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:SeptemberJune 30, 20172022
or
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
MARINA BIOTECH,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.) |
| ||
| (Address of principal executive offices) | (Zip Code) |
(626) 964-5788(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 [X] ☒ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] ☒ 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 a small reportingan emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “smaller reporting“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 to Section 7(a)(2)(B)to13(a) of the SecuritiesExchange Act: [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] ☐ No [X]. ☒.
AsAs of November 13, 2017,August 14, 2022, there were 10,521,278 shares of the registrant’s common stock outstanding.
MARINA BIOTECH, INC.
ADHERA THERAPEUTICS, INC.
FORM 10-Q
FOR THE THREE AND NINE MONTHSQUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20172022
TABLE OF CONTENTS
Items 3, 4 and 5 have not been included as they are not applicable.
| 2 |
PART I - FINANCIAL INFORMATION
ITEM I – FINANCIAL INFORMATION
ITEM 1. CONDENSED ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTSBALANCE SHEETS
(in thousands except share and per share data)
MARINA BIOTECH, INC.
June 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 849 | $ | 76 | ||||
| Prepaid expenses | 127 | 120 | ||||||
| Total current assets | 976 | 196 | ||||||
| Total assets | $ | 976 | $ | 196 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 2,339 | $ | 2,309 | ||||
| Due to related parties | 46 | 46 | ||||||
| Accrued expenses | 3,697 | 3,110 | ||||||
| Accrued dividends | 445 | 5,477 | ||||||
| Term loans | 6,307 | 5,677 | ||||||
| Convertible notes payable, net | 1,039 | 986 | ||||||
| Derivative liability | 7,098 | 7,697 | ||||||
| Total current liabilities | 20,971 | 25,302 | ||||||
| Total liabilities | 20,971 | 25,302 | ||||||
| Commitments and contingencies (Note 9) | - | - | ||||||
| Stockholders’ deficit | ||||||||
| Preferred stock, $ par value; shares authorized | — | — | ||||||
| Series C convertible preferred stock, $ par value; shares authorized; shares issued and outstanding as of June 30, 2022 and December 31, 2021. ($510,000 liquidation preference) | — | — | ||||||
| Series D convertible preferred stock, $ par value; shares authorized; shares issued and outstanding as of June 30, 2022 and December 31, 2021. ($12,000 liquidation preference) | — | — | ||||||
| Series E convertible preferred stock, $ par value; shares authorized; shares issued and outstanding as of June 30, 2022 and December 31, 2021. ($1,799,614 liquidation preference) | — | — | ||||||
| Series F convertible preferred stock, $ par value; shares authorized; and shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively. | — | — | ||||||
| Series G convertible preferred stock, $ par value; $5,000 liquidation preference; shares authorized; shares issued and outstanding as of June 30, 2022 and December 31, 2021. | — | — | ||||||
| Preferred stock | ||||||||
| Common stock, $ par value; shares authorized, and shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | 379 | 102 | ||||||
| Additional paid-in capital | 33,186 | 27,809 | ||||||
| Accumulated deficit | (53,558 | ) | (53,017 | ) | ||||
| Treasury stock ( shares) | (2 | ) | — | |||||
| Total stockholders’ deficit | (19,995 | ) | (25,106 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 976 | $ | 196 | ||||
Condensed Consolidated Balance Sheets
| September 30, 2017 | December 31, 2016 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 8,676 | $ | 105,347 | ||||
| Prepaid expenses and other assets | 54,631 | 211,133 | ||||||
| Total current assets | 63,307 | 316,480 | ||||||
| Intangible assets, net of amortization | 2,679,235 | 2,311,877 | ||||||
| Goodwill | 3,502,829 | 3,558,076 | ||||||
| 6,182,064 | 5,869,953 | |||||||
| Total assets | $ | 6,245,371 | $ | 6,186,433 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 1,027,508 | $ | 663,261 | ||||
| Due to related party | 382,332 | 83,166 | ||||||
| Accrued expenses | 1,022,369 | 1,393,521 | ||||||
| Accrued fee payable | 320,000 | - | ||||||
| Notes payable | 441,023 | 435,998 | ||||||
| Notes payable to related parties | 92,590 | - | ||||||
| Convertible notes payable | 406,324 | - | ||||||
| Convertible notes payable to related parties | 559,029 | 250,000 | ||||||
| Fair value of liabilities for price adjustable warrants | 248,068 | 141,723 | ||||||
| Derivative liability | 115,271 | - | ||||||
| Total current liabilities | 4,614,514 | 2,967,669 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $0.01 par value; 100,000 shares authorized | ||||||||
| Series C convertible preferred stock, $0.01 par value; $5,100 liquidation preference; 1,200 shares authorized; 750 and 1,020 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | - | - | ||||||
| Series D convertible preferred stock, $0.01 par value; $300 liquidation preference; 220 shares authorized; 60 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | - | - | ||||||
| Common stock, $0.006 par value; 180,000,000 shares authorized, 10,021,220 and 8,977,138 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 60,127 | 53,863 | ||||||
| Additional paid-in capital | 6,850,567 | 5,115,983 | ||||||
| Deferred compensation | (102,600 | ) | - | |||||
| Accumulated deficit | (5,177,237 | ) | (1,951,082 | ) | ||||
| Total stockholders’ equity | 1,630,857 | 3,218,764 | ||||||
| Total liabilities and stockholders’ equity | $ | 6,245,371 | $ | 6,186,433 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
MARINA BIOTECH, INC.
Condensed Consolidated Statements of OperationsADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
(Unaudited)CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue | ||||||||||||||||
| License and other revenues | $ | - | $ | - | $ | - | $ | - | ||||||||
| Operating expenses | ||||||||||||||||
| Research and development | 232,896 | 50,683 | 746,221 | 107,910 | ||||||||||||
| General and administrative | 680,063 | 47,065 | 1,878,301 | 232,469 | ||||||||||||
| Amortization | 123,038 | - | 327,642 | - | ||||||||||||
| Total operating expenses | 1,035,997 | 97,748 | 2,952,164 | 340,379 | ||||||||||||
| Loss from operations | (1,035,997 | ) | (97,748 | ) | (2,952,164 | ) | (340,379 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (24,301 | ) | (378 | ) | (51,575 | ) | (378 | ) | ||||||||
| Change in fair value liability of warrants | 7,442 | - | (106,345 | ) | - | |||||||||||
| Change in fair value of derivative liability | 80,672 | - | (115,271 | ) | - | |||||||||||
| 63,813 | (378 | ) | (273,191 | ) | (378 | ) | ||||||||||
| Loss before provision for income taxes | (972,184 | ) | (98,126 | ) | (3,225,355 | ) | (340,757 | ) | ||||||||
| Provision for income taxes | - | 800 | 800 | 800 | ||||||||||||
| Net loss | $ | (972,184 | ) | $ | (98,926 | ) | $ | (3,226,155 | ) | $ | (341,557 | ) | ||||
| Net loss per share – basic and diluted | $ | (0.10 | ) | $ | (0.02 | ) | $ | (0.33 | ) | $ | (0.08 | ) | ||||
| Weighted average shares outstanding | 9,869,672 | 4,227,641 | 9,645,954 | 4,118,826 | ||||||||||||
(in thousands except share and per share data)
(unaudited)
| For the Three-months ended | For the Six-Months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating expenses | ||||||||||||||||
| Sales and marketing | $ | - | $ | 8 | $ | - | $ | 17 | ||||||||
| General and administrative | 449 | 121 | 709 | 222 | ||||||||||||
| Total operating expenses | 449 | 129 | 709 | 239 | ||||||||||||
| Loss from operations | (449 | ) | (129 | ) | (709 | ) | (239 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (361 | ) | (248 | ) | (672 | ) | (491 | ) | ||||||||
| Initial and change in the fair value of derivative liability | 1,012 | (87 | ) | 1,679 | (87 | ) | ||||||||||
| Gain on extinguishment of debt | 210 | - | 215 | - | ||||||||||||
| Amortization of debt discount | (313 | ) | (50 | ) | (488 | ) | (125 | ) | ||||||||
| Total other income (expense) | 548 | (385 | ) | 734 | (703 | ) | ||||||||||
| Net income (loss) | 99 | (514 | ) | 25 | (942 | ) | ||||||||||
| Accrued and deemed dividends | (406 | ) | (392 | ) | (566 | ) | (1,274 | ) | ||||||||
| Net Loss Applicable to Common Stockholders | $ | (307 | ) | $ | (906 | ) | $ | (541 | ) | $ | (2,216 | ) | ||||
| Net loss per share – Common Stockholders - basic and diluted | $ | (0.01 | ) | $ | (0.08 | ) | $ | (0.01 | ) | $ | (0.20 | ) | ||||
| Weighted average shares outstanding - basic and diluted | 22,801,669 | 11,669,779 | 40,078,424 | 11,270,044 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MARINA BIOTECH, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
| 4 |
| Common Stock | Additional | Deferred | Accumulated | |||||||||||||||||||||
| Number | Par Value | Capital | Compensation | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2016 | 8,977,138 | $ | 53,863 | $ | 5,115,983 | $ | – | $ | (1,951,082 | ) | $ | 3,218,764 | ||||||||||||
| Sale of common stock to related party | 86,207 | 517 | 249,483 | – | – | 250,000 | ||||||||||||||||||
| Common stock issued for services | 30,000 | 180 | 53,820 | – | – | 54,000 | ||||||||||||||||||
| Common stock issued for accounts payable | 622,296 | 3,734 | 972,980 | – | – | 976,714 | ||||||||||||||||||
| Return of common stock for note receivable | (8,725 | ) | (52 | ) | (31,352 | ) | – | – | (31,404 | ) | ||||||||||||||
| Restricted stock issued to officers | 70,000 | 420 | 245,580 | (102,600 | ) | – | 143,400 | |||||||||||||||||
| Share based compensation | – | – | 74,895 | – | – | 74,895 | ||||||||||||||||||
| Exercise of warrants to common stock | 60,944 | 366 | 170,277 | – | – | 170,643 | ||||||||||||||||||
| Conversion of Series C Preferred to common stock | 180,000 | 1,080 | (1,080 | ) | – | – | ||||||||||||||||||
| Effects of rounding due to reverse split | 3,360 | 19 | (19 | ) | – | – | – | |||||||||||||||||
| Net loss | – | – | – | (3,226,155 | ) | (3,226,155 | ) | |||||||||||||||||
| Balance, September 30, 2017 | 10,021,220 | 60,127 | $ | 6,850,567 | $ | (102,600 | ) | $ | (5,177,237 | ) | 1,630,857 | |||||||||||||
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(in thousands, except share and per share data)
| 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, 2020 | 100 | $ | - | 40 | $ | - | 3,458 | $ | - | 361 | $ | - | 11,112,709 | $ | 67 | $ | 29,772 | $ | (44,612 | ) | $ | - | $ | (14,773 | ) | |||||||||||||||||||||||||||||||
| Accrued dividend | - | - | - | - | - | - | - | - | - | - | 505 | (882 | ) | - | (377 | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for term loan conversion | - | - | - | - | - | - | - | - | 518,000 | 3 | 23 | - | - | 26 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants with convertible notes | - | - | - | - | - | - | - | - | - | - | 28 | - | - | 28 | ||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature convertible notes | - | - | - | - | - | - | - | - | - | - | 19 | - | - | 19 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | (428 | ) | - | (428 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | 100 | $ | - | 40 | $ | - | 3,458 | $ | - | 361 | $ | - | 11,630,709 | 70 | $ | 30,347 | $ | (45,922 | ) | $ | - | $ | (15,505 | ) | ||||||||||||||||||||||||||||||||
| Accrued and deemed dividend | - | - | - | - | - | - | - | - | - | - | 11 | (392 | ) | - | $ | (381 | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of warrants with convertible notes | - | - | - | - | - | - | - | - | - | - | 69 | - | - | $ | 69 | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cashless exercise of warrants | - | - | - | - | - | - | - | - | 53,571 | - | - | - | - | $ | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for Series E conversion | - | - | - | - | -8 | - | - | - | 101,010 | 1 | 9 | - | - | $ | 10 | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | (514 | ) | - | $ | (514 | ) | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 100 | $ | - | 40 | $ | - | 3,450 | $ | - | 361 | $ | - | 11,785,290 | $ | 71 | $ | 30,417 | $ | (46,828 | ) | $ | - | $ | (16,340 | ) | |||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | 100 | $ | - | 40 | $ | - | 3,326 | - | 358 | - | 16,988,836 | $ | 102 | 27,809 | $ | (53,017 | ) | $ | - | $ | (25,106 | ) | ||||||||||||||||||||||||||||||||||
| Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | (364 | ) | - | (364 | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock with convertible notes | - | - | - | - | - | - | - | - | 250,000 | 1 | 17 | - | - | 18 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for convertible note conversions | - | - | - | - | - | - | - | - | 254,401 | 2 | 26 | - | - | 28 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | (74 | ) | - | (74 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | 100 | $ | - | 40 | $ | - | 3,326 | $ | - | 358 | $ | - | 17,493,237 | 105 | $ | 27,852 | $ | (53,455 | ) | $ | - | $ | (25,498 | ) | ||||||||||||||||||||||||||||||||
| Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | (202 | ) | - | (202 | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock with term loan | - | - | - | - | - | - | - | - | 384,615 | 2 | 9 | - | - | 11 | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series E Preferred to common stock | - | - | - | - | (3,059 | ) | - | - | - | 40,706,120 | 244 | 4,812 | - | - | 5,056 | |||||||||||||||||||||||||||||||||||||||||
| Conversion of Series F Preferred to common stock | - | - | - | - | - | - | (358 | ) | - | 4,662,524 | 28 | 513 | - | - | 541 | |||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | - | - | - | - | - | (119,046 | ) | - | - | - | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | - | - | - | - | 99 | - | 99 | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | 100 | $ | - | 40 | $ | - | 267 | $ | - | - | $ | - | 63,127,450 | 379 | $ | 33,186 | $ | (53,558 | ) | $ | (2 | ) | $ | (19,995 | ) | |||||||||||||||||||||||||||||||
The accompanying an integral part of these unaudited consolidated financial statements.
| 5 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| For the Six-Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows Used in Operating Activities: | ||||||||
| Net income (loss) | $ | 25 | $ | (942 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of debt discount and fees | 488 | 129 | ||||||
| Accrued interest expense | 672 | 487 | ||||||
| Derivative income (expense) | (1,679 | ) | 87 | |||||
| Gain on debt extinguishment | (215 | ) | — | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | (7 | ) | — | |||||
| Accounts payable | 30 | 23 | ||||||
| Accrued expenses | (4 | ) | 98 | |||||
| Net Cash Used in Operating Activities | (690 | ) | (118 | ) | ||||
| Cash Flows Provided by Financing Activities: | ||||||||
| Proceeds from notes payable and convertible notes, net of original issue discounts | 2,200 | 171 | ||||||
| Notes payable and convertible notes issuance costs | (328 | ) | (12 | ) | ||||
| Repurchase of common stock | (2 | ) | — | |||||
| Repayment of principal and interest on notes payable | (407 | ) | — | |||||
| Net Cash Provided by Financing Activities | 1,463 | 159 | ||||||
| Net increase in cash | 773 | 41 | ||||||
| Cash – Beginning of Year | 76 | 1 | ||||||
| Cash - End of Year | $ | 849 | $ | 42 | ||||
| Supplementary Cash Flow Information: | ||||||||
| Cash paid for interest | 81 | — | ||||||
| Cash paid for taxes | — | — | ||||||
| Non-cash Investing and Financing Activities: | ||||||||
| Conversion of Series E Preferred stock to common stock | 5,056 | 1 | ||||||
| Conversion of Series F Preferred stock to common stock | 541 | — | ||||||
| Debt discounts for issuance costs, warrants and derivatives | 10 | 97 | ||||||
| Issuance of common stock for conversion of convertible notes | 28 | 26 | ||||||
| Issuance of common stock with convertible notes | 20 | 26 | ||||||
| Cashless exercise of warrants | — | 4 | ||||||
| Accrued and deemed dividends | 566 | 1,274 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MARINA BIOTECH, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| 6 |
| For the Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash Flows Used in Operating Activities: | ||||||||
| Net loss | $ | (3,226,155 | ) | $ | (341,557 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Share based compensation | 218,295 | - | ||||||
| Common shares issued for third party services | 54,000 | - | ||||||
| Warrants issued for services | - | 36,470 | ||||||
| Amortization of intangibles | 327,642 | - | ||||||
| Change in fair value liabilities for price adjustable warrants | 106,345 | - | ||||||
| Change in fair value of derivative liability | 115,271 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | 125,098 | (479 | ) | |||||
| Accounts payable | 419,494 | 64,928 | ||||||
| Accrued expenses | 637,642 | (1,355 | ) | |||||
| Accrued fee | - | - | ||||||
| Due to related party | 299,166 | (54,150 | ) | |||||
| Net Cash Used in Operating Activities | (923,202 | ) | (296,143 | ) | ||||
| Cash Flows Used in Investing Activities: | ||||||||
| Purchase of intangible asset | (375,000 | ) | - | |||||
| Net Cash Used in Investing Activities | (375,000 | ) | - | |||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from sale of common stock to related party | 250,000 | - | ||||||
| Proceeds from notes payable, related party | 90,888 | - | ||||||
| Proceeds from convertible notes | 400,000 | 50,000 | ||||||
| Proceeds from convertible notes, related parties | 290,000 | - | ||||||
| Proceeds from exercise of warrants to common stock | 170,643 | - | ||||||
| Net Cash Provided by Financing Activities | 1,201,531 | 50,000 | ||||||
| (Decrease) in cash | (96,671 | ) | (246,143 | ) | ||||
| Cash – Beginning of Period | 105,347 | 261,848 | ||||||
| Cash - End of Period | $ | 8,676 | $ | 15,705 | ||||
| Supplementary Cash Flow Information: | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income taxes paid | $ | 800 | $ | - | ||||
| Non-cash Investing and Financing Activities: | , | |||||||
| Issuance of warrants for services | $ | - | $ | 36,470 | ||||
| Common stock issued for accrued expenses | $ | 976,714 | $ | - | ||||
| Return of common stock for other assets | $ | 31,404 | $ | - | ||||
| Adjustment to goodwill for change in value of pre-acquisition accounts payable | $ | 55,247 | $ | - | ||||
| Accrued interest | $ | 32,080 | ||||||
| Assumption of Liabilities for acquisition | $ | 320,000 | ||||||
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARINA BIOTECH, INC.For the Three and Six Months Ended June 30, 2022
Notes to Condensed Consolidated Financial Statements(Unaudited)
FOR THE THREE and NINE MONTHS ENDED SEPTEMBER 30, 2017
(Unaudited)
Note 1 – Nature ofOrganization and Business Operations Basis of Presentation and Significant Accounting Policies
Business Overview
Marina Biotech,Adhera Therapeutics, Inc. and its wholly-owned subsidiaries, MDRNA Research, Inc. (“MDRNA”), Cequent Pharmaceuticals, Inc. (“Cequent”), Atossa Healthcare, Inc. (“Atossa”), and IthenaPharma,IThenaPharma, Inc. (“IThena”) (collectively “Marina,” “we,” “our,“Adhera,” or “us”the “Company”), is an emerging specialty biotech company that, to the extent that resources and opportunities become available, is strategically evaluating its focus including a return to a drug discovery and development company.
