Quarterly Report (10-q)

Date : 05/15/2019 @ 9:32PM
Source : Edgar (US Regulatory)
Stock : Adhera Therapeutics Inc. (ATRX)
Quote : 0.18  0.0 (0.00%) @ 9:59PM

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2019

 

or

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________ to _____________.

 

Commission File Number: 000-13789

 

ADHERA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   11-2658569

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

     

4721 Emperor Boulevard, Suite 350

Durham, NC

 

 

27703

(Address of principal executive offices)   (Zip Code)

 

(919) 578-5901

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
       
Non-accelerated filer [  ] (Do not check if a smaller reporting company) Smaller reporting company [X]
       
    Emerging Growth Company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act: [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X].

 

As of May 10, 2019, there were 10,869,530 shares of the registrant’s common stock outstanding.

 

 

 

     
 

 

ADHERA THERAPEUTICS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

 

TABLE OF CONTENTS

 

  Page
   
PART I - FINANCIAL INFORMATION  
     
ITEM 1 Financial Statements (unaudited) 3
     
  Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 3
     
  Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018 4
     
  Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018 5
     
  Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2019 and 2018 6
     
  Notes to Condensed Consolidated Financial Statements 7
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 27
     
ITEM 4. Controls and Procedures 27
     
PART II - OTHER INFORMATION  
     
ITEM 1. Legal Proceedings 28
     
ITEM 1A. Risk Factors 29
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
     
ITEM 6. Exhibits 30
     
SIGNATURES 31

 

  2  
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    March 31, 2019     December 31, 2018  
    (Unaudited)        
ASSETS            
                 
Current assets                
Cash   $ 1,828,476     $ 3,918,290  
Accounts receivable, net of allowance     39,388       48,289  
Inventory     258,007       241,458  
Prepaid expenses and other assets     491,177       469,142  
Total current assets     2,617,048       4,677,179  
                 
Operating lease right of use asset     208,830       -  
Furniture and fixtures, net of depreciation     68,852       71,774  
Intangible assets, net of amortization     374,317       391,892  
Total non-current assets     651,999       463,666  
                 
Total assets   $ 3,269,047     $ 5,140,845  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
Current liabilities                
Accounts payable   $ 322,633     $ 270,138  
Due to related party     52,658       27,977  
Accrued expenses     850,180       851,870  
Current portion of operating lease liability     88,940       -  
Accrued dividends     1,445,825       1,064,141  
Total current liabilities     2,760,236       2,214,126  
                 
Other lease liability, net of current portion     126,540       -  
Total liabilities     2,886,776       2,214,126  
                 
Commitments and contingencies (Note 9)                
                 
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; 100 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
    -       -  
                 
Series D convertible preferred stock, $0.01 par value; $300 liquidation
preference; 220 shares authorized; 40 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
    -       -  
                 
Series E convertible preferred stock, $0.01 par value; $5,000 liquidation
preference; 3,500 shares authorized; 3,488 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
    35       35  
                 
Series F convertible preferred stock, $0.01 par value; $5,000 liquidation
preference; 2,200 shares authorized; 381 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
    3       3  
                 
Common stock, $0.006 par value; 180,000,000 shares authorized;
10,761,684 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
    64,570       64,570  
Additional paid-in capital     29,105,306       28,709,916  
Accumulated deficit     (28,787,643 )     (25,847,805 )
                 
Total stockholders’ equity     382,271       2,926,719  
                 
Total liabilities and stockholders’ equity   $ 3,269,047     $ 5,140,845  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

  3  
 

 

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   

For the Three Months Ended

March 31,

 
    2019     2018  
             
Net sales   $ 2,881     $ -  
Cost of sales     116,933       -  
Gross loss     (114,052 )     -  
                 
Operating expenses                
                 
Sales, marketing and commercial operations   1,059,222     -  
Research and development     -       173,256  
General and administrative     1,367,303       919,908  
Amortization     17,575       123,261  
Total operating expenses     2,444,100       1,216,425  
                 
Loss from operations     (2,558,152 )     (1,216,425 )
                 
Other expense                
                 
Interest expense     -       (144,744 )
      -       (144,744 )
                 
Loss before provision for income taxes     (2,558,152 )     (1,361,169 )
                 
