Baton Rouge, Louisiana 70820.
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: | By: | /s/ Zahed Subhan |
| Zahed Subhan | ||
| CEO (Principal Executive Officer) | ||
| Date: | By: | /s/ Andrew Kucharchuk |
| Andrew Kucharchuk | ||
| Chief Operating Officer (Principal Accounting and Financial Officer) | ||