On July 28, 2021, we as licensee 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 fully integrated, commercial stage biopharmaceutical company delivering proprietary drug therapeuticsnew class of therapeutic for significant unmet medical needs in the U.S., EuropeParkinson’s disease (PD) and certain additional international markets. Its portfolio of products currently focuses on fixed dose combinations (“FDC”) in hypertension, arthritis, pain and oncology allowing for innovative solutions to such unmet medical needs. Its mission is, to provide effectivethe best of our knowledge, the only drug candidate today to address both movement and patient centric treatmentnon-movement aspects of PD. Under the Agreement, we were granted an exclusive license to use the Melior II Patents and know-how to develop products in consideration for hypertension – including resistant hypertension. In this connection, we acquired from Symplmed and its wholly-owned subsidiary, Symplmed Technologies, LLC,cash payments upon meeting certain of the intellectual property assets related to the patented technology platform known as DyrctAxess, also called Total Care, that offers enhanced efficiency, control and information to empower patients, physicians and manufacturers to help achieve optimal care.
In doing so, we have created a universal platform for the effective treatment of hypertensionperformance milestones as well as a royalty of 5% of gross sales.
On August 20, 2021, we as licensee entered into an exclusive license agreement with Melior Pharmaceuticals I, Inc. (“Melior I”) for the distributiondevelopment, commercialization and exclusive license of FDC hypertensive drugs,MLR-1023. MLR-1023 is being developed as a novel therapeutic for Type 1 diabetes.
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.
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 our company as such asopportunities arise, including potential transactions and capital raising initiatives involving the assets relating to our FDA-approved product Prestalia, and the other products in our pipeline, devices for therapeutic drug monitoring, blood pressure, and other cardiac monitors,legacy RNA interference programs, as well as servicesbusiness combination transactions with operating companies. There can be no assurance that the Company will be successful at identifying any such as counseling and prescription reminders.
We currentlytransactions, that it will continue to have one commercial and three clinical development programs underway: (i) Prestalia®, a single-pill fixed dose combination of perindopril, an angiotensin-converting-enzyme (“ACE”) inhibitor and amlodipine, a calcium channel blocker (“CCB”), which has been approved bysufficient 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 U.S. Food and Drug Administration (“FDA”) and is actively marketedCompany does not complete any significant strategic transactions, or raise substantial additional capital, in the U.S.; (ii) our next generation celecoxib program drug candidates for the treatment of acute and chronic pain, IT-102 and IT-103, each of whichnear future, it is an FDC of celecoxib, a COX-2 selective nonsteroidal anti-inflammatory drug (“NSAID”) and either lisinopril (IT-102) or olmesartan (IT-103) – both Lisinopril and olmesartan are antihypertension drugs; (iii) CEQ508, an oral delivery of small interfering RNA (“siRNA”) against beta-catenin, combined with IT-102 to suppress polyps in the precancerous syndrome and orphan indication Familial Adenomatous Polyposis (“FAP”); and (iv) CEQ508 combined with IT-103 to treat Colorectal Cancer.
Our current focus is primarily on the commercialization of Prestalia and secondarily the development of IT-102 and IT-103. We believe that by combining a COX-2 inhibitor with an antihypertensive in a single FDC oral tablet, IT-102 and IT-103 will each offer improved safety profiles as compared to currently available and previously marketed COX-2 inhibitors as well as address patients with chronic pain who are commonly taking antihypertension drugs concurrently. We further believelikely that the current opioid addiction epidemic in the U.S. has been driven in part by the withdrawal from the market of certain COX-2 inhibitors due to their associated risk of cardiovascular-related adverse events. We plan to license or divest our other assets since they no longer align with our focus on the treatment of hypertension.Company will discontinue all operations and seek bankruptcy protection.
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We intend to create value through the continued commercialization of our FDA-approved product, Prestalia, while moving our FDC development programs forward to further strengthen our commercial presence. We intend to retain ownership and control of all of our product candidates, but in the interest of accelerated growth and market penetration, we will also consider partnerships with pharmaceutical or biotechnology companies in order to reduce time to market and to balance development risks, both clinically and financially.
As our strategy is to be a fully integrated biopharmaceutical company, we will drive a primary corporate focus on revenue generation through our commercial assets, with a secondary focus on advancing our FDC pipeline to further enhance our commercial presence.
Reverse Merger with IThenaPharmaADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 15, 2016, Marina entered into,For the Three and consummated the transactions contemplated by, an Agreement and Plan of Merger between and among IthenaPharma, Inc., a Delaware corporation (“IThena”), IThena Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Marina (“Merger Sub”), and Vuong Trieu as the IThena representative (the “Merger Agreement”), pursuant to which IThena merged into Merger Sub (the “Merger”). For a more detailed discussion on the reverse merger, refer to Six Months Ended June 30, 2022
(Unaudited)
Note 2 – Intangible Assets below as well as our 2016 Annual Report on Form 10K filed with the SEC.Summary of Significant Accounting Policies
IThena is a developer of personalized therapies for combined pain/hypertension through its proprietary Fixed Dose Combination (“FDC”) technology and point of care Therapeutic Drug Monitoring (“TDM”). Through the combination of these technologies, IThenaPharma is looking to deliver therapies with improved compliance and personalized dosing. IThena’s lead products are the celecoxib FDCs which include IT-102 and IT-103, fixed dose combinations of celecoxib and lisinopril and celecoxib and olmesartan, respectively. IT-102 and IT-103 are being developed as celecoxib without the drug induced edema associated with celecoxib alone. IT-102 and IT-103 are being developed initially for combined arthritis / hypertension and subsequently for treatment of pain, or cancer, or other indications requiring high doses of celecoxib.
Reverse Stock Split
On August 1, 2017, we filed a Certificate of Amendment of our Amended and Restated Certificate of Incorporation to effect a one-for-ten reverse split of our issued and outstanding shares of common stock. Our common stock commenced trading on the OTCQB tier of the OTC Markets on a split-adjusted basis on Thursday, August 3, 2017. Unless indicated otherwise, all share and per share information included in these financial statements give effect to the reverse split.
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 Form 10-Qthe rules and Article 8regulations of Regulation S-X.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 audited financial statements. The accompanying unaudited financial informationThis quarterly report should be read in conjunction with the audited consolidated financial statements includingin the notes thereto, as of andCompany’s Annual Report on Form 10-K for the year ended December 31, 2016, included in our 2016 Annual Report on Form 10-K filed with the SEC.2021. The information furnished in this reportReport 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 ninesix months ended SeptemberJune 30, 20172022, are not necessarily indicative of the results for the year ending December 31, 20172022 or for any future period.
Principles of Consolidation
The consolidated financial statements include the accounts of IThenaPharma Inc. and Marina Biotech,Adhera Therapeutics, Inc. and the wholly-owned subsidiaries, Ithena, Cequent, MDRNA, and Atossa, and eliminate 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 condensed consolidated financial statements have been prepared on the basis that wethe Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At SeptemberAs of June 30, 2017, we2022, the Company had a significant accumulated deficitcash and cash equivalents of $5,177,237approximately $849,000 and ahas negative working capital of $4,551,207. We had obtained a lineapproximately $20.0 million.
The Company has incurred recurring losses and negative cash flows from operations since inception and has funded its operating losses through the sale of credit from Autotelic Inc.common stock, preferred stock, warrants to purchase common stock, convertible notes and secured promissory notes. The Company recognized net income of $500,000, of which we have utilized $92,590. As such, we currently have approximately $407,000 of available funds under our line of credit under this line of credit with Autotelic Inc. We believe this amount of available funds is sufficient to fund our operations through December 31, 2017. Our$25,000 for the six months ended June 30, 2022 and used cash in operating activities consume the majority of our cash resources. We anticipate that we will continue to incur operating lossesapproximately $690,000. The Company had an accumulated deficit of approximately $53.6 million as we execute our commercialization plans, as well as strategic and business development initiatives. of June 30, 2022.
In addition, we have had andto 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. We have previously funded, and plan to continue funding, our losses primarily throughHowever, the sale of common and preferred stock, combined with or without warrants, the sale of notes, revenue provided from our license agreements and, to a lesser extent, equipment financing facilities and secured loans. However, weCompany cannot be certain that weit will be able to obtain such funds required for its our operations at terms acceptable to usthe Company or at all. In 2016, we fundedGeneral market conditions, as well as market conditions for companies in the Company’s financial and business position, as well as the ongoing issues arising from the COVID-19 pandemic, the Ukraine war and inflation and the Federal Reserve interest rate increases in response, 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. 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, primarilythere 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 issuance of convertible debt and license-related revenues.
There isCompany’s ability to achieve its intended business objectives. These factors raise substantial doubt about ourthe Company’s ability to continue as a going concern for one yeara period of twelve months from the issuance date of this Form 10-Q, which may affect our ability to obtain future financing or engage in strategic transactions, and may require us to curtail our operations. We cannot predict, with certainty,Report. The consolidated financial statements do not contain any adjustments that might result from the outcomeresolution of our actions to generate liquidity, includingany of the availability of additional equity or debt financing, or whether such actions would generate the expected liquidity as currently planned.above uncertainties.
Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of six months or less at the time of purchase to be cash equivalents. As of June 30, 2022, the Company had approximately $849,000 in cash.
The Company deposits its cash with major financial institutions that may at times exceed the federally insured limit. As of June 30, 2022 the Company had $599,000 of cash in excess of the federally insured limit of $250,000.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Significant areas requiring the use of management estimates include valuation allowance for deferred income tax assetsaccruals related to our operating activity including legal and other consulting expenses, the fair value of financial instruments.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.
Fair Value of Financial Instruments
We considerThe Company considers the fair value of cash, accounts payable, due to related parties, notes payable, notes payable to related parties, convertible notes payabledebt, and accrued liabilitiesexpenses 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 threesix broad levels. The following is a brief description of those threesix levels:
| Level 1: | Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| Level 2: | Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
| Level 3: | Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use. |
Our cashAs of June 30, 2022, 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 subject toLevel 3 in the fair value measurement and ishierarchy, resulting in a fair value estimate of approximately $7.1 million. The value of the derivative liability as of June 30, 2022, was determined by Level 1 inputs. We measure the liability for committed stock issuances with a fixed share number using Level 1 inputs. We measure the liability for price adjustable warrants and certain features embedded in notes, using the probability adjusted Black-Scholes option pricingbinomial lattice model (“Black-Scholes”)using the following inputs: risk free rate of % to %, which management has determined approximates values using more complex methods, using Level 3 inputs. The following tables summarize ourvolatility of % to % and time to maturity of zero to years. There were 0 liabilities or assets measured at fair value on a recurringnon-recurring basis as of SeptemberJune 30, 20172022.
Schedule of Fair Value Measurements
| (in thousands) | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
| Fair Value Measurements at June 30, 2022 | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
| (in thousands) | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
| Derivative liability | $ | - | $ | - | $ | 7,098 | $ | 7,098 | ||||||||
| Total | $ | - | $ | - | $ | 7,098 | $ | 7,098 | ||||||||
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and December 31, 2016:
| Balance at September 30, 2017 | Level 1 Quoted prices in active markets for identical assets | Level 2 Significant other observable inputs | Level 3 Inputs | |||||||||||||
| Liabilities: | ||||||||||||||||
| Fair value liability for price adjustable warrants | $ | 248,068 | $ | - | $ | - | $ | 248,068 | ||||||||
| Derivative liability | 115,271 | - | - | 115,271 | ||||||||||||
| Total liabilities at fair value | $ | 363,339 | $ | - | $ | - | $ | 363,339 | ||||||||
Balance at December 31, 2016 | Level 1 Quoted prices in active markets for identical assets | Level 2 Significant other observable inputs | Level 3 Significant unobservable inputs | |||||||||||||
| Liabilities: | ||||||||||||||||
| Fair value liability for price adjustable warrants | $ | 141,723 | $ | - | $ | - | $ | 141,723 | ||||||||
| Total liabilities at fair value | $ | 141,723 | $ | - | $ | - | $ | 141,723 | ||||||||
Six Months Ended June 30, 2022
(Unaudited)
A roll forward of the level 3 valuation financial instruments is as follows:
Schedule of Roll Forward of Level 3 Financial Instruments
| (In thousands) | Warrants | Notes | Total | |||||||||
Six-Months Ended June 30, 2022 | ||||||||||||
| (In thousands) | Warrants | Notes | Total | |||||||||
| Balance at December 31, 2021 | $ | 5,336 | $ | 2,361 | $ | 7,697 | ||||||
| Initial valuation of derivative liabilities included in debt discount | 1,151 | 163 | 1,314 | |||||||||
| Initial valuation of derivative liabilities included in derivative expense | — | 108 | 108 | |||||||||
| Reclassification of derivative liabilities loss to gain on debt extinguishment | — | (233 | ) | (233 | ) | |||||||
| Change in fair value included in derivative expense | (617 | ) | (1,171 | ) | (1,788 | ) | ||||||
| Balance at June 30, 2022 | $ | 5,870 | $ | 1,228 | $ | 7,098 | ||||||
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The following presents activity offair 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.
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 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 price adjustable warrants determined by Level 3 inputsour 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 period ended September 30, 2017: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.
| Fair value liability for price adjustable warrants | ||||
| Balance at December 31, 2016 | $ | 141,723 | ||
| Change in fair value included in condensed consolidated statement of operations | 106,345 | |||
| Balance at September 30, 2017 | $ | 248,068 | ||
TheConvertible debt – beneficial conversion feature
Prior to the Company’s adoption of ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) on January 1, 2021, if the conversion feature was not treated as a derivative, the Company assessed whether it is a beneficial conversion feature (“BCF”). A BCF exists if the effective conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value liability of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price adjustable warrantsand the common stock into which it is convertible and is recorded as additional paid in capital and as a debt discount in the consolidated balance sheets. The Company amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
If the conversion feature does not qualify for derivative treatment, the convertible debt is treated as traditional debt.
Recently Issued Accounting Pronouncements
Recently Adopted
In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles-Goodwill and Other (Topic 350) (“ASU 2017-04”), which will simplify the goodwill impairment calculation by eliminating Step 2 from the current goodwill impairment test. The new standard does not change how a goodwill impairment is identified. The Company will continue to perform its quantitative goodwill impairment test by comparing the fair value of its reporting unit to its carrying amount, but if the Company is required to recognize a goodwill impairment charge, under the new standard, the amount of the charge will be calculated by subtracting the reporting unit’s fair value from its carrying amount. Under the current standard, if the Company is required to recognize a goodwill impairment charge, Step 2 requires it to calculate the implied value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination and the amount of the charge is calculated by subtracting the reporting unit’s implied fair value of goodwill from the goodwill carrying amount. The standard was effective January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on the Company’s historical consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which will simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including certain convertible instruments and contracts on an entity’s own equity. Specifically, the new standard will remove the separation models required for convertible debt with cash conversion features and convertible instruments with beneficial conversion features. It will also remove certain settlement conditions that are currently required for equity contracts to qualify for the nine months ended September 30, 2017 was determined usingderivative scope exception and will simplify the probability adjusted Black-Scholes option pricing model using exercise prices of $2.80 to $7.50, stock price of $2.70, volatility of 174% to 225%, contractual lives of 0.1 to 4.1 years, and risk-free rates of 0.62% to 1.93%.
The following presents activity of the derivative liability determined by Level 3 inputsdiluted earnings per share calculation for convertible instruments. ASU 2020-06 will be effective January 1, 2022, for the period ended September 30, 2017:
Fair value liability | ||||
| Balance at December 31, 2016 | $ | - | ||
| Additions | 195,943 | |||
| Change in fair value included in condensed consolidated statement of operations | (80,672 | ) | ||
| Balance at September 30, 2017 | $ | 115,271 | ||
The fair value liability of derivative liabilityCompany and may be applied using a full or modified retrospective approach. Early adoption is permitted, but no earlier than January 1, 2021, for the nine months ended September 30, 2017 wasCompany. The Company adopted ASU No. 2020-06 on January 1, 2021. Management determined usingsuch adoption did not have a material impact on the binomial pricing model using exercise pricesoverall stockholders’ equity (deficit) in the Company’s consolidated financial statements.
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 $2.80, stock pricefreestanding 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 $2.70, volatilitya freestanding equity-classified written call option that is not within the scope of 168%, contractual life of 1 year, and a risk-free rate of 1.31%.another Topic:
Impairment of Long-Lived Assets
We review all of our long-lived assets for impairment indicators throughout the year and perform detailed testing whenever impairment indicators are present. In addition, we perform detailed impairment testing for indefinite-lived intangible assets, at least annually, at December 31. When necessary, we record charges for impairments. Specifically:
| 2. | An entity should measure the effect of a modification or |
| a. | For a modification or an exchange that is a part of or directly related to | |
| i. | An increase or a decrease in the fair value of the modified or exchanged written call option in applying the 10 percent cash flow test and/or calculating the fees between debtor and creditor in accordance with Subtopic 470-50, Debt—Modifications and Extinguishments. |
| 11 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
| ii. | An increase (but not a decrease) in the fair value of the modified or exchanged written call option in calculating the third-party costs in accordance with Subtopic 470-50. |
| b. | For all other modifications or exchanges, as the excess, if any, of |
| 3. | An entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the substance of the transaction, in the same manner as if cash had been paid as consideration, as follows: |
| a. | A financing transaction to raise equity. The effect should be recognized as an equity issuance cost in accordance with the guidance in Topic 340, Other Assets and Deferred Costs. | |
| b. | A financing transaction to raise or modify debt. The effect should be recognized as a cost in accordance with the guidance in Topic 470, Debt, and Topic 835, Interest. | |
| c. | Other modifications or exchanges that are not related to financings or compensation for goods or services or other exchange transactions within the scope of another Topic. The effect should be recognized as a dividend. For entities that present EPS in accordance with Topic 260, that dividend should be an adjustment to net income (or net loss) in the basic EPS calculation. |
Management determinedAn 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 no impairment indicators were presentincludes both debt financing and that no impairment charges were necessary as of September 30, 2017 or December 31, 2016.