Provision for income taxes     -       -  
                 
Net loss     (2,558,152 )     (1,361,169 )
                 
Preferred Stock Dividends     (381,686 )     -  
                 
Net Loss Applicable to Common Stockholders   $ (2,939,838 )   $ (1,361,169 )
                 
Net loss Per Share - Common Stockholders - basic and diluted   $ (0.27 )   $ (0.13 )
                 
Weighted average shares outstanding- basic and diluted     10,761,684       10,521,278  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

  4  
 

 

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

    Series E Preferred Stock     Series F Preferred Stock     Common Stock    

Additional

   

Additional

Paid-in

           
    Number     Par
Value
    Number     Par
Value
    Number     Par
Value
   

Paid-in

Capital

   

Capital -

Warrants

   

Accumulated

Deficit

    Total  
                                                             
Balance, December 31, 2017           -     $       -            -     $       -       10,521,278     $ 63,127     $ 8,413,823     $           -     $ (8,028,707 )   $ 448,243  
                                                                                 
Share based compensation     -       -       -       -       -       -       118,879       -       -       118,879  
                                                                                 
Net loss     -       -       -       -       -       -       -       -       (1,361,169 )     (1,361,169 )
                                                                                 
Balance, March 31, 2018     -     $ -       -     $ -       10,521,278     $ 63,127     $ 8,532,702     $ -     $ (9,389,876 )   $ (794,047 )

 

    Series E Preferred Stock     Series F Preferred Stock     Common Stock    

Additional

   

Additional

Paid-in

   

     
    Number     Par
Value
    Number     Par
Value
    Number     Par
Value
   

Paid-in

Capital

   

Capital -

Warrants

   

Accumulated

Deficit

    Total  
Balance, December 31, 2018     3,488     $     35       381     $        3       10,761,684     $ 64,570     $ (5,383,913 )   $ 34,093,829     $ (25,847,805 )   $ 2,926,719  
                                                                                 
Accrued dividend     -       -       -       -       -       -       -       -       (381,686 )     (381,686 )
                                                                                 
Share based compensation     -       -       -       -       -       -       395,390       -       -       395,390  
                                                                                 
Net loss     -       -       -       -       -       -       -       -       (2,558,152 )     (2,558,152 )
                                                                                 
Balance, March 31, 2019     3,488     $ 35       381     $ 3       10,761,684     $ 64,570     $ (4,988,523 )   $ 34,093,829     $ (28,787,643 )   $ 382,271  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

 

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    For the Three Months Ended March 31,  
    2019     2018  
             
Cash Flows Used in Operating Activities:                
                 
Net loss   $ (2,558,152 )   $ (1,361,169 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Share based compensation     395,390       118,879  
Amortization of intangibles     17,575       123,261  
Depreciation     2,922       -  
Non-cash interest expense     -       144,744  
Non-cash lease expense     30,938       -  
Deferred revenue     -       200,000  
Changes in operating assets and liabilities:                
Accounts receivable     8,901       -  
Inventory     (16,549 )     -  
Prepaid expenses and other assets     (22,035 )     (80,571 )
Accounts payable     52,495       428,906  
Accrued expenses     4,862       47,816  
Due to related party     24,681       319,524  
Lease liability     (30,842 )     -  
                 
Net Cash Used in Operating Activities     (2,089,814 )     (58,610 )
                 
Net decrease in cash     (2,089,814 )     (58,610 )
                 
Cash – Beginning of Period     3,918,290       106,378  
Cash - End of Period   $ 1,828,476     $ 47,768  
                 
Non-cash Investing and Financing Activities:                
Capitalization of operating lease right of use asset   $ 239,768     $ -  
Accrued dividends   $ 381,686     $ -  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6

 

 

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2019

(Unaudited)

 

Note 1 – Nature of Operations, Basis of Presentation and Significant Accounting Policies

 

Business Overview

 

Adhera Therapeutics, Inc. (formerly known as Marina Biotech, Inc.) and its wholly-owned subsidiaries, MDRNA Research, Inc. (“MDRNA”), Cequent Pharmaceuticals, Inc. (“Cequent”), Atossa Healthcare, Inc. (“Atossa”), and IThenaPharma, Inc. (“IThena”) (collectively “Adhera,” the “Company,” “we,” “our,” or “us”) is an emerging specialty pharmaceutical company that leverages innovative distribution models and technologies to improve the quality of care for patients in the United States suffering from chronic and acute diseases. We are focused on fixed dose combination (“FDC”) therapies in hypertension, with plans to expand the portfolio of drugs we commercialize to include other therapeutic areas.