Net Income (Loss) per Common Share
Basic net income (loss) per common share (after givingequity financing), the total effect of the onemodification should be allocated to the respective elements in the transaction.
The amendments in ASU 2021-04 are effective for ten reverse stock split)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 computedpermitted 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. The adoption by the Company as of January 1, 2022 did not have a significant impact on its financial statements.
Other accounting 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 income (loss)loss by the weighted average number of common shares outstanding during the period, excluding any unvested restricted stock awards.period. Diluted net income (loss)loss per share includesis computed by dividing the effectnet loss by the weighted average number of common shares and common stock equivalents (stockoutstanding for the period. Common stock equivalents are only included when their effect is dilutive. Potentially dilutive securities which include outstanding warrants, stock options, unvested restrictedconvertible notes and preferred stock and warrants) when, under either the treasury or if-converted method, such inclusion inhave been excluded from the computation of diluted net loss per share as their effect would be dilutive. Net income (loss) is adjusted foranti-dilutive. For all periods presented, basic and diluted net loss were the dilutive effectsame.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
Schedule of Earnings Per Share, Basic and Diluted
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) | $ | 99 | $ | (514 | ) | $ | 25 | $ | (942 | ) | ||||||
Accrued and deemed dividends | (406 | ) | (392 | ) | (566 | ) | (1,274 | ) | ||||||||
| Net Loss allocable to common stockholders | $ | (307 | ) | $ | (906 | ) | $ | (541 | ) | $ | (2,216 | ) | ||||
| Denominator | ||||||||||||||||
| Weighted average common shares outstanding used to compute net loss per share, basic and diluted | 22,801,669 | 11,669,779 | 40,078,424 | 11,270,044 | ||||||||||||
| Net loss per share of common stock, basic and diluted | ||||||||||||||||
| Net loss per share | $ | (0.01 | ) | $ | (0.08 | ) | $ | (0.01 | ) | $ | (0.20 | ) | ||||
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
| Six-Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Stock options outstanding | 380,000 | 387,550 | ||||||
| Convertible notes | 48,802,730 | 20,952,683 | ||||||
| Warrants | 102,655,674 | 59,836,767 | ||||||
| Series C Preferred Stock | 66,667 | 66,667 | ||||||
| Series D Preferred Stock | 50,000 | 50,000 | ||||||
| Series E Preferred Stock | 3,559,229 | 43,325700 | ||||||
| Series F Preferred Stock | — | 4,446,980 | ||||||
| Total | 155,514,300 | 129,066,417 | ||||||
As of June 30, 2022, the Company’s fully diluted common stock and equivalents exceeded the shares currently authorized.
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.
| 13 |
| Nine months ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Stock options outstanding | 233,400 | - | ||||||
| Warrants | 2,492,945 | 13,917 | ||||||
| Convertible Notes Payable | 315,746 | - | ||||||
| Restricted common stock | 70,000 | |||||||
| Total | 3,112,091 | 13,917 | ||||||
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
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.
Note 23 – Intangible AssetsPrepaid Expenses
Reverse Merger with IThenaPharmaAs of June 30, 2022, and December 31, 2021 prepaid expenses were approximately $127,000 and $120,000, respectively and included prepaid manufacturing expenses for the Company’s clinical development candidate MLR-1019 and prepaid insurance recorded on the accompanying balance sheet.
On November 15, 2016, weNote 4 – Notes Payable and Convertible Promissory Notes
The following table summarizes the Company’s outstanding term loans:
Schedule of Outstanding Term Loans
| (in thousands) | June 30, 2022 | December 30, 2021 | ||||||
| 2019 Term Loan | $ | 5,677 | $ | 5,677 | ||||
| 2022 Term Loan | 2,222 | - | ||||||
| Notes payable | 7,899 | 5,677 | ||||||
| Unamortized discounts | (1,592 | ) | - | |||||
| Loans payable | $ | 6,307 | $ | 5,677 | ||||
2019 Term Loans
During 2019, the Company entered into and consummated the transactions contemplated by, an Agreement and Plan of Merger between and among Marina Biotech, Inc., IThenaPharma Inc., a Delaware corporation (“IThena”), IThena Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Marina (“Merger Sub”), and Vuong Trieu as the IThena representative (the “Merger Agreement”),term loan subscription agreements with certain accredited investors, pursuant to which IThena merged into Merger Sub (the “Merger”the Company issued secured promissory notes in the aggregate principal amount of approximately $5.7 million (collectively, the “2019 Term Loans”). Upon completionThe 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 Mergerloan using the straight-line method.
The promissory notes accrued interest at a rate of 12% per annum. Interest is payable quarterly with the first interest payment to be made on December 28, 2019, and subjecteach 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 applicable provisionsdefault rate of 15%.
The unpaid principal balance of the Merger Agreement, Merger Sub has ceased to existnotes, plus accrued and IThena continues asunpaid interest thereon, matured on June 28, 2020. The notes were secured by a first lien and security interest on all the surviving corporationassets of the MergerCompany 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 wholly-owned subsidiarymajority of Marina. As considerationthe 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 Merger, Marina issuednote holders in consideration of the signed noteholder agreements agreed to forbear all notes outstanding.
| 14 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
The Company recognized approximately $212,000 and $422,000 in interest expense related to the former shareholdersNotes for both the three and six months ended June 30, 2022 and June 30, 2021. As of IThena 58,392,828June 30, 2022, the debt discount and issuance costs for this term loan were fully amortized.
As of June 30, 2022, the Company had approximately $2.4 million of accrued interest on the notes included in accrued expenses and remains in default on the repayment of approximately $5.7 million in principal and the $2.4 million in accrued interest on the 2019 Term Loans.
2022 Term Loan
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 $222,222 for a purchase price of $2,000,000 and warrants to purchase 22,222,218 shares of the Company’s common stock, (5,839,283 sharespursuant to the terms and conditions of the SPA and secured by a Security Agreement as described below. The Company received total consideration of $1,692,200 after adjustmentdebt issuance costs of $307,800.
The Notes are 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 Warrants are exercisable for a 66 month period (five years and six months) ending November 11, 2027, at an exercise price of $0.04 per share, subject to certain adjustments.
The Company recorded a total debt discount of $1,693.000including 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 $1,151,000 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.
For the three and six months ended June 30, 2022, the Company recognized approximately $100,640 related to the amortization of debt discounts and fees and approximately $25,100 in interest expense related to the note that was deemed earned as of the date of issuance. No interest expense or debt discount was recognized for the same period of 2021.
At June 30, 2022, the Company has recorded $2,222,222 of outstanding principal $25,100 of accrued interest and approximately $1,592,000 of unamortized discount and issuance expenses.
Convertible Promissory Notes
The following table summarizes the Company’s 1outstanding convertible notes as of June 30, 2022, and December 31, 2021:
Schedule of Convertible Promissory Notes
| (in thousands) | June 30, 2022 | December 31, 2021 | ||||||
| Convertible Notes | $ | 1,431 | $ | 1,516 | ||||
| Unamortized discounts and fees | (392 | ) | (530 | ) | ||||
| Convertible notes payable, net | $ | 1,039 | $ | 986 | ||||
Ten convertible notes with outstanding principal of approximately $1.2 million were in default as of June 30, 2022.
| 15 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 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 10 reverse stock split in August 2017)a total purchase price of $499,950, representing approximately 65% of the issued and outstanding shares of Marina’s common stock following the completion of the Merger. Outstanding(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. This results in a variable quantity of warrants at any point in time due to the variable conversion price of the Notes. (See Note 7).
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%.
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) $0.50 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 March 19, 2021, the holder of the Convertible Note converted $25,900 of interest into shares of common stock.
On July 29, 2021, the holder of the Convertible Note converted $27,500 of interest into shares of common stock.
On August 16, 2021, the holder of the Convertible Note converted $25,000 of principal and interest into shares of common stock.
On September 13, 2021, the holder of the Convertible Note converted $32,500 of principal and interest into shares of common stock.
On October 4, 2021, the holder of the Convertible Note converted $26,250 of principal and interest into shares of common stock.
On November 29, 2021, the holder of the Convertible Note converted $31,150 of principal and interest into shares of common stock.
| 16 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
The total note principal and interest converted during the year ended December 31, 2021, was $168,300 and common shares issued were valued at fair value based on the quoted trading prices on the conversion dates aggregating approximately $554,000 resulting in a loss on debt extinguishment of $386,000. In addition, derivative fair value of $245,000 relating to the portion of the Note converted was settled resulting in gain on extinguishment of approximately $245,000. The net loss on extinguishment was approximately $141,000.
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.
For the three and six months ended June 30, 2022, the Company recognized approximately $21,000 and $46,000 in interest expense related to the note, respectively. The Company recognized $25,000 and $50,000 in interest expense related to the notes for the three and six months ended June 30, 2021, respectively.
As of June 30, 2022, the Company had accrued interest on the February 2020 Convertible Note of approximately $147,000.
As of June 30, 2022, the Company remains in default on the repayment of remaining principal of $457,359 and 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 IThenathe Company at the option of the noteholder at a conversion price of $0.02 (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 $0.039 as a result of issuance of common shares for a convertible note conversion.
| 17 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
For the three six-month period ended June 30, 2022 and June 30, 2021 the Company recognized approximately $2,600and $5,300in interest related to the note. As of June 30, 2022, the debt discount and issuance costs for the note were convertedfully amortized.
As of June 30, 2022, the Company remains in default on the repayment of principal of $58,055 and approximately $21,000 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 $0.07 (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 $0.05 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%.
Additionally, the Company issued the noteholder 1,587,301 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 $0.05 and the Company issued an additional 952,379 warrants to the note holder. The Company recorded approximately $57,000 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 0.92 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 $0.049 to $0.039 as a result of a convertible note exercise and the Company issued an additional 716,320 warrants to the note holder.
For the three and six months ended June 30, 2022, the Company recognized approximately $5,000 and $10,000 in interest expense for the note, respectively. For the three and six-month periods ended June 30, 2021, the Company recognized approximately $5,000 and $9,700 in interest expense including $1,000 and $2,600 related to the amortization of debt issuance costs, respectively. For the three and six-month period ended June 30, 2021, the Company recognized $20,000 and $79,000 and related to the amortization of debt discount. As of June 30, 2022, the debt discount and issuance costs for the note were fully amortized.
| 18 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
As of June 30, 2022, the Company has outstanding principal of $111,111 and accrued interest on the note of approximately $29,000.
As of June 30, 2022, 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.
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 Marina. In addition, Marina appointed Vuong Trieu, the president of IThena, asCompany at the Chairmanoption of the Boardnoteholder at a conversion price of Directors$0.07 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of Marina, effective November 15, 2016. Dr. Trieu,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 his capacityall assets of the Company.
Additionally, the Company issued to the investor 753,968 warrants to purchase the Company’s common stock at an exercise price of $0.08 per share subject to certain adjustments as defined in the IThena representative, later appointed Philippe P. Calais, Ph.D.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 $0.05 and the Company issued an additional 452,372 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 $1,000 based 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.
On January 27, 2022, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.049 to $0.039, as a memberresult of a convertible note exercise and the Company issued an additional 340,250 warrants to the note holder.
For the three and six months ended June 30, 2022, the Company recognized approximately $2,400 and $4,800 in interest expense on the note, respectively,For the three and six-month periods ended June 30, 2021, the Company recognized approximately $1,700 and $2,900 in interest expense including approximately $400 and $700 related to the amortization of debt issuance costs, respectively. For the three and six-month period ended June 30, 2021, the Company recognized $11,000 and $29,000 related to the amortization of debt discount. As of June 30, 2022, the debt discount and issuance costs on the note were fully amortized.
| 19 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
As of June 30, 2022, the Company has outstanding principal of $52,778 on the note and has recorded approximately $11,500 of accrued interest included in accrued expenses on the accompanying balance sheet.
As of June 30, 2022, 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 Boardholder, the holder of Directorsthe note is due 125% of Marina effective December 8, 2016, pursuantthe 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 rights grantedCompany 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 former shareholdersinvestor 800,000five-year warrants to purchase the Company’s common stock at an exercise price of IThena$0.095 per share. The warrants have full ratchet protection.
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 Merger Agreement.
As the former shareholders of IThena control greater than 50%common stock of the Company at the option of the noteholder at a conversion price of $0.075 (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 Merger,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 $0.075 and the Company issued an additional 213,333 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 250,000 warrants issued with the April 2021 Convertible Note.
On November 30, 2021, the exercise price of the warrants was adjusted to $0.05 based on a note conversion at $0.05 and the Company issued an additional 131,667 warrants to the note holder.
On January 27, 2022, the exercise price of the note and warrants was adjusted from the default conversion price of $0.0525 to $0.039 based on a convertible note conversion at $0.039 and the Company issued an additional 322,949 warrants to the note holder.
For the three and six months ended June 30, 2022, the Company recognized approximately $3,000 and $6,000 in interest expense for accounting purposes, the Mergernotes. For the three and six-month periods ended June 30, 2021, the Company recognized approximately $1,500 in interest expense. For the three and six-month period ended June 30, 2021, the Company recognized $16,000 related to the amortization of debt discount. As of June 30, 2022, the debt discounts and issuance costs on the note were fully amortized.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
As of June 30, 2022, the Company has recorded $66,667 of principal and approximately $12,100 of accrued interest for the note on the accompanying balance sheet.
As of June 30, 2022, 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 800,000six-year warrants to purchase the Company’s common stock at an exercise price of $0.095 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 $76,000 which is a full ratchet price protection provision.
The note matured on June 25, 2022. Interest accrues 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 $0.075 (as adjusted for stock splits, stock combinations and similar events); provided, however that in the event, the Company’s Common Stock trades below $0.08 per share for more than three [confirm] 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.
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 $0.075 and the Company issued an additional 213,333 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.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
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 $0.05 based on a note conversion at $0.05 and the Company issued an additional 506,667 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 $0.039 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 $0.039 per share and the Company issued an additional 428,718 warrants to the holder of the note.
For the three and six months ended June 30, 2022, the Company recognized approximately $9,900 and $19,600 related to the amortization of debt discounts and approximately $3,400 and $7,000 in interest expense related to the note. The Company recorded $100.00 in interest and $4,400 for the amortization of debt discount for the period ended June 30, 2021.
As of June 30, 2022, the Company has recorded $57,000 of outstanding principal and approximately $12,200 of accrued interest and $19,000 of unamortized discount and issuance expenses.
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 800,000 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 on August 11, 2022 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 $0.075 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 $0.08, 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 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 six years at a price of $0.095 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 $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 $0.05 based on a note conversion at $0.05 and the Company issued an additional 720,000 warrants to the note holder.
On January 27, 2022, the conversion price of the notes was adjusted to the lower of $0.039 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $0.08, 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 $0.039 per share and the Company issued an additional 428,718 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 $0.039 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.
For the three and six months ended June 30, 2022, the Company recognized approximately $40,000 and $94,000 related to the amortization of debt discount and approximately $73,000 and $85,400 in interest expense related to the note. Interest expense for the three months ended June 30, 2022, included approximately $67,000 in additional interest accrued due to penalties incurred for early redemption of the note. No interest expense or debt discount was recognized for the same periods of 2021.
As of June 30, 2022, the Company has remaining $85,000 of outstanding principal and approximately $37,000 of accrued interest and $40,000 of unamortized discount.
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 800,000 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
The note matures on August 17, 2022 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 $0.075 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 $0.08, 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 “reverse acquisition” and IThena is consideredbifurcated derivative liability.
In addition to customary anti-dilution adjustments the accounting acquirer. IThena accounted forNote provides, subject to certain limited exceptions, that if the acquisition of Marina underCompany issues any common stock or common stock equivalents, as defined in the purchase accounting method following completion. Accordingly, IThena’s historical results of operations replace Marina’s historical results of operations for all periods priorNote, at a per share price lower than the conversion price then in effect, the conversion price will be reduced to the Merger,per share price at which such shares or common share equivalents were sold.
The Warrants are initially exercisable for a period of six years at a price of $0.095 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 $100,571 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 0.77%, 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 all periods followingno consideration.
On November 15, 2021, the Merger,Company defaulted on certain covenants in the resultsnote and the interest rate on the note reset to 24% per annum.
On November 30, 2021, the exercise price of operationsthe warrants was adjusted to $0.05 based on a note conversion at $0.05 and the Company issued an additional 720,000 warrants to the note holder.
On January 27, 2022, the conversion price of both companies are included. Asthe notes was adjusted to the lower of $0.039 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $0.08, 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 $0.039 per share and the Company issued an additional 428,718 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of the Merger, while we have presented the results fora convertible note exercise at $0.039 per share.
For the three and ninesix months ended SeptemberJune 30, 20172022, the Company recognized approximately $35,000 and 2016;$69,700 related to the resultsamortization of debt discount and $12,600 and $25,000 in interest expense related to the note, respectively. No interest expense or debt discount was recognized for the 2016 periods reflect onlysame period of 2021.
As of June 30, 2022, the resultsCompany has recorded $220,500 of IThena.outstanding principal and approximately $40,400 of accrued interest and $88,200 of unamortized discount and issuance expenses.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
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 $131,250 and a six-year warrant to purchase 476,190 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 $0.075 per share, subject to certain adjustments.
The Warrants are exercisable for three-years from October 4, 2021, at an exercise price of $0.095 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.
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 $0.039 based on a convertible note conversion at $0.039.
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 balance sheet. In addition, the Company repaid an additional $11,571 of principal and $8,428 of interest on the note during the three-month period ended June 30, 2022. The Company recorded approximately $81,700 gain on debt extinguishment resulting from the settlement of the derivative as a result of repayment of the note.
For the three and six months ended June 30, 2022, the Company recognized approximately $32,700 and $65,000 related to the amortization of debt discount and approximately $244 and $5,200 in interest expense related to the note, respectively. No interest expense or debt discount was recognized for the same period of 2021.
As of June 30, 2022, the Company has recorded $36,200 of outstanding principal and $34,200 of unamortized discount and issuance expenses. No interest on the note was due as of June 30, 2022.
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 476,190 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 52,632 shares as a commission to the broker.
The Note is due October 7, 2022. The Note provides for interest at the rate of 10% 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 investor’s option at a conversion price of $0.075 per share, subject to certain adjustments.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
The Warrants are exercisable for six-years from October 7, 2021, at an exercise price of $0.095 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.
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.
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 $0.039 based on a convertible note conversion at $0.039.
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 balance sheet. In addition, the Company repaid an additional $11,571 of principal and $8,428 of interest on the note during the three-month period ended June 30, 2022. The Company recorded approximately $82,900 gain on debt extinguishment related to the settlement of the derivative liability as a result of repayment of the note.
For the three and six months ended June 30, 2022, the Company recognized approximately $32,700 and $65,100 related to the amortization of debt discounts and approximately $295 and $5,300 in interest expense related to the note. No interest expense or debt discount was recognized for the same period of 2021.
As of June 30, 2022, the Company has recorded $36,200 of outstanding principal and $35,200 of unamortized discount and issuance expenses. No interest on the note was due as of June 30, 2022.
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 $250,000 for 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.
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, $39,285.71, 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.
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 $3.7 million represents$3,596, and a $162,020 discount related to the consideration ininitial derivative value of the reverse merger transaction and is calculatedembedded 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.
For the three and six months ended June 30, 2022, the Company recognized approximately $62,300 and $74,000 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.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
At June 30, 2022, the Company has recorded $250,000 of outstanding principal $25,000 of accrued interest and $176,000 of unamortized discount and issuance expenses.
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 potentially issuable exceed the Company’s authorized share limit as of June 30, 2022, the equity environment was tainted and all convertible debentures and warrants were included in the value of the combined company that Marina stockholders ownedderivative. 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 closing of the transactionreclassification date and theshall be adjusted to fair value through earnings at each reporting date. The fair value of assetsthe embedded conversion options and the warrants was determined using the Binomial Lattice valuation model. At the end of each period and on note conversion date or repayment or on the warrant exercise date, the Company revalues the derivative liabilities assumed by IThena.resulting from the embedded option.
The number of shares of common stock Marina issued to IThena stockholders is calculated pursuant toFor the termssix-month period ended June 30, 2022, in connection with the issuance of the Merger Agreement basedNotes and warrants, on Marina common stock outstanding as of November 15, 2016, as follows (retroactively adjusted for the 1 for 10 reverse stock split in August 2017):
The application of the acquisition method of accounting is dependent upon certain valuations and other studies that have yet to be completed. The purchase price allocation will remain preliminary until IThena management determines the fair values of assets acquired and liabilities assumed. The final determination of the purchase price allocation is anticipated to be completed as soon as practicable after completion of the transaction and will be based oninitial measurement dates, the fair values of the assets acquiredembedded conversion option of approximately $1,422,000 was recorded as derivative liabilities of which $1,314,000 was allocated as a debt discount and liabilities assumed$108,000 as derivative expense.
At the end of the transaction closing date. The final amounts allocated to assets acquiredperiod, the Company revalued the embedded conversion option derivative liabilities. In connection with the initial valuations and liabilities assumed could differ significantlythese revaluations, the Company recorded a gain from the amounts presented.
The purchase price as of September 30, 2017 has been allocated based on a preliminary estimate ofinitial and change in the derivative liabilities fair value of assets acquired and liabilities assumed:
| Assets and Liabilities Acquired: | ||||
| Cash | $ | 5,867 | ||
| Net current liabilities assumed (excluding cash) | (1,871,725 | ) | ||
| Identifiable intangible assets | 2,361,066 | |||
| Debt | (326,037 | ) | ||
| Net assets acquired | 169,171 | |||
| Goodwill | 3,502,829 | |||
| Purchase price | $ | 3,672,000 |
The above estimated purchase price allocation and goodwill valuation reflects changes in fair value determinations of $55,246approximately $1,789 for the nine monthssix-month period ended SeptemberJune 30, 2017 and approximately $1,238,000 since the Merger date. As part of the Merger, the Company allocated $3,502,829 to goodwill. Additionally, a substantial portion of the assets acquired were allocated to identifiable intangible assets. The fair value of the identifiable intangible asset is determined primarily using the “income approach,” which requires a forecast of all the expected future cash flows.2022.
On November 15, 2016, Marina agreed to issue to Novosom Verwaltungs GmbH (“Novosom”) 0.15 million shares of common stock upon the closing of the Merger in consideration of Novosom’s agreement that the consummation of the Merger would not constitute a “Liquidity Event” under that certain Asset Purchase Agreement dated as of July 27, 2010 between and among Marina, Novosom and Steffen Panzner, Ph.D., and thus that no additional consideration under such agreement would be due to Novosom as a result of the consummation of the Merger.
In July 2016, Marina pledged to issue common stock valued at approximately $15,000 to Novosom for the portion due under our July 2010 Asset Purchase Agreement with Novosom, related to Marina’s license agreement with an undisclosed licensee that grants such licensee rights to use Marina’s technology and intellectual property to develop and commercialize products combining certain molecules with Marina’s liposomal delivery technology known as NOV582. In November 2016, we issued 11,905 shares with a value of approximately $15,000 to Novosom as the equity component owed under our July 2016 license agreement.
Acquisition of Assets from Symplmed
In June 2017, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Symplmed Pharmaceuticals LLC (“Symplmed”) pursuant to which we purchased from Symplmed, for aggregate consideration of approximately $0.62 million (consisting of $0.4 million in cash plus the assumption of certain liabilities of Symplmed in the amount of approximately $0.32 million), Symplmed’s assets relating to a single-pill FDC of perindopril arginine and amlodipine besylate known as Prestalia® (“Prestalia”), that has been approved by the FDA for the treatment of hypertension. In addition, as part of the transactions contemplated by the Purchase Agreement: (i) Symplmed agreed to transfer to us, not later than 150 days following the closing date, the New Drug Applications for the approval of Prestalia as a new drug by the FDA; and (ii) Symplmed assigned to us all of its rights and obligations under that certain Amended and Restated License and Commercialization Agreement by and between Symplmed and Les Laboratoires Servier (“Servier”) dated January 11, 2012, pursuant to which Symplmed has an exclusive license from Servier to manufacture, have manufactured, develop, promote, market, distribute and sell Prestalia in the U.S. (and its territories and possessions) in consideration of regulatory and sales-based milestone payments and royalty payments based on net sales. Management has determined that this acquisition was deemed an asset purchase under FASB ASC 805.
Further, we entered into an offer letter to hire our current Chief Commercial Officer, who was the President and Chief Executive Officer of Symplmed, which appointment became effective on June 22, 2017. We also agreed in such offer letter to issue 60,000 restricted shares of our common stock under our 2014 Long-Term Incentive Plan to our Chief Commercial Officer, with all of such shares to vest onDuring the six (6) month anniversary of the date of grant.
In furtherance of the acquisition and commercialization of Prestalia, on July 21, 2017 we acquired from Symplmed and its wholly-owned subsidiary, Symplmed Technologies, LLC, certain of the intellectual property assets related to the patented technology platform known as DyrctAxess, also known as Total Care, that offers enhanced efficiency, control and information to empower patients, physicians and manufacturers to help achieve optimal care.
The purchase price of $0.62 million has been allocated based on a preliminary estimate ofmonths period ended June 30, 2022, the fair value of the assets acquiredderivative liabilities was estimated at issuance and is includedat June 30, 2022, using the Binomial Lattice valuation model with the following assumptions:
Schedule of Fair Value of Derivative Liabilities Estimated Issuance and Valuation Mode
| Dividend rate | 0 | % | ||
| Term (in years) | 0.0 to 1.07 year | |||
| Volatility | 206% to 317.47 | % | ||
| Risk-free interest rate | 1.28% to 3.01 | % |
Other than the effect on the derivative valuation recognized in intangible assets asoperations, there was no accounting effect to the ratchet adjustments of September 30, 2017, and is subjectcertain convertible notes to change.
The following table summarizesreduce the estimated fair valueconversion price to $0.039 in January 2022 since all of the identifiable intangible asset acquired, their useful life,embedded conversion options in the convertible notes were treated as derivatives.
Note 5 - Licensing Agreements
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 methodfuture 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 amortization:
| Estimated Fair Value | Estimated Useful Life (Years) | Annual Amortization Expense | ||||||||||
| Intangible asset from Merger | $ | 2,361,066 | 6 | $ | 393,511 | |||||||
| Intangible asset - Prestalia | 620,000 | 6 | 103,333 | |||||||||
| Intangible asset – DyrctAxess | 75,000 | 6 | 12,500 | |||||||||
| Total | $ | 3,056,066 | $ | 509,344 | ||||||||
The net intangible asset was $2,679,235, netexecution. As of accumulated amortization of $376,831, as of SeptemberJune 30, 2017. Amortization expense was $327,642 and $02022, the Company had not obtained consent for the nine months ended Septembersublicense and has classified the upfront payment it had previously recorded as an accrued liability on its consolidated balance sheet.
| 27 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2017 and 2016, respectively.2022
(Unaudited)
Note 36 - Related Party Transactions
Due to Related Party
The Company and other related entities have had a commonality of ownership and/or management control, and as a result, the reported operating results and /orand/or financial position of the Company could significantly differ from what would have been obtained if such entities were autonomous.
The Company hashad a Master Services Agreement (“MSA”) with Autotelic Inc., a related party that is partly-ownedpartly owned by one of the Company’s Executive Chairman, Autotelic Inc.former Board members and executive officers, namely Vuong Trieu, Ph.D., effective November 15, 2016. Autotelic Inc. owns less than 10% of the Company. The MSA statesstated that Autotelic Inc. willwould provide business functions and services to the Company and allowsallowed 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 MSA includes personnel costs allocated based on amount of time incurred and other services such as consultant fees, clinical studies, conferences and other operating expenses incurred on behalf of the Company. The MSA between MarinaCompany and Autotelic Inc. was effective on the reverse merger date of November 15, 2016.
During the period commencing November 15, 2016 (the “Effective Date”) and ending on the date that the Company has completed an equity offering of either common or preferred stock in which the gross proceeds therefrom is no less than $10 million (the “Equity Financing Date”), the Company shall pay Autotelic the following compensation: cash in an amount equalagreed to the actual labor cost (paid on a monthly basis), plus 100% markup in warrants for shares of the Company’s common stock with a strike price equal to the fair market value of the Company’s common stock at the time said warrants are issued. The Company shall also pay Autotelic for the services provided by third party contractors plus 20% mark up. The warrant price per share will be calculated based on the Black-Scholes model.
After the Equity Financing Date, the Company shall pay Autotelic Inc. a cash amount equal to the actual labor cost plus 100% mark up of provided services and 20% mark up of provided services by third party contractors or material used in connection with the performance of the contracts, including but not limited to clinical trial, non-clinical trial, Contract Manufacturing Organizations (“CMO”), FDA regulatory process, Contract Research Organizations (“CRO”) and Chemistry and Manufacturing Controls (“CMC”).
In accordance withterminate the MSA Autotelic Inc. billed the Company for personnel and service expenses Autotelic Inc. incurred on behalf of the Company. For the nine months ended September 30, 2017 and 2016, Autotelic Inc. billed a total of $492,406 and $238,673, including personnel costs of $386,954 and $99,425, respectively. effective October 31, 2018. An unpaid balance for previous years services performed under the agreement of $382,332approximately $4,000 is recorded asincluded in due to related party in the accompanying consolidated balance sheetsheets at June 30, 2022, and December 31, 2021.
In addition, as of SeptemberJune 30, 2017. The2022, and December 31, 2021, the Company agreed to issue warrants at a future dateowed various officers and directors approximately $42,000 for the remaining balance due of $388,745,services rendered which is included in accrued expenses as of September 30, 2017.
Convertible Notes Payable
In July 2016, IThena issued convertible promissory notes with an aggregate principal balance of $50,000 to certain related-party investors. Borrowings under each of these convertible notes bore interest at 3% per annum and these notes mature on June 30, 2018. Upon the completion of certain funding events, IThena had the right to convert the outstanding principal amount of these notes into shares of the IThena’s common stock. The notes were assumed by Autotelic Inc. on November 15, 2016 as part of its acquisition of the technology asset (IT-101).
Convertible Notes Payable, Dr. Trieu
In connection with the Merger, Marina entered into a Line Letter dated November 15, 2016 with Dr. Trieu, our Executive Chairman, for an unsecured line of credit in an amount not to exceed $540,000, to be used for current operating expenses. Dr. Trieu has advanced the full $540,000 under the Line Letter as of September 30, 2017 ($250,000 as of December 31, 2016). Accrued interest on the Line Letter was $19,029 and $0 as of September 30, 2017 and December 31, 2016, respectively, and is included in convertible notes payabledue to related partiesparty on the accompanying consolidated balance sheets. The line of credit is currently convertible at any time intosheet.
Note 7 - Stockholders’ Equity
Preferred Stock
Adhera has authorized shares of the Company’s commonpreferred stock at a price of $2.80 per share.
Line Letter with Autotelic Inc.
On April 4, 2017, the Company entered into a Line Letter with Autotelic Inc for an unsecured line of credit in an amount not to exceed $500,000, to be used for current operating expenses. Autotelic Inc. is., a stockholder of IThenaPharma that became the holder of 525,535 shares of Marina common stock as a result of the Merger,issuance and an entity of which Dr. Trieu serves as Chairman of the Board. Autotelic Inc. was to consider requests for advances under the Line Letter until September 1, 2017. The Company and Autotelic Inc. are in discussions to extend this line letter through December 31, 2017. Autotelic Inc. shall have the right at any time for any reason in its sole and absolute discretion to terminate the line of credit available under the Line Letter or to reduce the maximum amount available thereunder without notice. Advances made under the Line Letter bear interest at the rate of five percent (5%) per annum, are evidenced by the Demand Promissory Note issued to Autotelic Inc., and are due and payable upon demand by Autotelic, Inc.
The balance under the line was $92,590 as of September 30, 2017 and is included in notes to related parties on the accompanying balance sheet. As such, we currently have approximately $407,000 of available funds under this line of credit.
Note 4 – Notes Payable
Note Purchase Agreement and Amendment
In June 2016, Marina entered into a Note Purchase Agreement (the “Purchase Agreement”) with certain investors (the “Purchasers”), pursuant to which Marina issued to the Purchasers unsecured promissory notes in the aggregate principal amount of $300,000 (the “Notes”). Interest was to accrue on the unpaid principal balance of the Notes at the rate of 12% per annum beginning on September 20, 2016. The Notes were due and payable on June 20, 2017, provided, that, upon the closing of a financing transaction that occurs while the Notes are outstanding, each Purchaser shall have the right to either: (i) accelerate the maturity date of the Note held by such Purchaser or (ii) convert the entire outstanding principal balance under the Note held by such Purchaser and accrued interest thereon into Marina’s securities that are issued and sold at the closing of such financing transaction.
In July 2017, we entered into an amendment agreement (the “Amendment Agreement”) with respect to those Notes and the warrants to purchase shares of our common stock that are currently held by the Purchasers and that were originally issued pursuant to a certain Note and Warrant Purchase Agreement dated as of February 10, 2012 by and among Marina, MDRNA Research, Inc., Cequent Pharmaceuticals, Inc. and the purchasers identified on the signature pages thereto (as amended from time to time), to, among other things, extend the maturity date of the Notes to December 31, 2017 and to extend the price protection applicable to certain of the warrants held by the Purchasers with respect to dilutive offerings afforded thereunder to February 10, 2020. Refer to our Form 10-Q for the six months ended June 30, 2017 for a more detailed discussion and additional terms for these Notes.
As of September 30, 2017, the accrued interest expense on the Notes amounted to $37,500, with a total balance of principal and interest of $337,500.
Note Payable – Service Provider
In December 2016, we entered into an Agreement and Promissory Note with a law firm for past services performed totaling $121,523. The note calls for monthly payments of $6,000 per month, beginning with an initial payment on March 31, 2017. The note is unsecured and non-interest bearing. The note will be considered paid in full if the Company pays $100,000 by December 31, 2017. The balance due on the note was $103,523 as of September 30, 2017.
Bridge Note Financing
In June 2017, we issued convertible promissory notes (the “Notes”) in the aggregate principal amount of $400,000 to 10 investors pursuant to a Note Purchase Agreement (the “Note Purchase Agreement”) that we entered into with such investors. The Notes bear interest at a rate of five percent (5%) per annum and are due and payable at any time on or after the earlier of (i) June 1, 2018 and (ii) the occurrence of an event of default (as defined in the Note Purchase Agreement). Our Executive Chairman and our Chief Science Officer were each investors in the Notes.
Upon written notice delivered to us by the holders of a majority in interest of the aggregate principal amount of Notes that are outstanding at the time of such calculation (the “Majority Holders”) not more than five (5) days following the maturity date of the Notes, the Majority Holders shall have the right, but not the obligation, on behalf of themselves and all other holders of Notes, upon written notice delivered to us, to elect to convert the entire unpaid principal amount of all, but not less than all, of the Notes and the accrued and unpaid interest thereon into such number of shares of our common stock as is equal to, with respect to each Note: (x) the entire unpaid principal amount of such Note and the accrued and unpaid interest thereon on the date of the delivery of such notice by (y) $3.50.
As of September 30, 2017, the accrued interest expense on the Notes amounted to $6,324, with a total balance of principal and interest of $406,324.
Note 5 – Stockholders’ Equity
Preferred Stock
Marinahas 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 BA Preferred or Series AB Preferred are outstanding. In March 2014, MarinaAdhera designated shares as Series C Convertible Preferred Stock (“Series C Preferred”). In August 2015, MarinaAdhera 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 Preferred and Series B Preferred and a certificate of decrease with respect to each of its Series C, D and F Preferred stock. As of June 30, 2022, the Company had not filed the certificate of elimination. Each subsequent designated series of preferred stock has liquidation preference over the previous series.
Series C Preferred
Each share of Series C Preferred has a stated value of $5,000$ per share, has a $ liquidation preference per share, has voting rights of 666.67 votes per share, and is convertible into shares of common stock at a conversion price of $7.50$7.50 per share. In
As of June 2015, an investor converted 9030, 2022, and December 31, 2021, shares of Series C Preferred into 60,000 shares of common stock with a value of $5.40 per share. In November 2015, an investor converted an additional 90 shares of Series C Preferred into 60,000 shares of common stock with a value of $3.10 per share. On September 15, 2017, an investor converted 270 shares of Series C Preferred stock into 180,000 shares of our common stock in a cashless exercise.were outstanding.