 

Our mission is to provide effective and patient centric treatment for hypertension and resistant hypertension while actively seeking additional assets that can be commercialized through our proprietary Total Care System (“TCS”). At the core of our TCS system is DyrctAxess, our patented technology platform. DyrctAxess is designed to offer enhanced efficiency, control and access to the information necessary to empower patients, physicians and manufacturers to achieve optimal care.

 

We began marketing Prestalia ® , a single-pill FDC of perindopril arginine (“perindopril”) and amlodipine besylate (“amlodipine”) in June of 2018. By combining Prestalia, DyrctAxess and an independent pharmacy network, we have created a proprietary system for drug adherence and the effective treatment of hypertension, improving the distribution of FDC hypertensive drugs, such as our FDA-approved product Prestalia, as well as improving the distribution of devices for therapeutic drug monitoring (“TDM”) (e.g., blood pressure monitors), as well as patient counseling and prescription reminder services. We are focused on demonstrating the therapeutic and commercial value of TCS through the commercialization of Prestalia. Prestalia was developed in coordination with Les Laboratories, Servier, a French pharmaceutical conglomerate, that sells the formulation outside the United States under the brand names Coveram ® and/or Viacoram ® . Prestalia was approved by the U.S. Food and Drug Administration (“FDA”) in January 2015 and is distributed through our DyrctAxess platform which, we acquired in 2017.

 

We have discontinued all significant clinical development and are evaluating disposition options for all of our development assets, including: (i) our next generation celecoxib program drug candidates for the treatment of acute and chronic pain, IT-102 and IT-103; (ii) CEQ508, an oral delivery of small interfering RNA against beta-catenin, combined with IT-102 to suppress polyps in the precancerous syndrome and orphan indication Familial Adenomatous Polyposis; (iii) CEQ508 combined with IT-103 to treat Colorectal Cancer; (iv) CEQ608 and CEQ609, an oral delivery of IL-6Ra tkRNAi against irritable bowel disease (IBD) gene targets, which could significantly reduce colon length and abolish the IL-6Rα message in proximal ileum; (v) Claudin-2 strains which (CEQ631 and CEQ632) significantly reduce Claudin-2 mRNA expression and protein levels in the colon as well as attenuation of the disease phenotype and enhance survival; (vi) MIP3a therapeutic strains CEQ631 and CEQ632 which also resulted in a significant reduction in sum pathology scores and reduction in MIP3a mRNA expression. We plan to license or divest these development assets since they no longer align with our focus on the treatment of hypertension.

 

As our strategy is to be a commercial pharmaceutical company, we will drive a primary corporate focus on revenue generation through our commercial assets, while continuing to develop our technology platform and TCS. We intend to create value through the expanded commercialization of our FDA-approved product, Prestalia, while continuing to develop and leverage our TCS to further strengthen our commercial presence.

 

On November 15, 2016, Adhera entered into, 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 Adhera (“Merger Sub”), and a representative of the stockholders of IThena (the “Merger Agreement”), pursuant to which IThena merged into Merger Sub (the “Merger”).

 

  7  
 

 

In the second quarter of 2018, we raised approximately $12.2 million, net of fees and expenses, from a private placement of our newly created Series E Convertible Preferred Stock. In July and November 2018, we raised approximately $1.7 million net of fees and expenses, from a private placement of our newly created Series F Convertible Preferred Stock. The use of funds from the raises was used for the commercialization of Prestalia, funding working capital, capital expenditure needs, payment of certain liabilities and other general corporate requirements. We plan to license or divest our other pharmaceutical assets and halt any other development programs, since they no longer align with our focus on the treatment of hypertension.

 

Change of Company Name and OTC Markets Symbol

 

On October 4, 2018, we filed a Certificate of Amendment to our Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to change our name from “Marina Biotech, Inc.” to “Adhera Therapeutics, Inc.” The change of name was effective October 9, 2018.

 

Following the name change from Marina Biotech, Inc. to Adhera Therapeutics, Inc., our common stock, par value $0.006 per share, began trading on the OTCQB tier of the OTC Markets under the symbol “ATRX”.