Series D Preferred
In August 2015, Marina entered into a Securities Purchase Agreement with certain investors pursuant to which Marina sold 220 shares of Series D Preferred, and warrants to purchase up to 344,000 shares of Marina’s common stock at an initial exercise price of $4.00 per share before August 2021, for an aggregate purchase price of $1.1 million. Each share of Series D Preferred has a stated value of $5,000$ per share, has a liquidation preference of $ per share, has voting rights of 1,250 votes per share and is convertible into shares of common stock at a conversion price of $4.00$4.00 per share. The Series D Preferred is initially convertible into an aggregate of 275,000 shares of Marina’s common stock, subject to certain limitations and adjustments, has a 5%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. In November 2015, an investor converted 50
As of June 30, 2022, and December 31, 2021, shares of Series D Preferred were outstanding.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
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 62,500shares of common stock at $0.50. Anti-dilution price protection on Series E Preferred stock expired on February 10, 2020. Warrants issued with Series E 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 E warrants was adjusted from $0.50 to $0.05 per share upon the conversion of $25,900 debt for shares common stock. The Company recorded approximately $390,000 as a deemed dividend based upon the change in fair value of the Series E Preferred stock warrants using a binomial valuation model. The Company used a risk-free rate of 0.16%, volatility of 262.27%, and expected term of .41 to .43 years in calculating the fair value of the warrants.
As of May 17, 2021, the six-year anniversary of the closing of the Series E Preferred stock offering, all outstanding Series E Preferred stock may be converted by the Company into common stock upon written notification being provided by the Company to stockholders. As of June 30, 2022, the Company has not provided notice of conversion to the holders of the Series E Preferred stock.
On June 8, 2021, an investor converted shares of Series E Preferred and accrued dividends of approximately $10,000 into shares of common stock. In February 2016,addition, the Company issued shares of common stock to the investor for a cashless exercise of 75,000 warrants.
On July 30, 2021, an investor converted 110 shares of Series DE Preferred stock with a state value of $250,000into 137,500 shares of common stock.
Common Stock
OurOn October 4, 2021, the Company issued shares of common stock currently tradesupon the conversion of shares Series E Preferred stock including accrued dividends of $27,770.
On October 5, 2021, the Company issued shares of common stock upon the conversion of shares of Series E Preferred stock including accrued dividends of $42,707.
On October 8, 2021, the Company issued shares of common stock upon the conversion of shares of Series E Preferred stock including accrued dividends of $5,707.
On October 12, 2021, the Company issued shares of common stock upon the conversion of shares of Series E Preferred stock including accrued dividends of $7,156.
On November 23, 2021, the Company issued shares of common stock upon the conversion of shares of Series E Preferred stock including accrued dividends of $21,649.
On January 27, 2022, the exercise price of the Series E warrants was adjusted to $0.039 per share as a result of a convertible note exercise at $0.039 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.
As of June 30, 2022, the Company had a total of 30,405,600 warrants issued with Series E Preferred stock outstanding. The warrants expire in 2023 and have an exercise price of $0.039.
The Company had accrued dividends on the OTCQB tierSeries E Preferred stock of approximately $445,000 and $5.0 million, as of June 30, 2022, and December 31, 2021, respectively.
As of June 30, 2022, and December 31, 2021, there were and Series E shares outstanding, respectively.
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 OTC Markets.
Stock Issuances
In February 2017, we enteredCompany’s discretion. The Series F Preferred has voting rights, dividend rights, liquidation preferences, conversion rights at the holders option and anti-dilution rights. Series F Preferred stock is convertible into two privately negotiated transactions pursuant to which we issued an aggregate of 615,368 shares of ourcommon stock at $0.50. 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.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
On October 30, 2019, the Company repurchased shares of Series F Convertible Preferred Stock including accrued and unpaid dividends and warrants to purchase 150,000 shares of common stock for $100,000 from our former CEO pursuant to an effectiveamendment to the settlement agreement dated April 4, 2019. The Company also committed to purchase from such officer the remaining Series F Convertible Preferred Stock and related warrants held by such officer for $100,000 by not later than March 1, 2020. As of December 31, 2021, the Company had not repurchased the remaining shares.
On March 19, 2021, the exercise price of the Series F warrants was adjusted from $0.50 to $0.05 upon the conversion of $25,900 of 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 October 15, 2021, the Company issued shares of common stock upon the conversion of shares of Series F Preferred stock and including total accrued dividends of $3,521.
As of November 9, 2021, the six-year anniversary of the closing of the Series F Preferred stock offering, all outstanding Series F Preferred stock may be converted by the Company into common stock upon written notification being provided by the Company to stockholders. As of December 31, 2021, the Company has not provided notice of conversion to the holders of the Series F Preferred stock.
As of December 31, 2021, the Company had a total of 3,088,500 Series F Preferred stock warrants outstanding. The warrants expire in 2023.
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 of $per share in accordance with the conversion provisions of $2.90 to settle aggregate liabilitiesthe certificate of designation.
The Company had accrued dividends on the Series F Preferred stock of approximately $948,000, which had been reflected in accrued expenses$448,000, as of December 31, 2016.2021. NaNdividends were accrued as of June 30, 2022.
In February 2017, we issued 30,000At June 30, 2022 and December 31, 2021, there were shares of our common stock withand Series F Preferred shares outstanding, respectively.
Series G Convertible Preferred Shares
The Series G Preferred Stock has a fairstated value of $1.80$ per share to a consultant providing investment advisory services.
In February 2017, we issued 10,000 restricted shares of our commonand accrues % dividends per annum that are payable in cash or stock with a fair value of $1.40 per share to our CEO for services.
In February 2017, we enteredat 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 a Stock Purchase Agreement with LipoMedics, a related party, pursuant to which we issued to LipoMedics an aggregate of 86,207 shares of our common stock for a total purchase price of $250,000.
In March 2017, we entered into a Settlement Agreement, whereby a note receivable for $45,000 was settled with a cash payment by the note holder to the Company of $14,049, the surrender of 6,000 warrants, and the surrender of 8,725 shares of common stock heldat $.
As of June 30, 2022, Series G Preferred Stock has been issued by the noteholder, which were cancelled effective March 31, 2017.Company.
In April 2017,Common Stock
On June 8, 2021, an investor converted shares of Series E Preferred and accrued dividends of approximately $10,000 into shares of common stock.
On June 8, 2021, the Company entered into a Compromise and Release Agreement to settle $36,047 due to a service provider for $15,957 in cash and $20,090 of the Company’s common stock at $2.90 per share (for a total issuance of 6,928 shares). The Company issued 6,928 shares to the service provider in May 2017.
In May 2017, the holders of warrants to purchase 60,944 shares of our common stock at an exercise price of $2.80 per share exercised such warrants, yielding aggregate gross proceeds to us of $170,643.
In June 2017, we entered into an offer letter to hire our current Chief Commercial Officer, who was the President and Chief Executive Officer of Symplmed, which appointment became effective on June 22, 2017. We also agreed in such offer letter to issue 60,000 restricted shares of our common stock under our 2014 Long-Term Incentive Plan to our Chief Commercial Officer, with all of such shares to vest on the six (6) month anniversary of the date of grant. These shares were issued in June 2017.
In August 2017, in connection with the reverse split, we issued 3,360 shares of common stock due to rounding at exchangethe investor for a cashless exercise of 75,000 warrants.
On July 30, 2021, and participant levels.
In September 2017, an investor converted 270 shares of Series CE Preferred stock with a stated value of $250,000into 180,000 shares of ourcommon stock.
On August 11, 2021, the Company issued shares of common stock onto a convertible note investor as a commitment fee which was valued at its relative fair value of $56,464.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
On August 18, 2021, 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 $62,220.
On September 22, 2021, the Company issued shares of common stock to an investment banker for commissions due under a banking agreement. The shares were recorded at their relative fair value of approximately $39,290.
On October 4, 2021, the Company issued shares of common stock upon the conversion of shares Series E Preferred stock including accrued dividends of $27,770.
On October 4, 2021, 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 $10,859.
On October 5, 2021, the Company issued shares of common stock upon the conversion of shares of Series E Preferred stock including accrued dividends of $42,707.
On October 8, 2021, the Company issued shares of common stock upon the conversion of shares of Series E Preferred stock including accrued dividends of $5,707.
On October 8, 2021, 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 $12,233.
On October 15, 2021, the Company issued shares of common stock upon the conversion of shares of Series F Preferred stock including accrued dividends of $3,521
On November 4, 2021, the Company issued shares of common stock upon a cashless basis.exercise of 250,000 warrants issued with the April 2021 Convertible Note.
Warrants
On December 6, 2021, the Company issued shares of common stock to an investment banker for commissions due under a banking agreement. The shares were recorded at their relative fair value of approximately $18,745.
During the twelve-month period ending December 31, 2021, the company issued million common shares upon the conversion of $98,141 principal and $70,160 of accrued interest on the February 2020 convertible note. The common shares issued upon conversions of the note for the period ended December 31, 2021 were valued at fair value based on the quoted trading prices on the conversion dates aggregating approximately $554,000 resulting in a loss on debt extinguishment of approximately $386,000.
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 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 rate 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 of $ per share in accordance with the conversion provisions in the certificate of designation.
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 $2,000. The repurchase was recorded at cost as treasury stock on the accompanying consolidated balance sheet.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
Warrants
As of SeptemberJune 30, 2017,2022, there were 2,492,945102,665,674 common stock warrants outstanding, with a weighted average exercise price of $4.40$0.04 per share, andwith annual expirations as follows:
Schedule of Stockholders’ Equity Note, Warrants or Rights
| Shares | 2023 | 2024 | 2025 | 2026 | 2027 | |||||||||||||||||||
| Series E Preferred Stock | 30,405,600 | 30,405,600 | ||||||||||||||||||||||
| Series F Preferred Stock | 3,088,500 | 3,088,500 | ||||||||||||||||||||||
| Bridge Loan | 22,222,218 | 22,222,218 | ||||||||||||||||||||||
| Convertible Notes (CVN) | 46,590,623 | 2,901,098 | 36,777,552 | 6,911,974 | ||||||||||||||||||||
| Other | 348,733 | 10,080 | 335,452 | 3,201 | ||||||||||||||||||||
| Total Warrants | 102,655,674 | 33,504,180 | 3,236,550 | 36,780,753 | 6,911,974 | 22,222,218 | ||||||||||||||||||
Schedule of Warrants
| Variable quantity of warrants related to February 2020 note | |||||
| Warrants issued with 2022 Bridge Note | 22,222,218 | ||||
| Warrants as of June 30, 2022 | 102,665,674 | ||||
Warrants outstanding as of June 30, 2022, included price adjustable warrants.
The intrinsic value of 102,665,674 warrants as of June 30, 2022, 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 potentially issuable upon conversion of the promissory notes are therefore, indeterminate. Due to the fact that the number of shares of common stock potentially issuable exceed the Company’s authorized share limit as of June 30, 2022, 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 May 21, 2017,June 30, 2022, the holdersCompany evaluated all outstanding warrants 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 purchase 60,944 sharesreduce the conversion price to $0.039 in January 2022 since all of our common stock at an exercise price of $2.80 per share exercised suchthe embedded conversion options in the warrants yielding aggregate gross proceeds to us of $170,643.were treated as derivatives.
Note 6 — NOTE 8 - Stock Incentive Plans
Stock Options
Schedule of Share Based Payments Arrangement, Option Activity
| Options Outstanding | ||||||||
| Shares | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2016 | 168,811 | $ | 36.80 | |||||
| Options granted | 64,600 | 1.70 | ||||||
| Options expired | (11 | ) | 5,264.00 | |||||
| Outstanding, September 30, 2017 | 233,400 | 26.85 | ||||||
| Exercisable, September 30, 2017 | 193,100 | $ | 32.10 | |||||
| Options Outstanding | ||||||||
| Shares | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2021 | 384,050 | $ | 0.97 | |||||
| Options expired / forfeited | (4,050 | ) | 1.70 | |||||
| Outstanding, June 30, 2022 | 380,000 | 0.98 | ||||||
| Exercisable, June 30, 2022 | 380,000 | $ | 0.98 | |||||
No stock options were granted during the six-month period ended June 30, 2022.
Schedule of Share Based Payment Arrangement, Option, Exercise Price Range
| Options Outstanding | Options Exercisable | |||||||||||||||||||
Exercise Price | Number Outstanding | Weighted- Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||
| $0.98 | 380,000 | 0.84 | $ | 0.98 | 380,000 | $ | 0.98 | |||||||||||||
| Totals | 380,000 | 0.84 | $ | 0.98 | 380,000 | $ | 0.98 | |||||||||||||
| 32 |
| Options Outstanding | Options Exercisable | |||||||||||||||||||
Range of Exercise | Number Outstanding | Weighted- Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||
| $ | 0.10 | 14,000 | 4.30 | $ | 1.00 | 14,000 | $ | 1.00 | ||||||||||||
| $ | 0.17 - .018 | 64,600 | 4.13 | 1.72 | 24,300 | 1.70 | ||||||||||||||
| $ | 0.26 - 0.82 | 48,400 | 2.73 | 4.62 | 48,400 | 4.62 | ||||||||||||||
| $ | 1.07 - $2.20 | 102,150 | 5.74 | 10.73 | 102,150 | 10.73 | ||||||||||||||
| $ | 47.60 - $87.60 | 2,100 | .69 | 676.00 | 2,100 | 676.00 | ||||||||||||||
| $ | 127.60 - $207.60 | 2,150 | .69 | 1,582.98 | 2,150 | 1,582.98 | ||||||||||||||
| Totals | 233,400 | 4.53 | $ | 26.85 | 193,100 | $ | 32.10 | |||||||||||||
Weighted-Average Exercisable Remaining Contractual Life (Years) 4.53
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
In January 2017,NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022
(Unaudited)
As of June 30, 2022, the Company granted a total of 48,600 stock options to directors and officers for services. One-half of the options vest immediately and one-half of the options vest on the one-year anniversary of the grant date. The options have an exercise price of $1.70 and a five-year term.
In February 2017, the Company granted a total of 16,000 stock options to key employees for services. The options vest on the one-year anniversary of the grant date, have an exercise price of $1.80, and have a five-year term.
Subsequent to the date of the financial statements, in October 2017, we appointed our Chief Financial Officer and our Chief Legal Officer. In connection with these appointments, we granted to each such officer options to purchase up to 60,000 shares of our common stock under our 2014 Long-Term Incentive Plan, with all of such options vesting and becoming exercisable on the one-year anniversary of the grant date.
At September 30, 2017, we had $36,573 of totalno unrecognized compensation expense related to unvested stock options. Total expense related to stock optionsbased compensation expenses was $59,568recognized for the nine monthsthree or six-month periods ended SeptemberJune 30, 2017.2022 or 2021.
At SeptemberAs of June 30, 2017,2022, the intrinsic value of options outstanding or exercisable was $201,100 aszero there were 101,800no options outstanding with an exercise price less than $2.80,$, the per share closing market price of our common stock at that date.
Note 7 — Intellectual Property and Collaborative Agreements
Novosom Agreements
In July 2010, Marina entered into an agreement pursuant to which Marina acquired intellectual property for Novosom’s SMARTICLES-based liposomal delivery system. In February 2016, Marina issued Novosom 20,548 shares of common stock valued at approximately $58,000 as additional consideration under such agreement.
In March 2016, Marina entered into a license agreement covering certain of Marina’s platforms for the delivery of an undisclosed genome editing technology. Under the terms of the agreement, Marina received an upfront license fee of $250,000 and could receive up to $40 million in success-based milestones. In April 2016, Marina issued Novosom 47,468 shares of common stock valued at approximately $75,000 for amounts due under this agreement.
In July 2016, Marina entered into a license agreement with an undisclosed licensee that grants such licensee rights to use Marina’s technology and intellectual property to develop and commercialize products combining certain molecules with Marina’s liposomal delivery technology known as NOV582. Under the terms of this agreement, the licensee agreed to pay to us an upfront license fee in the amount of $350,000 (to be paid in installments through the end of 2017), along with milestone payments on a per-licensed-product basis and royalty payments in the low single digit percentages. As of September 30, 2016, Marina had received $50,000 per the terms of this license agreement. In November 2016, we issued 11,905 shares with a value of $15,000 to Novosom as the equity component owed under Marina’s July 2016 license agreement.
Arrangements with LipoMedics
In February 2017, we entered into a License Agreement (the “License Agreement”) with LipoMedics, pursuant to which, among other things, we provided to LipoMedics a license to our SMARTICLES platform for further development of Lipomedics’s proprietary phospholipid nanoparticles that can deliver protein, small molecule drugs, and peptides. These are not currently being developed at Marina and Marina has no IP around these products. On the same date, we also entered into a Stock Purchase Agreement with LipoMedics pursuant to which we issued to LipoMedics an aggregate of 86,207 shares of our common stock for a total purchase price of $250,000.
Under the terms of the License Agreement, we could receive up to $90 million in success-based milestones based on commercial sales of licensed products. In addition, if LipoMedics determines to pursue further development and commercialization of products under the License Agreement, LipoMedics agreed, in connection therewith, to purchase shares of our common stock for an aggregate purchase price of $500,000, with the purchase price for each share of common stock being the greater of $2.90 or the volume weighted average price of our common stock for the thirty (30) trading days immediately preceding the date on which LipoMedics notifies us that it intends to pursue further development or commercialization of a licensed product.
If LipoMedics breaches the License Agreement, we shall have the right to terminate the License Agreement effective sixty (60) days following delivery of written notice to LipoMedics specifying the breach, if LipoMedics fails to cure such material breach within such sixty (60) day period. LipoMedics may terminate the License Agreement by giving thirty (30) days’ prior written notice to us.
Vuong Trieu, Ph.D., our Executive Chairman, is the Chairman of the Board and Chief Operating Officer of LipoMedics.
In consideration Lipomedics agreed to the following fee schedule: 1) Evaluations License Fee. Simultaneous with the execution and delivery of the License Agreement, Lipomedics shall enter into a Stock Purchase Agreement in form and substance reasonably acceptable to Marina and Lipomedics, pursuant to which Marina will sell to Lipomedics shares of the common stock of Marina for an aggregate purchase price of $0.25 million, with the purchase price for each share of Marina common stock being $2.90. 2) Commercial License Fee. Unless the License Agreement is earlier terminated, within thirty (30) days following Lipomedics’s delivery of an Evaluation Notice advising that it intends to pursue, or cause to be pursued, further development and commercialization of Licensed Products. 3) For up to and including three Licensed Products, Lipomedics shall pay to Marina a milestone (collectively the “Sales Milestones”) of $10 million upon reaching Commercial Sales in the Territory in any given twelve month period equal to or greater than $500 million for a given Licensed Product and of $20 million upon reaching Commercial Sales in any given twelve month period equal to or greater than $1 million for such Licensed Product, such payments to be made within thirty (30) days following the month in which such Commercial Sale targets are met.
Arrangements with Oncotelic Inc.
In July 2017, we entered into a License Agreement (the “License Agreement”) with Oncotelic, Inc. (“Oncotelic”) pursuant to which, among other things, we provided to Oncotelic a license to our SMARTICLES platform for the delivery of antisense DNA therapeutics, as well as a license to our conformationally restricted nucleotide (“CRN”) technology with respect to TGF-Beta. Under the terms of the License Agreement, Oncotelic also agreed to purchase 49,019 shares of our common stock for an aggregate purchase price of $0.25 million ($5.10 per share), with such purchase and sale to be made pursuant to a Stock Purchase Agreement to be entered into between us and Oncotelic within thirty (30) days following the date of the License Agreement.
Under the terms of the License Agreement, we could receive up to $90 million in success-based milestones based on commercial sales of licensed products. In addition, if Oncotelic determines to pursue further development and commercialization of products under the License Agreement, Oncotelic agreed, in connection therewith, to purchase shares of our common stock for an aggregate purchase price of $0.5 million, with the purchase price for each share of common stock being the greater of $5.10 or the volume weighted average price of our common stock for the thirty (30) trading days immediately preceding the date on which Oncotelic notifies us that it intends to pursue further development or commercialization of a licensed product.
If Oncotelic breaches the License Agreement, we shall have the right to terminate the License Agreement effective sixty (60) days following delivery of written notice to Oncotelic specifying the breach, if Oncotelic fails to cure such material breach within such sixty (60) day period. Oncotelic may terminate the License Agreement by giving thirty (30) days’ prior written notice to us.
Dr. Trieu, our Executive Chairman, is the principal stockholder and Chief Executive Officer of Oncotelic.
Sale of DiLA2 Assets
In July 2017, we entered into a binding term sheet with a third-party purchaser (“Purchaser”) pursuant to which Purchaser will purchase from us the patents, know-how, agreements, records and certain other assets relating to our DiLA2 delivery system. The consideration to be paid by Purchaser to us as a result of this transaction shall consist of: (i) an initial payment of $0.3 million to be paid upon the closing of the asset sale; and (ii) an additional $1.2 million to be paid upon the first to occur of (x) a financing in which third party investors purchase equity and/or debt securities of Purchaser resulting in aggregate proceeds to Purchaser of not less than $15 million and (y) the twelve-month anniversary of the closing.
The closing of the transaction is subject to the negotiation, execution and delivery of a definitive asset purchase agreement and Purchaser’s determination that its due diligence has been completed and has been found satisfactory, in Purchaser’s sole discretion.
In the term sheet, we agreed that we will negotiate exclusively with Purchaser with respect to the sale of the DiLA2 assets for a period of ninety (90) days from the date of the term sheet. Although this ninety (90) day period has expired according to the term sheet, negotiations are ongoing between us and the Purchaser.
Pursuant to the term sheet, at any time following the closing of the transaction and prior to the payment to us of the additional $1.2 million payment, Purchaser may elect to unwind the transaction by providing written notice to such effect to us. Within thirty (30) days of Purchaser’s issuance of such notice, Purchaser shall assign the DiLA2 assets back to us.
We will retain an exclusive, fully paid and royalty free license to DiLA2 outside of the field of gene editing as well as the rights to license DiLA2 outside of gene editing.
Asset Purchase Agreement
In July 2017, Marina entered into an Asset Purchase Agreement with Symplmed Pharmaceuticals LLC and its wholly-owned subsidiary Symplmed Technologies, LLC pursuant to which the Company purchased from the Sellers, for an aggregate purchase price of $75,000 in cash, certain specified assets of the Sellers relating to the Sellers’ patented technology platform known as DyrctAxess that offers enhanced efficiency, control and information to empower patients, physicians and manufacturers to help achieve optimal care (see Note 2).
Note 8 – NOTE 9 - Commitments and Contingencies
Amendment to Agreement with Windlas Healthcare Private LimitedLitigation
On August 17, 2017, we entered into an amendment (the “Amendment”) of that certain Pharmaceutical Development Agreement dated as of March 30, 2017 by and between Windlas Healthcare Private Limited (“Windlas”) and our company (the “Development Agreement”), relating to the development by Windlas of certain pharmaceutical products to be used for conducting clinical trials or for regulatory submissions, as more fully described therein. Pursuant to the Amendment, we and Windlas agreed to amend the Development Agreement to reflect our agreement to issue to Windlas, and Windlas’ agreement to accept from us, in lieu of cash payments with respect to forty percent (40%) of the total amount reflected on invoices sent from time to time by Windlas to us, shares of our common stock having an aggregate value equal to forty percent (40%) of such invoiced amount (with the remaining portion of the invoiced amount being paid in cash). The maximum value of common stock that may be issued to Windlas pursuant to the Development Agreement (as modified by the Amendment) is $2 million. The parties also agreed that the foregoing payment arrangement would apply to any Contract Manufacturing and Supply Agreement (or similar agreement) relating to the manufacturing of commercial batches of the products covered by the Development Agreement that may be entered into between the parties.
Litigation
Because of the nature of the Company’s activities, the Companybusiness, it is subject to claims and/or threatened legal actions, which arise out of the normal course of business. Other than the disclosure below, asAs of the date of this filing, the Company is not aware of any pending lawsuits against the Company,it, its officers or directors.
Leases
The Company has been named on a complaint fileddoes 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 New York Stateorder to support its operational and administrative needs.
Share Repurchase Agreement
On October 30, 2019, the Company repurchased shares of Series F Convertible Preferred Stock including accrued and unpaid dividends and warrants to purchase 150,000 shares of common stock for $100,000 from our former CEO pursuant to an amendment to the settlement agreement dated April 4, 2019. The Company also committed to purchase from such officer the remaining Series F Convertible Preferred Stock and related warrants held by such officer for $100,000 by not later than March 1, 2020. As of June 30, 2022, the Company had not repurchased the remaining shares.
Licensing Agreement – MLR 1019
On July 28, 2021, the Company and 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 defendant innew class of therapeutic for Parkinson’s disease (PD) and is, to the matter entitledVaya Pharma, Inc. v. Symplmed Technologies, Inc., Symplmed Pharmaceuticals, Inc., Erik Emerson and Marina Biotech, Inc. While this complaint has been filed in the Supreme Courtbest of the StateCompany’s knowledge, the only drug candidate today to address both movement and non-movement aspects of New York,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 terminates upon the last expiration of the patents licensed by the Company, which is presently 2034 subject 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 not been legally served. The complaint alleges,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 relevant part, that: (i) the sale by Symplmed Pharmaceuticals, Inc. of its assets related to its Prestalia product, and the sale by Symplmed Technologies, Inc. of its assets related to its DyrctAxess platform, should be set aside pursuant to New York law as they were consummated without fair consideration to the sellers (the “Symplmed Defendants”), and thereby had the effect of fraudulently depriving the creditorsfor 10% of the Symplmed Defendants, including Vaya Pharma, Inc.,outstanding shares of funds that could havethe Company’s common stock (immediately post Uplisting Event) and 2.5% royalty of future gross product sales.
As of June 30, 2022, no performance milestones had been used to pay their debts;met under the agreement.
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ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and (ii)Six Months Ended June 30, 2022
(Unaudited)
Licensing Agreement – MLR 1023
On August 24, 2021, the Company as licensee entered into an exclusive license agreement with Melior I for the development, commercialization and exclusive license of Melior I’s MLR-1023. MLR-1023 is liable,being developed as successor,a novel therapeutic for anyType 1 diabetes.
Under the Agreement, the Company was granted an exclusive license to use the Melior I’s Patents and all claims by Vaya Pharma, Inc. againstknow-how to develop products in consideration for cash payments up to approximately $21.8 million upon meeting certain performance milestones, as well as a tiered royalty of 8-12% of gross sales.
Under the Symplmed Defendants, though pursuant tooriginal terms of the agreement if the Company is only contractually responsiblefailed to raise $4.0 million dollars within 120 days of the Effective Date then the License 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 liabilities that accrue after the parties entered intocompletion of the raise.
On October 20, 2021, the Company 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 agreement for Prestalia and any liabilities that existed prior to the agreement are contractually held by Symplmed. If and when the Company is legally served, it is the intention of the Company to dispute jurisdiction,raise $4.0 million dollars unless, by 180 Days Adhera is in the sufficiencyprocess of completing transactions to complete the pleadingfundraising then an additional 30 Days shall be provided to allow for the completion of required fundraising.
On February 16, 2022, an addendum to the licensing agreement dated August 4, 2021, was executed by the Company and Melior I, extending the claimsrequirement by the Company to raise $4.0 million dollars to June 16, 2022.
As of June 30, 2022, no performance milestones had been met under the agreement.
NOTE 10 - Subsequent Events
Licensing Agreement – MLR 1023
On July 20, 2022, the Company entered into an addendum to the License Agreement for MLR-1023 with Melior I pursuant to which Melior I extended the license to February 1, 2023 in exchange for a $136,921 licensing payment. 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 this complaint,the addendum and to defend this matter, vigorously. However, due to the inherent uncertainties of litigation,License Agreement.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the ultimate outcome of this matter is uncertain. An unfavorable outcome could materially and adversely affect the business, financial condition and results of operationsmeaning of the Company.
Note 9 - Subsequent Events
Except for the event(s) discussed in this Note 9, there were no subsequentPrivate Securities Litigation Reform Act of 1995 that reflect management’s current views with respect to future events that required recognition or disclosure. The Company evaluated subsequent events through the date theand financial statements were issued and filed with the Securities and Exchange Commission.
In September 2017, we entered into an engagement letter with a financial advisor pursuant to which, among other things, we agreed to issue to such financial advisor, in partial consideration of the services to be renderedperformance including meeting our obligations under the engagement letter, an aggregate of 500,058 shares of our common stock. The shares were issued in November 2017.
Melior In October 2017, we appointed our Chief Financial Officer and Melior II license agreements and our Chief Legal Officer. In connection with these appointments, we granted to each such officer options to purchase up to 60,000 shares of our common stock under our 2014 Long-Term Incentive Plan, with all of such options vesting and becoming exercisable on the one-year anniversary of the grant date.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains forward-looking statements.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, 2021, as filed with the Securities and Exchange Commission (“SEC”) on March 31, 2017. Certain statements made in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.April 15, 2022. 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 a quarterly reportthe 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 may include statements about:or to conform them to actual results, new information, future events or otherwise, except as otherwise required by securities and other applicable laws.
The following factors, among others, could cause our or our industry’s future results to differ materially from historical results or those anticipated:
| ● | our ability to obtain additional | |
| ● | ||
| our ability to satisfy our disclosure obligations under the Securities Exchange Act of 1934, as amended, and to maintain the registration of our common stock thereunder; | ||
| ● | our ability to attract and retain qualified officers, directors, employees and consultants as necessary; | |
| ● | Challenges or inability to comply with or obtain waivers or extensions under our license agreements, in which case we may be forced to suspend or terminate certain of our research and development programs; | |
| ● | the | |
| ● | Failure to meet our obligations under outstanding 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, for the year ended December 31, 2016, as filed with the SEC on March 31, 2017, 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 the Company’sour or itsour 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 Marina Biotech,Adhera Therapeutics, Inc., a Delaware corporation,corporation. and its wholly-owned subsidiaries, , MDRNA Research, Inc., Cequent Pharmaceuticals, Inc., Atossa Healthcare, Inc., and Atossa HealthCare, Inc.; and IThenaPharmaIthenaPharma, Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars. Our common stock is currently listedquoted on the OTC Market, OTCQB, tier, under the symbol “MRNA.“ATRX.”
Corporate Overview
Nature of Business
We are a fully integrated, commercial stage biopharmaceuticalan emerging specialty biotech company delivering proprietary drug therapeutics for significant unmet medical needs in the U.S., Europe and certain additional international markets. Our portfolio of products currently focuses on fixed dose combinations (“FDC”) in hypertension, arthritis, pain and oncology allowing for innovative solutions to such unmet medical needs. Our mission is to provide effective and patient centric treatment for hypertension – including resistant hypertension. In this connection, we acquired from Symplmed and its wholly-owned subsidiary, Symplmed Technologies, LLC, certain of the intellectual property assets relatedthat, to the patented technology platform knownextent that resources and opportunities become available, is strategically evaluating its focus including a return to a drug discovery and development company.
On July 28, 2021, we as DyrctAxess, also called Total Care, that offers enhanced efficiency, controllicensee and information to empower patients, physicians and manufacturers to help achieve optimal care.
In doing so, we have created a universal platformMelior II as licensor entered into an exclusive license agreement for the effective treatmentdevelopment, commercialization and exclusive license of hypertension as well as for the distribution of FDC hypertensive drugs, such as our FDA-approved product Prestalia, and the other products in our pipeline, devices for therapeutic drug monitoring, blood pressure, and other cardiac monitors, as well as services such as counseling and prescription reminders.
We currently have one commercial and three clinical development programs underway: (i) Prestalia®, a single-pill fixed dose combination of perindopril, an angiotensin-converting-enzyme (“ACE”) inhibitor and amlodipine, a calcium channel blocker (“CCB”), which has been approved by the U.S. Food and Drug Administration (“FDA”) andMLR-1019. MLR-1019 is actively marketed in the U.S.; (ii) our next generation celecoxib program drug candidates for the treatment of acute and chronic pain, IT-102 and IT-103, each of which is an FDC of celecoxib, a COX-2 selective nonsteroidal anti-inflammatory drug (“NSAID”) and either lisinopril (IT-102) or olmesartan (IT-103) – both Lisinopril and olmesartan are antihypertension drugs; (iii) CEQ508, an oral delivery of small interfering RNA (“siRNA”) against beta-catenin, combined with IT-102 to suppress polyps in the precancerous syndrome and orphan indication Familial Adenomatous Polyposis (“FAP”); and (iv) CEQ508 combined with IT-103 to treat Colorectal Cancer.
Our current focus is primarily on the commercialization of Prestalia and secondarily the development of IT-102 and IT-103. We believe that by combining a COX-2 inhibitor with an antihypertensive in a single FDC oral tablet, IT-102 and IT-103 will each offer improved safety profiles as compared to currently available and previously marketed COX-2 inhibitors as well as address patients with chronic pain who are commonly taking antihypertension drugs concurrently. We further believe that the current opioid addiction epidemic in the U.S. has been driven in part by the withdrawal from the market of certain COX-2 inhibitors due to their associated risk of cardiovascular-related adverse events. We plan to license or divest our other assets since they no longer align with our focus on the treatment of hypertension.
We intend to create value through the continued commercialization of our FDA-approved product, Prestalia, while moving our FDC development programs forward to further strengthen our commercial presence. We intend to retain ownership and control of all of our product candidates, but in the interest of accelerated growth and market penetration, we will also consider partnerships with pharmaceutical or biotechnology companies in order to reduce time to market and to balance development risks, both clinically and financially.
As our strategy is to be a fully integrated biopharmaceutical company, we will drive a primary corporate focus on revenue generation through our commercial assets, with a secondary focus on advancing our FDC pipeline to further enhance our commercial presence.
Reverse Merger with IThenaPharma
Marina was incorporated under the laws of the State of Delaware under the name Nastech Pharmaceutical Company on September 23, 1983, and IThena was incorporated under the laws of the State of Delaware on September 3, 2014. On November 15, 2016, Marina entered into, and consummated the transactions contemplated by, an Agreement and Plan of Merger between and among Marina, IThenaPharma Inc., a Delaware corporation (“IThena”), IThena Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Marina (“Merger Sub”), and Vuong Trieu as the IThena representative (the “Merger Agreement”), pursuant to which IThena merged into Merger Sub (the “Merger”). IThena is deemed to be the accounting acquirer in the Merger, and thus the historical financial statements of IThena are treated as the historical financial statements of our company and are reflected in our quarterly and annual reports for periods ending after the effective time of the Merger, or November 15, 2016. Accordingly, beginning with our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the SEC on March 31, 2017, we have reported the results of IThena and Marina and their respective subsidiaries on a consolidated basis. As a result of the Merger, while we have presented the results for the three and nine periods ended September 30, 2017 and 2016, the results for the 2016 periods reflect only the results of IThena.
IThena is a developer of personalized therapies for combined pain/hypertension through its proprietary FDC technology and point of care Therapeutic Drug Monitoring system (“TDM”). Through the combination of these technologies, IThena is looking to deliver therapies with improved compliance and personalized dosing. IThena’s lead products are the celecoxib FDCs which include IT-102 and IT-103, FDCs of celecoxib and lisinopril and celecoxib and olmesartan, respectively. IT-102 and IT-103 are being developed as celecoxib without the drug induced edema associated with celecoxib alone. IT-102a new class of therapeutic for Parkinson’s disease (PD) and IT-103 are being developed initially for combined arthritis / hypertension and subsequently for treatment of pain, or cancer, or other indications requiring high doses of celecoxib.
Acquisition of Prestalia
Subsequentis, to the Merger we executed on our strategy to become a commercial stage company with the acquisition of Prestalia from Symplmed. Specifically, on June 6, 2017 we entered into an Asset Purchase Agreement with Symplmed for the purchase of Prestalia, which is an FDA-approved and marketed anti-hypertensive drug. This is a FDC of perindopril arginine, an ACE inhibitor, and amlodipine besylate, a calcium channel blocker (“CCB”), and is indicated as a first line therapy for hypertension control.
We believe that the acquisition of Prestalia transforms our company from a clinical stage company to a commercial organization. Prestalia was approved in January 2015 and has been marketed in select U.S. states since then by Symplmed. Prestalia sales saw solid growth through September of 2016, via new patient acquisition and strong patient retention. Due to lack of funding, further revenues and marketing of Prestalia was ceased by the end of calendar year 2016. In the near term our focus will be dedicated to re-acquiring prior Prestalia patients, with subsequent efforts dedicated to building a strong sales team to fully market the product. This includes our efforts to re-establish our relationships with our contract manufacturers to support marketing Prestalia.