 

Reverse Stock Split

 

In August 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 condensed consolidated financial statements and Notes to the Condensed Consolidated 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 the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete audited financial statements. This quarterly report should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results for the year ending December 31, 2019 or for any future period.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Adhera Therapeutics, Inc. and the wholly-owned subsidiaries, Ithena, Cequent, MDRNA, and Atossa, and eliminate any inter-company balances and transactions.

 

Going Concern and Management’s Liquidity Plans

 

The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2019, we had a significant accumulated deficit of approximately $28.8 million and negative working capital of approximately $0.1 million. For the three months ended March 31, 2019, we had a net loss from operations of approximately $2.6 million and negative cash flows from operations of approximately $2.1 million. Our operating activities consume the majority of our cash resources. We anticipate that we will continue to incur operating losses as we execute our commercialization plans for Prestalia, as well as strategic and business development initiatives. In addition, we have had and 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 through the sale of common and preferred stock, combined with or without warrants, the sale of notes, cash generated from the out-licensing or sale of our licensed assets and, to a lesser extent, equipment financing facilities and secured loans. We will need to raise additional operating capital during the second quarter of 2019 in order to maintain our operations and realize our business plan. Without additional sources of cash and/or deferral, reduction, or elimination of significant planned expenditures, we may not have the cash resources to continue as a going concern thereafter. However, we cannot be certain that we will be able to obtain such funds required for our operations at terms acceptable to us or at all.

 

  8  
 

 

In April and May 2018, we raised approximately $12.2 million net proceeds from a private placement of shares of our Series E Convertible Preferred Stock and warrants to purchase shares of our common stock. Further, in July 2018, we raised an additional $1.4 million net proceeds from the private placement of our Series F Convertible Preferred Stock. On November 9, 2018, we sold 73 shares of our Series F Preferred Stock for total net proceeds of approximately $0.31 million. For our assessment as of March 31, 2019, we have considered the amount raised and we will continue to reassess our ability to address the going concern. We will continue to attempt to obtain future financing or engage in strategic transactions which may require us to curtail our operations. We cannot predict, with certainty, the outcome of our actions to generate liquidity, including the availability of additional equity or debt financing, or whether such actions would generate the expected liquidity as currently planned.

 

Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Significant areas requiring the use of management estimates include revenue and related discounts and allowances, valuation allowance for deferred income tax assets, legal contingencies and fair value of financial instruments. Actual results could differ materially from such estimates under different assumptions or circumstances.

 

Fair Value of Financial Instruments

 

We consider the fair value of cash, accounts payable, due to related parties, accounts receivable and accrued expenses not to be materially different from their carrying value. These financial instruments have short-term maturities. We follow authoritative guidance with respect to fair value reporting issued by the Financial Accounting Standards Board (“FASB”) for financial assets and liabilities, which defines fair value, provides guidance for measuring fair value and requires certain disclosures. The guidance does not apply to measurements related to share-based payments. The guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
   
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
   
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

 

Our cash is subject to fair value measurement and is determined by Level 1 inputs. We measure the liability for committed stock issuances with a fixed share number using Level 1 inputs. There were no liabilities measured at fair value as of March 31, 2019 or December 31, 2018.

 

  9  
 

 

Goodwill and Intangible Assets

 

The Company periodically reviews the carrying value of intangible assets, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

 

During the year ended December 31, 2018, we determined that goodwill was impaired and, as a result, a loss on impairment of $3.5 million was recognized. The impairment determination was primarily a result of the decision to divest of assets that no longer align with the Company’s strategic objectives.

 

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:

 

For finite-lived intangible assets, such as developed technology rights, and for other long-lived assets, we compare the undiscounted amount of the projected cash flows associated with the asset, or asset group, to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate; and
   
For indefinite-lived intangible assets, such as acquired in-process R&D assets, each year and whenever impairment indicators are present, we determine the fair value of the asset and record an impairment loss for the excess of book value over fair value, if any.

 

During the year ended December 31, 2018, the Company determined that the intangible asset from the Merger was impaired, and, as a result, a loss on impairment of $1,672,885 was recorded. The impairment determination was primarily a result of the decision to divest of assets that no longer align with the Company’s strategic objectives.

 

Revenue Recognition

 

The Company adopted the new revenue recognition guidelines in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606), effective with the quarter ended March 31, 2018.

 

  10  
 

 

The Company sells its medicines primarily to wholesale distributors and specialty pharmacy providers. These customers subsequently resell the Company’s medicines to health care patients. In addition, the Company enters into arrangements with health care providers and payers that provide for government-mandated or privately-negotiated discounts and allowances related to the Company’s medicines. Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of the Company’s contracts have a single performance obligation to transfer medicines. Accordingly, revenues from medicine sales are recognized when the customer obtains control of the Company’s medicines, which occurs at a point in time, typically upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring medicines and is generally based upon a list or fixed price less allowances for medicine returns, rebates and discounts. The Company sells its medicines to wholesale pharmaceutical distributors and pharmacies under agreements with payment terms typically less than 90 days.

 

During the year ended December 31, 2018, management determined certain costs related to the sales of Prestalia, specifically, costs associated with free product, should be classified as cost of goods sold and not revenue reductions. Consistent with the accounting for the year ended December 31, 2018, the Company recorded an estimate of unrealized revenue reductions, and the related liability, for bottles sold to pharmacies but not yet prescribed.

 

Medicine Sales Discounts and Allowances

 

The nature of the Company’s contracts gives rise to variable consideration because of allowances for medicine returns, rebates and discounts. Allowances for medicine returns, rebates and discounts are recorded at the time of sale to wholesale pharmaceutical distributors and pharmacies. The Company applies significant judgments and estimates in determining some of these allowances. If actual results differ from its estimates, the Company will be required to make adjustments to these allowances in the future. The Company’s adjustments to gross sales are discussed further below.

 

Distribution Service Fees

 

The Company includes distribution service fees paid for inventory management services as cost of good sold. The Company calculates accrued distribution service fee estimates using the most likely amount method. The Company accrues estimated distribution fees based on contractually determined amounts. Accrued distribution service fees are included in “accrued expenses” on the condensed consolidated balance sheet.

 

Patient Access Programs

 

The Company offers discounts to patients under which the patient receives a discount on his or her prescription. In circumstances when a patient’s prescription is rejected by a third-party payer, the Company will pay for the full cost of the prescription. The Company reimburses pharmacies for this discount directly or through third-party vendors. The Company reduces gross sales by the amount of actual co-pay and other patient assistance in the period based on the invoices received. The Company also records an accrual to reduce gross sales for estimated co-pay and other patient assistance on units sold to distributors or pharmacies that have not yet been prescribed/dispensed to a patient. The Company calculates accrued co-pay and other patient assistance fee estimates using the expected value method. The estimate is based on contract prices, estimated percentages of medicine that will be prescribed to qualified patients, average assistance paid based on reporting from the third-party vendors and estimated levels of inventory in the distribution channel. Accrued co-pay and other patient assistance fees are included in “accrued expenses” on the condensed consolidated balance sheet. Patient assistance programs include both co-pay assistance and fully bought down prescriptions.

 

Sales Returns

 

Consistent with industry practice, the Company maintains a return policy that allows customers to return medicines within a specified period prior to and subsequent to the medicine expiration date. Generally, medicines may be returned for a period beginning six months prior to its expiration date and up to one year after its expiration date. The right of return expires on the earlier of one year after the medicine expiration date or the time that the medicine is dispensed to the patient. The majority of medicine returns result from medicine dating, which falls within the range set by the Company’s policy and are settled through the issuance of a credit to the customer. The Company calculates sales returns using the expected value method. The estimate of the provision for returns is based upon industry experience. This period is known to the Company based on the shelf life of medicines at the time of shipment. The Company records sales returns in “accrued expenses” and as a reduction of revenue.

 

  11  
 

 

Shipping Fees

 

The Company includes fees incurred by pharmacies for shipping medicines to patients as cost of good sold. The Company calculates accrued shipping fee estimates using the expected value method. The Company records accrued shipping fees in “accrued expenses” on the condensed consolidated balance sheet.