We believe that the Prestalia acquisition will not only make us a revenue-stage company, but also that the marketing, distribution and sales network that we will build will pave a strong foundation for the promotion and commercializationbest of our two other hypertension pipeline products – namely IT-102knowledge, the only drug candidate today to address both movement and IT-103, as well as any other similar products thatnon-movement aspects of PD. Under the Agreement, we internally develop or acquire.
Line Letters with Related Parties
In connection with the Merger, Marina entered into a line of credit dated November 15, 2016 with Dr. Trieu, our Executive Chairman, forwere granted an unsecured line of credit in an amount not to exceed $540,000, to be used for current operating expenses (“Line Letter”). As of September 30, 2017, Dr. Trieu has advanced an aggregate of $540,00 under the Line Letter. Advances made under the Line Letter bear interest at the rate of five percent (5%) per annum, are evidenced by a demand promissory note issued to Dr. Trieu, and are due and payable upon demand by Dr. Trieu.
On April 4, 2017, we entered into a Line Letter with Autotelic for an unsecured line of credit in an amount not to exceed $500,000, to be used for current operating expenses. Autotelic was to consider requests for advances under the Line Letter until September 1, 2017. The Company and Autotelic Inc. are in discussions to extend this line letter through December 31, 2017. Advances made under the Line Letter bear interest at the rate of five percent (5%) per annum, are evidenced by the Demand Promissory Note issued to Autotelic, and are due and payable upon demand by Autotelic. We currently have approximately $407,000 of available funds under this line of credit. We believe that this available cash is sufficient to fund our operations through December 31, 2017.
Recent Developments During the Three Months Ended September 30, 2017
Amendment of Notes and Warrants
On July 3, 2017, we entered into an amendment agreement (the “Amendment Agreement”) with respect to those certain promissory notes in the aggregate principal amount of $300,000 (each a “Note” and collectively the “Notes”) that we issued to two accredited investors (the “Purchasers”) pursuant to that certain Note Purchase Agreement dated June 20, 2016 by and among us and the Purchasers (the “Purchase Agreement”), and those certain warrants to purchase up to an aggregate of 951,263 shares of our common stock that were originally issued pursuant to that certain Note and Warrant Purchase Agreement dated as of February 10, 2012 by and among the Company, MDRNA Research, Inc., Cequent Pharmaceuticals, Inc. and the purchasers identified on the signature pages thereto (as amended from time to time), that are currently held by the Purchasers, and that were amended concurrently with the Purchase Agreement to, among other things, extend the price protection with respect to dilutive offerings afforded thereunder to June 19, 2017 (such warrants, as so amended, the “Amended Prior Warrants”).
Pursuant to the Amendment Agreement, among other things: (i) the maturity date of the Notes was extended from June 20, 2017 to December 31, 2017; (iii) the Purchasers agreed, upon the closing of any financing transaction yielding aggregate gross proceeds to us of not less than $3 million that occurs while the Notes are outstanding (any such financing transaction, the “Qualifying Financing Transaction”), to convert the outstanding principal balance and any accrued interest thereon into the securities of our company to be issued and sold at the closing of the Qualifying Financing Transaction at the most favorable price and terms at which our securities are sold to investors in the Qualifying Financing Transaction; (iv) the parties agreed to extend the price protection with respect to the Amended Prior Warrants resulting from dilutive issuances until the expiration of the term of the Amended Prior Warrants (currently February 10, 2020); provided, that such protection shall not apply to the Qualifying Financing Transaction; and (v) we agreed to issue to the Purchasers, on a pro rata basis, such number of our securities as are being issued to investors in the Qualifying Financing Transaction as have an aggregate purchase price equal to $375,000.
Arrangements with Oncotelic Inc.
On July 17, 2017, we entered into a License Agreement (the “License Agreement”) with Oncotelic, Inc. (“Oncotelic”) pursuant to which, among other things, we provided to Oncotelic aexclusive license to our SMARTICLES platformuse the Melior II Patents and know-how to develop products in consideration for the delivery of antisense DNA therapeutics,cash payments upon meeting certain performance milestones as well as a royalty of 5% of gross sales.
On August 24, 2021, we as licensee entered into an exclusive license agreement with Melior I for the development, commercialization and exclusive license of MLR-1023 as a novel therapeutic for Type 1 diabetes.
On October 20, 2021, we as licensee expanded the MLR-1023 licensing agreement with Melior Pharmaceuticals I, Inc. to our conformationally restricted nucleotide (“CRN”) technology with respectinclude two additional clinical indications for Non-Alcoholic Steatohepatitis (NASH) and pulmonary inflammation.
On July 20, 2022, the Company entered into an addendum to TGF-Beta. Under the terms of the License Agreement Oncotelic also agreed to purchase 49,019 shares of our common stock for an aggregate purchase price of $250,000 ($5.10 per share),MLR-1023 with such purchase and sale to be made pursuant to a Stock Purchase Agreement to be entered into between us and Oncotelic within thirty (30) days following the date of the License Agreement.
Under the terms of the License Agreement, we could receive up to $90 million in success-based milestones based on commercial sales of licensed products. In addition, if Oncotelic determines to pursue further development and commercialization of products under the License Agreement, Oncotelic agreed, in connection therewith, to purchase shares of our common stock for an aggregate purchase price of $500,000, with the purchase price for each share of common stock being the greater of $5.10 or the volume weighted average price of our common stock for the thirty (30) trading days immediately preceding the date on which Oncotelic notifies us that it intends to pursue further development or commercialization of a licensed product.
Dr. Trieu, our Executive Chairman, is the principal stockholder and Chief Executive Officer of Oncotelic.
Sale of DiLA2 Assets
On July 21, 2017, we entered into a binding term sheet with a third-party purchaser (the “Purchaser”)Melior I pursuant to which Melior I extended the Purchaser will purchase from us the patents, know-how, agreements, records and certain other assets relatinglicense to our DiLA2delivery system. The consideration to be paid by Purchaser to us as a result of this transaction shall consist of: (i) an initial payment of $300,000 to be paid upon the closing of the asset sale; and (ii) an additional $1.2 million to be paid upon the first to occur of (x) a financingFebruary 1, 2023 in which third party investors purchase equity and/or debt securities of Purchaser resulting in aggregate proceeds to Purchaser of not less than $15 million and (y) the twelve-month anniversary of the closing.
The closing of the transaction is subject to the negotiation, execution and delivery of a definitive asset purchase agreement and Purchaser’s determination that its due diligence has been completed and has been found satisfactory, in Purchaser’s sole discretion.
We agreed that we will negotiate exclusively with Purchaser with respect to the sale of the DiLA2 assetsexchange for a period of ninety (90) days from the date of the term sheet. Although this ninety (90) day period has expired according to the term sheet, negotiations are ongoing between us and the Purchaser. Pursuant to the term sheet, at any time following the closing of the transaction and prior to the payment to us of the additional $1.2 million payment, Purchaser may elect to unwind the transaction by providing written notice to such effect to us. Within thirty (30) days of Purchaser’s issuance of such notice, Purchaser shall assign the DiLA2 assets back to us. We will retain an exclusive, fully paid and royalty free license to DiLA2 outside of the field of gene editing as well as the rights to license DiLA 2 outside of gene editing.
Acquisition of DyrctAxess Platform
On July 21, 2017, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Symplmed Pharmaceuticals LLC (“Symplmed Pharma”) and its wholly-owned subsidiary Symplmed Technologies, LLC (“Symplmed Tech”, and together with Symplmed Pharma, each as “Seller” and together the “Sellers”) pursuant to which we purchased from the Sellers, for an aggregate purchase price of $75,000 in cash, certain specified assets of the Sellers relating to the Sellers’ patented technology platform known as DyrctAxess that offers enhanced efficiency, control and information to empower patients, physicians and manufacturers to help achieve optimal care. The parties entered into the Purchase Agreement in furtherance of the obligations of Symplmed Pharma pursuant to that certain Asset Purchase Agreement dated as of June 5, 2017 between the Company and Symplmed Pharma pursuant to which, among other things, the Company acquired the assets of Symplmed Pharma relating to Prestalia.
Reverse Stock Split
On August 1, 2017, we filed a Certificate of Amendment of our Amended and Restated Certificate of Incorporation to effect a one-for-ten reverse split of our issued and outstanding shares of common stock. Our common stock commenced trading on the OTCQB tier of the OTC Markets on a split-adjusted basis on Thursday, August 3, 2017. There was no change to the authorized shares of our common stock as a result of the reverse split. No fractional shares were issued in connection with the reverse split; any fraction of a share of common stock that would otherwise have resulted from the reverse split was rounded up to the nearest whole share of common stock.
Amendment to Agreement with Windlas Healthcare Private Limited
On August 17, 2017, we entered into an amendment (the “Amendment”) of that certain Pharmaceutical Development Agreement dated as of March 30, 2017 by and between Windlas Healthcare Private Limited (“Windlas”) and our company (the “Development Agreement”), relating to the development by Windlas of certain pharmaceutical products to be used for conducting clinical trials or for regulatory submissions, as more fully described therein. Pursuant to the Amendment, we and Windlas agreed to amend the Development Agreement to reflect our agreement to issue to Windlas, and Windlas’ agreement to accept from us, in lieu of cash payments with respect to forty percent (40%) of the total amount reflected on invoices sent from time to time by Windlas to us, shares of our common stock having an aggregate value equal to forty percent (40%) of such invoiced amount (with the remaining portion of the invoiced amount being paid in cash). The maximum value of common stock that may be issued to Windlas pursuant to the Development Agreement (as modified by the Amendment) is $2 million. The parties also agreed that the foregoing payment arrangement would apply to any Contract Manufacturing and Supply Agreement (or similar agreement) relating to the manufacturing of commercial batches of the products covered by the Development Agreement that may be entered into between the parties.
Sale of Smarticles Assets
On September 8, 2017, we entered into an Intellectual Property Purchase Agreement (the “IP Purchase Agreement”) with Novosom Verwaltungs GmbH (“Novosom”) pursuant to which we sold to Novosom substantially all of our intellectual property estate relating to our Smarticles delivery technology (the “Smarticles IP”). We previously acquired such Smarticles IP from Novosom pursuant to that certain Asset Purchase Agreement dated July 27, 2010 between us and Novosom (the “Original Purchase Agreement”). Following the date of the Original Purchase Agreement, we entered into certain agreements with third parties pursuant to which we provided to such third parties certain licenses and rights with respect to the Smarticles IP (the “License Agreements”).
As per the IP Purchase Agreement, Novosom paid to us $1.00 in cash, and thereafter we shall no longer be responsible for the ongoing costs of maintaining the Smarticles IP.$136,921 licensing payment. In addition, the parties agreed that we wouldCompany is required to hire and retain rightsa Chief Scientific Officer, and raise an additional $500,000 in capital in addition to any future payments that may be due to us from licensees pursuant toother requirements set forth in the addendum and the License Agreements,Agreement.
To the extent that resources have been available, we have continued to work with our advisors in an effort to restructure our Company and to identify potential strategic transactions, including milestone and royalty payments, if any, and Novosom agreedthe Melior transaction described above to relinquish any rights that it may have underenhance the Original Purchase Agreement to any portionvalue of such payments.
Appointment of Executive Officers
On October 2, 2017, we entered into an Offer Letter with Amit Shah pursuant to which Mr. Shah shall serve as our Chief Financial Officer, and on October 12, 2017, we entered into an Offer Letter with Peter D. Weinstein, Ph.D., J.D. pursuant to which Dr. Weinstein shall serve as our Chief Legal Officer, in each case effective immediately. We agreed to pay a base salary of $120,000 per year to Mr. Shah and a base salary of $150,000 per year to Dr. Weinstein. It is anticipated that each of Mr. Shah and Dr. Weinstein will devote approximately 50% of his business time to the performance of his duties for the Company. Each such officer shall be shall be entitled to receive a discretionary bonus as determined by our Board of Directors in an amount up to 40% of such officer’s base salary. Our obligations to make the foregoing payments shall not become effective unless and until the closing of a single capital raising transaction involving the issuance by usBecause of our equity (or equity-linked) securities yielding aggregate gross proceeds to us ofsubstantial unpaid debt, if we do not less than $5 million onraise substantial additional capital in the near future, it is likely that the Company will discontinue all operations or prior to December 31, 2017. We also granted to each such officer options to purchase up to 60,000 shares of our common stock at an exercise price of $2.70 per share (with respect to Mr. Shah) and $2.40 per share (with respect to Dr. Weinstein) under our 2014 Long-Term Incentive Plan, with all of such options vesting and becoming exercisable on the one-year anniversary of the grant date.seek bankruptcy protection.
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Results of Operations
Comparison of the Three Months Ended SeptemberJune 30, 20172022 to the Three Months Ended SeptemberJune 30, 20172021
Operating Expenses
Our loss before income taxes for the three months ended September 30, 2017 is summarized as follows in comparison to the three months ended September 30, 2016. As a result of the November 2016 Merger with IThena, the results of operations for the three months ended September 30, 2017 include the operating expenses of Marina and IThena while the results for the three months ended September 30, 2016 include only the results of IThena.
| Three Months Ended | ||||||||
| September 30, 2017 | September 30, 2016 | |||||||
| Revenues | $ | - | $ | - | ||||
| Research and development | 232,896 | 50,683 | ||||||
| General and administrative expenses | 680,063 | 47,065 | ||||||
| Amortization | 123,038 | - | ||||||
| Other income (expense), net | 63,813 | (378 | ) | |||||
| Loss before provision for income taxes | $ | (972,184 | ) | $ | (98,126 | ) | ||
Revenues
We had no revenues in the three months ended September 30, 2017 or 2016. The majority of our licensing deals provide for clinical and regulatory milestones, so significant revenues could result from the existing licenses, but are uncertain as to timing or probability. We will continue to seek research and development collaborations as well as licensing transactions to fund business operations.
Expenses
Our expenses for the three months ended SeptemberJune 30, 20172022, and 2021 are summarized as follows in comparison to ourfollows:
| Three Months Ended | ||||||||||||
| (in thousands) | June 30, | June 30, | Increase/ (Decrease) | |||||||||
| Sales and marketing | $ | - | $ | 8 | $ | (8 | ) | |||||
| General and administrative expenses | 449 | 121 | 328 | |||||||||
| Total operating expenses | $ | 449 | $ | 129 | $ | 320 | ||||||
Sales and Marketing
Sales and marketing expenses for the three months ended SeptemberJune 30, 2016. As stated above, as a result of2021 were primarily related to storage and destruction costs incurred for Prestalia® inventory. No sales and marketing expenses were incurred for the November 2016 Merger with IThena, the results of operationsthree-month period ended June 30, 2022.
General and Administrative
General and administrative expense increased by approximately $328,000 for the three months ended SeptemberJune 30, 2017 include the operating expenses of Marina and IThena while the results for the three months ended September 30, 2016 include only the results of IThena:
Research and Development
Research and development (“R&D”) expense increased by $182,213,2022, as compared to the three months ended SeptemberJune 30, 2016,2021. The increase was primarily due to costs related to the MSA with Autotelic Inc., where the Company pays cash to Autotelic Inc.an increase in public company fees including legal expenses, audit fees and fees paid for their services totaling $96,151, on a non-cash basis, through the issuance of warrants valued at $96,151. director and officer insurance.
Other R&D expenses consist of costs of sublicensing fees, clinical development, pre-clinical studies, consulting, other outside services, and other costs.Expense
| Three Months Ended | ||||||||||||
| (in thousands) | June 30, | June 30, | Increase/ (Decrease) | |||||||||
| Interest expense | $ | (361 | ) | $ | (248 | ) | $ | 113 | ||||
| Gain on extinguishment of debt | 210 | - | (210 | ) | ||||||||
| Initial and change in derivative liability | 1,012 | (87 | ) | (1,099 | ) | |||||||
| Amortization of debt discount | (313 | ) | (50 | ) | 263 | |||||||
| Total other income (expense) | $ | 548 | $ | (385 | ) | $ | 933 | |||||
General and Administrative
General and administrative (“G&A”)Interest expense increased by $632,998 for the three months ended SeptemberJune 30, 2107, as2022 increased by $113,000 compared to the three months ended SeptemberJune 30, 2016,2021 primarily due to personnel costs of $192,676 and costs related to the MSA with Autotelic Inc., where the Company pays cash to Autotelic Inc. for their services totaling $46,859, on a non-cash basis, through the issuance of warrants valued at $46,859. Other G&A expenses consisted of legal costs of approximately $176,000, accounting and auditing fees of approximately $50,000, approximately $56,000 for board member fees and approximately $37,000 for insurance costs. No similar expenses were recorded during the three months ended September 30, 2016.
Amortization Expense
Amortization expenses relates to amortization of intangible assets acquired in the November 15, 2016 merger and the asset purchases on June 5, 2017 and July 21, 2017, with a combined estimated fair value of $3,056,066.
Other Income (Expense)
| Three Months Ended | ||||||||
| September 30, 2017 | September 30, 2016 | |||||||
| Interest expense | $ | (24,301 | ) | $ | (378 | ) | ||
| Change in fair value liability of warrants | 7,442 | - | ||||||
| Change in fair value of derivative liability | 80,672 | - | ||||||
| Total other expense, net | $ | 63,813 | $ | (378 | ) | |||
Total net other expense for the three months ended September 30, 2017 increased $64,191 compared to the three months ended September 30, 2016. The increase is primarily attributable to a decrease in the estimated fair value of price adjustable warrants and the derivative liability of approximately $7,000 and $81,000, respectively, partially offset by an increase in interest expense of $24,000 on notes payable assumed inrelated to our outstanding convertible notes. The derivative liability for the Merger.
The fair value liability is revalued each balance sheet date utilizing probability-weighted Black-Scholes computations, with the decrease or increase in fair value being reported in the statement of operationsquarter ended June 30, 2022 decreased by $1,099,000 as other income or expense, respectively.