 

Customers Concentration

 

The Company sells its prescription drug (Prestalia) directly to specialty contracted retail pharmacies and indirectly through wholesalers. For the three months ended March 31, 2019, the Company’s three largest customers accounted for approximately 56%, 26%, and 18%, respectively, of the Company’s total gross sales. The Company works with a third-party pharmacy network manager to attract, retain, and manage the Company’s pharmacy customers and distribution channels. All of 2019 gross sales were made to customers associated with or related to the Company’s third-party pharmacy network manager. The Company had no significant sales for the three months ended March 31, 2018.

 

Licensing Agreements

 

Licensing agreements entered into by the Company, typically include payment of one or more of the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services; and royalties on net sales of licensed products. Each of these payments results in license, collaboration and other revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. The core principle of ASC 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services.

 

During the year ended December 31, 2018, Adhera entered into a Licensing Agreement, whereby Adhera granted exclusive rights to the Company’s DiLA 2 delivery system in exchange for an upfront payment of approximately $200,000 and further potential future consideration dependent upon event and sales-based milestones. Under the terms of the agreement, Adhera has agreed to assign ownership of the intellectual property associated with the DiLA 2 delivery system to the purchaser. The Company has not completed, and will not complete, certain performance obligations under the agreement and accordingly has classified the $200,000 payment in accrued expenses as of March 31, 2019 and December 31, 2018.

 

Recently Issued Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). Under ASU No. 2016-02, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. For leases with a term of twelve months or less, the lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities by class of underlying assets. ASU No. 2016-02 becomes effective for the Company beginning in the first quarter of 2019. The guidance can be applied using either a modified retrospective approach at the beginning of the earliest period presented, or at the beginning of the period in which it is adopted. The Company adopted this standard on January 1, 2019, using a modified retrospective approach at the adoption date through a cumulative-effect adjustment to retained earnings. The adoption did not have a material impact on its condensed consolidated statement of operations. However, the new standard required the Company to establish approximately $0.2 million of liabilities and corresponding right-of-use assets of approximately $0.2 million on its condensed consolidated balance sheet for operating leases on rented office properties that existed as of the January 1, 2019, adoption date. The Company elected to not recognize lease assets and liabilities for leases with an initial term of twelve months or less.

 

  12  
 

 

Net Income (Loss) per Common Share

 

Basic net income (loss) per common share (after giving effect of the one for ten reverse stock split that became effective in August 2017) is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period, excluding any unvested restricted stock awards. Diluted net income (loss) per share includes the effect of common stock equivalents (stock options, unvested restricted stock, and warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be dilutive. Net income (loss) is adjusted for the dilutive effect of the change in fair value liability for price adjustable warrants, if applicable. The following number of shares have been excluded from diluted net (loss) since such inclusion would be anti-dilutive:

 

    Three Months Ended March 31,  
    2019     2018  
             
Stock options outstanding     4,522,807       764,707  
Warrants     36,267,329       2,548,481  
Shares to be issued upon conversion of notes payable     -       323,404  
Series E Preferred Stock     34,880,000       -  
Series F Preferred Stock     3,810,000       -  
Total     79,480,136       3,636,592  

 

NOTE 2 – Inventory

 

Inventory consists of raw material and finished goods stated at the lower of cost or net realizable value with cost determined on a first-in, first-out basis. The Company reviews the composition of inventory at each reporting period in order to identify obsolete, slow-moving, quantities in excess of expected demand, or otherwise non-saleable items.

 

Inventory consisted of the following as of March 31, 2019 and December 31, 2018:

 

    March 31, 2019     December 31, 2018  
             
Raw Materials   $ 84,618     $ 147,139  
Finished Goods     173,389       94,319  
Inventory, Net   $ 258,007     $ 241,458  

 

NOTE 3 – PREPAID AND OTHER ASSETS

 

Prepaid expenses and other assets at March 31, 2019 and December 31, 2018 included prepaid insurance of $163,777 and $179,145, respectively, and deposits with third-party co-pay program managers of $143,795 and $157,584, respectively. The deposits with co-pay program managers are used to fund patient’s insurance co-pay support, for a specified period of time, with any unused amounts refunded to the Company.

 

Note 4 - Intangible Assets

 

Acquisition of Prestalia & DyrctAxess

 

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 $620,000 (consisting of $300,000 in cash plus the assumption of certain liabilities of Symplmed in the amount of approximately $320,000), 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 transferred to us 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 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.

 

  13  
 

 

The purchase price of $620,000 was allocated based on a preliminary estimate of the fair value of the assets acquired and was included in intangible assets as of December 31, 2017. During the year ended December 31, 2018, the allocation of the purchase price was finalized which resulted in $160,800 of the price being allocated to raw materials received from Symplmed, and the remaining $459,200 being allocated to intangible assets.

 

Further, we hired a Chief Commercial Officer, who was the President and Chief Executive Officer of Symplmed, which appointment became effective in June 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 vesting on the six (6) month anniversary of the date of grant. These shares were fully vested on December 31, 2017. This Chief Commercial Officer resigned in January 2019.

 

In furtherance of the acquisition and commercialization of Prestalia, in July 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 for $75,000 in cash.

 

Intangible Asset Summary

 

The following table summarizes the balances as of March 31, 2019, of the identifiable intangible assets acquired, their useful life, and annual amortization:

 

   

Net Book Value

March 31, 2019

   

Remaining

Estimated
Useful Life
(Years)

    Annual
Amortization
Expense
 
                   
Intangible asset - Prestalia   $ 308,469       4.76     $ 64,941  
Intangible asset - DyrctAxess     65,848       12.34       5,357  
Total   $ 374,317             $ 70,298  

 

During the year ended December 31, 2018, we determined that the intangible asset from the merger was impaired, and as a result, we recognized a loss on impairment of $1,672,885. The impairment determination was primarily a result of the decision to divest of assets that no longer align with the Company’s strategic objectives.

 

Amortization expense was $17,575 and $123,261 for the three months ended March 31, 2019 and 2018, respectively.

 

Note 5 - Related Party Transactions

 

Due to Related Party

 

The Company and other related entities have had a commonality of ownership and/or management control, and as a result, the reported operating results and/or financial position of the Company could significantly differ from what would have been obtained if such entities were autonomous.

 

  14  
 

 

The Company had a Master Services Agreement (“MSA”) with Autotelic Inc., a related party that is partly-owned by one of the Company’s former Board members and executive officers, namely Vuong Trieu, Ph.D., effective November 15, 2016. The MSA stated that Autotelic Inc. will provide business functions and services to the Company and allowed Autotelic Inc. to charge the Company for these expenses paid on its behalf. The MSA included personnel costs allocated based on amount of time incurred and other services such as consultant fees, clinical studies, conferences and other operating expenses incurred on behalf of the Company. The MSA required a 90-day written termination notice in the event either party requires to terminate such services. We and Autotelic Inc. agreed to terminate the MSA effective October 31, 2018. Dr. Trieu resigned as a director of our company effective October 1, 2018.

 

During the period commencing November 15, 2016 (the “Effective Date”) and ending on the date that the Company had completed an equity offering of either common or preferred stock in which the gross proceeds therefrom is no less than $10 million (the “Equity Financing Date”), the Company paid Autotelic the following compensation: cash in an amount equal to the actual labor cost (paid on a monthly basis), plus 100% markup in warrants for shares of the Company’s common stock with a strike price equal to the fair market value of the Company’s common stock at the time said warrants were issued. The Company also paid Autotelic for the services provided by third party contractors plus 20% mark up. The warrant price per share was calculated based on the Black-Scholes model.

 

After the Equity Financing Date, the Company paid Autotelic Inc. a cash amount equal to the actual labor cost plus 100% mark up of provided services and 20% mark up of provided services by third party contractors or material used in connection with the performance of the contracts, including but not limited to clinical trial, non-clinical trial, Contract Manufacturing Organizations, FDA regulatory process, Contract Research Organizations and Chemistry and Manufacturing Controls.

 

In accordance with the MSA, Autotelic Inc. billed the Company for personnel and service expenses Autotelic Inc. incurred on behalf of the Company. For the three months ended March 31, 2019 and 2018, Autotelic Inc. billed a total of $0 and $256,997, respectively, including personnel costs of $0 and $133,633, respectively. An unpaid balance of $4,392 and $4,392 is included in due to related party in the accompanying balance sheets as of March 31, 2019 and December 31, 2018, respectively.