Comparison of the Nine Months Ended September 30, 2017 to the Nine Months Ended September 30, 2016
As a result of the Merger with IThena, the results of operations for the nine months ended September 30, 2017 include the operating expenses of Marina and IThena while the results for the nine months ended September 30, 2016 include only the expenses of IThena. Our loss before income taxes for the nine months ended September 30, 2017 is summarized as followsa decrease in comparison to the nine months ended September 30, 2016:
| Nine Months Ended | ||||||||
| September 30, 2017 | September 30, 2016 | |||||||
| Revenues | $ | - | $ | - | ||||
| Research and development | 746,221 | 107,910 | ||||||
| General and administrative expenses | 1,878,301 | 232,469 | ||||||
| Amortization | 327,642 | - | ||||||
| Other income (expense), net | (273,191 | ) | (378 | ) | ||||
| Loss before provision for income taxes | $ | (3,225,355 | ) | $ | (340,757 | ) | ||
Revenues
We had no in revenues in the nine months ended September 30, 2017 or 2016. The majority of our licensing deals provide for clinical and regulatory milestones, so significant revenues could result from the existing licenses, but are uncertain as to timing or probability. We will continue to seek research and development collaborations as well as licensing transactions to fund business operations.
Expenses
Our expenses for the nine months ended September 30, 2017 are summarized as follows in comparison to our expenses for the nine months ended September 30, 2016. As a result of the November 2016 Merger with IThena, the results of operations for the three months ended September 30, 2017 include the operating expenses of Marina and IThena while the results for the three months ended September 30, 2016 include only the results of IThena.
Research and Development
Research and development (“R&D”) expense increased by $638,311, as compared to the nine months ended September 30, 2016, primarily due to costs related to the MSA with Autotelic Inc., where the Company pays cash to Autotelic Inc. for their services totaling $245,255 and, on a non-cash basis, through the issuance of warrants valued at $245,255. Other R&D expenses consist of costs of sublicensing fees, clinical development, pre-clinical studies, consulting, other outside services, and other costs.
General and Administrative
General and administrative (“G&A”) expense increased by $1,645,832 for the nine months ended September 30, 2107, as compared to the nine months ended September 30, 2016, primarily due to personnel costs and costs related to the MSA with Autotelic Inc., where the Company pays Autotelic Inc., where the Company pays cash to Autotelic Inc. for their services totaling $141,699 and, on a non-cash basis, through the issuance of warrants valued at $141,699. Other G&A expenses consisted of legal costs of approximately $540,000, accounting and auditing fees of approximately $194,000, approximately $169,000 for board member fees and approximately $97,000 for insurance costs. No similar expenses were recorded during the nine months ended September 30, 2016.
Amortization Expense
Amortization expenses relates to amortization of intangible assets acquired in the Merger and the asset purchases on June 5, 2017 and July 21, 2017, with a combined estimated fair value of $3,056,066.
Other Income (Expense)
| Nine Months Ended | ||||||||
| September 30,2017 | September 30, 2016 | |||||||
| Interest expense | $ | (51,575 | ) | $ | (378 | ) | ||
| Change in fair value liability of warrants | (106,345 | ) | - | |||||
| Change in fair value of derivative liability | (115,271 | ) | - | |||||
| Total other expense, net | $ | (273,191 | ) | $ | (378 | ) | ||
Total net other expense forour convertible notes and warrants that were classified as a derivative on our consolidated balance sheet as of June 30, 2022 offset by the nine months ended September 30, 2017 increased $272,813 compared to the nine months ended September 30, 2016. The increase is primarily attributable to an increase in the estimated fair valueinitial valuation of price adjustable warrants anda derivative liability and interest expense on notes payable acquired in the Merger.
The fair value liability is revalued each balance sheet date utilizing probability-weighted Black-Scholes computations, with the decrease or increase in fair value being reported in the statement of operations as other income or expense, respectively.
Liquidity & Capital Resources
Working Capital Deficiency
| September 30, 2017 | December 31, 2016 | |||||||
| Current assets | $ | 63,307 | $ | 316,480 | ||||
| Current liabilities | (4,614,514 | ) | (2,967,669 | ) | ||||
| Working capital deficiency | $ | (4,551,207 | ) | $ | (2,651,189 | ) | ||
Current assets decreased by $253,173, which was attributable to a decrease in cash of $96,671 and a decrease in prepaid expenses of $156,502.
Current liabilities increased by $1,646,845, which was primarily attributable to an increase of accounts payable of $364,247, an increase of $299,166 in amounts due related parties, and an increase of $715,353 in convertible notes to related and unrelated parties.
Cash Flows
| Nine Months Ended | ||||||||
| September 30, 2017 | September 30, 2016 | |||||||
| Net cash used in operating activities | $ | (923,202 | ) | $ | (296,143 | ) | ||
| Net cash used in investing activities | (375,000 | ) | - | |||||
| Net cash provided by financing activities | 1,201,531 | 50,000 | ||||||
| Increase (decrease) in cash and cash equivalents | $ | (96,671 | ) | $ | (246,143 | ) | ||
The increase in net cash used in operating activities during the nine months ended September 30, 2017, compared to 2016, was mainly due to increased operating expenses subsequent to the Merger, offset by non-cash stock compensation of $272,000, amortization of intangibles of $328,000, an increase in accounts payable of $355,000, an increase in accrued expenses of $639,000 and an increase in amounts due to related party of $353,000.
The Company used cash of $300,000 in investing activities for payments towards the July 21, 2017 Prestalia acquisition and $75,000 towards the DyrctAxess acquisition during the nine months ended September 30, 2017. This investment was made to transform the Company to be a commercial stage company from a development stage company.
The $1,151,531 increase in net cash provided by financing activities during the nine months ended September 30, 2017, compared to 2016, is primarily attributable to proceeds of $250,000 from the sale of stock, $380,888 from additional borrowings on related party notes and convertible notes, $400,000 from the issuance of convertible notes and $170,643 receivedwarrants during the period. 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 $263,000 for the amortization of debt discounts was due an increase in our convertible notes outstanding.
Comparison of the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021
Operating Expenses
Our operating expenses for the six months ended June 30, 2022, and 2021 are summarized as follows:
| Six Months Ended | ||||||||||||
| (in thousands) | June 30, | June 30, | Increase/ (Decrease) | |||||||||
| Sales and marketing | $ | - | $ | 17 | $ | (17 | ) | |||||
| General and administrative expenses | 709 | 222 | 487 | |||||||||
| Total operating expenses | $ | 709 | $ | 239 | $ | 470 | ||||||
Sales and Marketing
Sales and marketing expenses for the six months ended June 30, 2021 were primarily related to storage and destruction costs incurred for Prestalia® inventory. No sales and marketing expenses were incurred for the six months ended June 30, 2022.
General and Administrative
General and administrative expense increased by approximately $487,000 for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021. The increase was primarily due to an increase in public company fees including legal expenses, audit fees and fees paid for director and officer insurance.
Other Expense
| Six Months Ended | ||||||||||||
| (in thousands) | June 30, | June 30, | Increase/ (Decrease) | |||||||||
| Interest expense | $ | (672 | ) | $ | (491 | ) | $ | 181 | ||||
| Gain on extinguishment of debt | 215 | - | (215 | ) | ||||||||
| Initial and change in derivative liability | 1,679 | (87 | ) | (1,766 | ) | |||||||
| Amortization of debt discount | (488 | ) | (125 | ) | 363 | |||||||
| Total other income (expense) | $ | 734 | $ | (703 | ) | $ | 1,437 | |||||
Interest expense for the six months ended June 30, 2022 increased by $181,000 compared to the six months ended June 30, 2021 primarily due to an increase in our outstanding convertible notes. The derivative liability for the quarter ended June 30, 2022 decreased by $1,766,000 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, 2022 offset by an increase in the initial valuation of a derivative liability expense from the issuance of notes and warrants for the period. The gain on extinguishment of debt was due to the payment and conversion of warrantsprincipal and interest on our outstanding convertible notes. The increase of $363,000 for the amortization of debt discounts was due an increase in our convertible notes outstanding.
Liquidity & Capital Resources
Working Capital
| (in thousands) | June 30, 2022 | December 31, 2021 | ||||||
| Current assets | $ | 976 | $ | 196 | ||||
| Current liabilities | (20,971 | ) | (25,302 | ) | ||||
| Working capital deficit | $ | (19,995 | ) | $ | (25,106 | ) | ||
Negative working capital as of June 30, 2022, was approximately $20.0 million as compared to common stock.negative working capital of approximately $25.1 million as of December 31, 2021. The increase in working capital is primarily related to an decrease in current liabilities of approximately $4.3 million including approximately $5.0 million in accrued dividends as a result of the conversion Series E and Series F Preferred Stock during the period, offset by an increase of $587,000 of accrued expenses including accrued interest, an increase in our promissory notes payable of $630,000 net of discounts and a decrease of $599,000 for a derivative liability related to our outstanding convertible notes and warrants.
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We
Cash Flows and Liquidity
Net cash used in Operating Activities
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.
Net cash used in operating activities was approximately $118,000 during the six months ended June 30, 2021. This was primarily due to our net operating loss of approximately $942,000, partially offset by non-cash interest expense related to our term loans of $487,000, non-cash amortization of debt discount and fees of $129,000 and other changes in operating assets and liabilities including an increase in accounts payable and accrued expenses of approximately $121,000.
Net cash used in Investing Activities
There was no cash used in or provided by investing activities for the six months ended June 30, 2022, or June 30, 2021.
Net cash provided by Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2022, and 2021 was approximately $1,463,000 and $159,000, respectively. Net cash provided by financing activities for the six-months ended June 30, 2022 included $1,872,000 from the sale of promissory notes and warrants, net of issuance costs to certain accredited investors, offset by the repayment of principal and interest on outstanding convertible notes of $407,000 and $2,000 for the repurchase of common stock outstanding. Net cash provided by financing activities for the six-months ended June 30, 2021 included $159,000 from the sale of promissory notes, net of issuance costs to certain accredited investors
While we recently raised $1.7 million, net of issuance costs as described in the next paragraph, we will need to raise additional operating capital in calendar year 2017 in orderthe near future 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 maywill not have the cash resources to continue as a going concern thereafter.
Going ConcernFinancing
In May 2022, we closed a private placement offering of $2,222,222 of notes and 22,222,218 warrants and received approximately $1.7 million in net proceeds. The condensed consolidated financial statements containednotes come due upon 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 this report have been prepared assuming thatthe Company’s common stock being listed on a national securities exchange, and (iii) an event of default, in which case the amount payable could be increased to 125% of the outstanding balance if our common stock is not listed on a national securities exchange at the time of such 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 125% of the outstanding principal, accrued interest and other amounts owing thereon. 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 Companywill continue as a going concern. We have an accumulated deficit for the period from inception through September 30, 2017 in excess of $5 million, as well as negative cash flows from operating activities. We had obtained a line of credit from Autotelic Inc. of $500,000, of which we have utilized $92,590. As such, we currently have approximately $407,000 of available funds under our line of credit with Autotelic Inc. that is being used to maintain operations. We believe that this available cash is sufficient to fund our operations through December 31, 2017. These factors raise substantial doubt about our ability to continue as a going concern. Management is in the process of evaluating various financing alternatives for operations, as we will need to finance future research and development and operational activities and general and administrative expenses through fund raising in the public or private debt and equity markets and strategic transactions.
The interim condensed consolidated financial statements do not include any adjustments that may, be necessary should the Company be unable to continue as a going concern. Our continuation as a going concern is dependent on our ability to obtain additional financing as may be required and ultimately to attain profitability. If we raise additional funds through the issuance of equity or equity-linked securities, the percentage ownership of current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our future plans for developing our business and achieving commercial revenues. If we are unable to obtain the necessary capital when needed, we may have to cease operations.
During 2016 and 2017, we have funded our losses primarily through the sale of common stock and warrants, revenue provided from our license agreements, loans provided by Dr. Trieu and Autotelic Inc. pursuantfive days’ prior written notice to the Line Letters,Purchaser, prepay all of the issuancethen outstanding principal amount of convertiblethe notes and, to a lesser extent, equipment financing facilities and secured loans. During the nine months ended September 30, 2017, we raised $250,000 from the private placement of our equity securities, raised $400,000 from the issuance of convertible notes, received $170,643 from the conversion of warrants to common stock, and borrowed $380,888 under the Line Letter from Dr. Trieu. In addition, in April 2017, we entered into an additional credit agreement with Autotelic Inc., pursuant to which Autotelic Inc. offered to the Company an unsecured line of creditfor cash in an amount notequal to exceed $500,000, to be used for current operating expensesthe sum of 105% of all amounts due and owing hereunder, including all accrued and unpaid interest. The Company’s obligations under the Notes are secured by a first priority lien on all of the Company. assets of the Company and its wholly-owned subsidiaries.
We do not have utilized $92,590 and have approximately $407,000 available undersufficient funds to meet our working capital needs for the Line Letter with Autotelic Inc. We believe that the cash available to us under this Line Letter will be sufficient to fund our operations through December 31, 2017.
Future Financing
next 12 months. We will require additional funds in the near future to implement the growth strategy forcontinue our business. As mentioned above,Historically, we have in the past, raised additional capital to both supplement our commercialization, clinical development and operational expenses. We will need to raise additional funds required, through equity financing, debt financing, strategic alliances or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available when needed or, if available, that it can be obtained on commercially reasonable terms. If we will not be ableFailure to obtain theraise additional financingcapital 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 timely basis as required, or generate significant material revenues from operations, we will not be able to meet our other obligations as they become due and will be forced to scale down or perhaps even cease our operations.going concern.
Off-Balance Sheet Arrangements
As of SeptemberJune 30, 2017,2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our consolidated financial statements included herein for the period ended SeptemberJune 30, 20172022, and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
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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 SeptemberJune 30, 2017.2022.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation,We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the supervisionExchange Act that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and withreported within the participation oftime periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our senior 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 such term is defined in Rules 13a-15(e)as of the end of the period covered by this Report. Based upon that evaluation and 15d-15(e) undersubject to the Exchange Act). Management identified material weaknesses in internal control over financial reporting as described under the heading “Management Report on Internal Control” contained in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “2016 Form 10-K”), which have not been fully remediated, and thereforeforegoing, our principal executive officer and our principal financial officer concluded that, as of September 30, 2017, our disclosure controls and procedures were not effective.effective due to the material weaknesses in internal controls over financial reporting described below.
Material Weakness in Internal Control Overover Financial Reporting
Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2022, 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 reporteddetermined that our internal control over financial reporting as of June 30, 2022, 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 as the Company does not have any employees and a single individual serves as both the principal executive officer, the principal financial officer and the principal accounting officer; | |
| ● | Lack of qualified accounting personnel to prepare and report financial information in accordance with GAAP; | |
| ● | 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. |
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Management’s Plan to Remediate the Material Weakness
Providing funds are available, management plans to implement measures designed to ensure that control deficiencies, contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned 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 Directorsour 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 Audit Committee thereof material weaknesses described under the heading “Management Reporteffectiveness of our internal controls and procedures over financial reporting on Internal Control” contained in Item 9A of the 2016 Form 10-K. The material weaknesses discussed therein have not been fully remediated. 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 or(as defined in other factorsRule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended SeptemberJune 30, 20172022, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. To remediate the material weakness identified in our Form 10-K for the year ended December 31, 2016, we plan to hire additional experienced accounting and other personnel to assist with filings and financial record keeping, and to take additional steps to improve our financial reporting systems and enhance our existing policies, procedures and controls, as resources allow. In connection with such remediation efforts, in October 2017 we engaged Amit Shah to serve as our Chief Financial Officer.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
The Company has been named onGeneral
Currently, there is no material litigation pending against our company. From time to time, we may become a complaint filed in New York State as a defendant in the matter entitledVaya Pharma, Inc. v. Symplmed Technologies, Inc., Symplmed Pharmaceuticals, Inc., Erik Emersonparty to litigation and Marina Biotech, Inc. While this complaint has been filed in the Supreme Court of the State of New York, the Company has not been legally served. The complaint alleges, in relevant part, that: (i) the sale by Symplmed Pharmaceuticals, Inc. of its assets relatedsubject to its Prestalia product, and the sale by Symplmed Technologies, Inc. of its assets related to its DyrctAxess platform, should be set aside pursuant to New York law as they were consummated without fair considerationclaims incident to the sellers (the “Symplmed Defendants”), and thereby had the effectordinary course of fraudulently depriving the creditors of the Symplmed Defendants, including Vaya Pharma, Inc., of funds that could have been used to pay their debts; and (ii) the Company is liable, as successor, for any and all claims by Vaya Pharma, Inc. against the Symplmed Defendants, though pursuant to the agreement the Company is only contractually responsible for liabilities that accrue after the parties entered into the agreement for Prestalia and any liabilities that existed prior to the agreement are contractually held by Symplmed. If and when the Company is legally served, it is the intention of the Company to dispute jurisdiction, the sufficiency of the pleading and the claims set forth in this complaint, and to defend this matter, vigorously. However, due to the inherent uncertainties of litigation, the ultimate outcome of this matter is uncertain. An unfavorable outcome could materially and adversely affect the business, financial condition and results of operations of the Company.our business.
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, 20162021 (the “Annual Report”), as filed with the SEC on March 31, 2017,April 15, 2022, in addition to other information contained in those documents and reports that we have filed with the SEC pursuant to the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, 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.
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In September 2017, we entered into an engagement letter with a
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
Item 6. Exhibits
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| + | Management contract or compensatory plan or arrangement. |
| * | Exhibits and/or Schedules have been omitted. The Company hereby agrees to furnish to the SEC upon request any omitted information. |
| *** | 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 S-K. |
Copies of this Report (including the financial advisor pursuant to which, among other things, we agreed to issue to such financial advisor, in partial considerationstatements) and any of the servicesexhibits referred to above will be rendered under the engagement letter, an aggregate of 500,058 shares offurnished at no cost to our common stock. The shares were issued in November 2017. The shares were issued in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended.shareholders who make a written request to our Corporate Secretary at Adhera Therapeutics, Inc., 8000 Innovation Parkway, Baton Rouge, Louisiana 70820.
During the fiscal quarter ended September 30, 2017 we issued 180,000 unregistered shares of common stock to the holders of our Series C Convertible Preferred Stock in connection with the conversion of 270 shares of our Series C Convertible Preferred Stock. These securities were issued in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506(b) of Regulation D promulgated thereunder.
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SIGNATURES
(1) Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended, and the omitted material has been filed separately with the SEC.
* Filed or furnished herewith.
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.
| Date: | By: | /s/ |
| Andrew Kucharchuk | ||
| CEO (Principal Executive | ||
Financial Officer) | ||
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