 

In April 2018, and in connection with the closing of our private placement on that date, we entered into a Compromise and Settlement Agreement with Autotelic Inc. pursuant to which we agreed to issue to Autotelic Inc. an aggregate of 162.59 shares of Series E Preferred Stock to settle accounts payable of $812,967 and Warrants to purchase up to 1,345,040 shares of common stock to satisfy accrued and unpaid fees in the aggregate amount of approximately $739,772, and other liabilities, owed to Autotelic Inc. as of March 31, 2018 pursuant to the MSA. The securities that were issued to Autotelic Inc., which were issued upon the closing of the offering described above, have the same terms and conditions as the securities that were issued to investors in the offering (See Note 6). The warrants have a five-year term, an initial exercise price of $0.55, and have a fair value of $1,494,469 resulting in a loss on settlement of debt of $754,697.

 

Transactions with BioMauris, LLC/Erik Emerson

 

During the three months ended March 31, 2019 and 2018, we paid a total of $21,690 and $46,532, respectively, for services provided by BioMauris, LLC, of which Erik Emerson, our former Chief Commercial Officer and a current director of Adhera, is Executive Chairman. A total of $48,266 and $23,585 was due BioMauris, LLC as of March 31, 2019 and December 31, 2018, respectively, and is included in due to related party on the accompanying balance sheets.

 

Option Grant for Former Chief Financial Officer

 

On January 15, 2019, our Board of Directors (the “Board”) granted to our CFO options to purchase up to an aggregate of 100,000 shares of our common stock at an exercise price of $0.32 per share, with 25,000 options being exercisable immediately and with 25,000 options vesting on each of the first, second and third anniversary of the grant date (See Note 7).

 

  15  
 

 

Resignation of Chief Commercial Officer

 

On January 15, 2019, the Board accepted the resignation of our Chief Commercial Officer (our “former CCO”), effective immediately. He will remain as a member of the Board. Simultaneous with his resignation as our CCO, we and our former CCO entered into a Consulting Agreement dated as of January 15, 2019 pursuant to which our former CCO agreed to provide certain consulting services regarding our FDA-approved Prestalia product for a fee of $3,000 per month. During the three months ended March 31, 2019, the Consulting Agreement was terminated.

 

Resignation of Chief Financial Officer

 

On March 11, 2019, our CFO submitted his resignation as our CFO and from any other positions that he may hold with our company or any of its subsidiaries, effective March 22, 2019.

 

Resignation and Appointment of Chief Executive Officer

 

On April 4, 2019, the Company appointed Nancy R. Phelan, to serve as CEO and Secretary of the Company, effective immediately. In connection with the appointment Ms. Phelan as our new CEO and Secretary, Robert C. Moscato, Jr. resigned from such positions, and also from his position as a member of the Board of Directors of the Company effective immediately.

 

In connection with our appointment of Ms. Phelan as our CEO, we granted her options to purchase an aggregate of 1,500,000 shares of our common stock, of which 400,000 are exercisable immediately, 600,000 vest on a monthly basis over a two-year period beginning on April 4, 2020, and 500,000 vest upon the achievement of certain product sales and stock price targets.

 

Note 6 - Stockholders’ Equity

 

Preferred Stock

 

Adhera has authorized 100,000 shares of preferred stock for issuance and has designated 1,000 shares as Series B Preferred Stock (“Series B Preferred”) and 90,000 shares as Series A Junior Participating Preferred Stock (“Series A Preferred”). No shares of Series B Preferred or Series A Preferred are outstanding. In March 2014, Adhera designated 1,200 shares as Series C Convertible Preferred Stock (“Series C Preferred”). In August 2015, Adhera designated 220 shares as Series D Convertible Preferred Stock (“Series D Preferred”). In April 2018, Adhera designated 3,500 shares of Series E Convertible Preferred Stock (“Series E Preferred”). In July 2018, Adhera designated 2,200 shares of Series F Convertible Preferred Stock (“Series F Preferred”).

 

  16  
 

 

Series C Preferred

 

As of both March 31, 2019 and December 31, 2018, 100 shares of Series C Preferred remained outstanding.

 

Series D Preferred

 

As of both March 31, 2019 and December 31, 2018, 40 shares of Series D Preferred remained outstanding.

 

Series E Convertible Preferred Stock Private Placement

 

In April and May 2018, we entered into Subscription Agreements with certain accredited investors and conducted a closing pursuant to which we sold 2,812 shares of our Series E Preferred, at a purchase price of $5,000 per share of Series E Preferred. Each share of Series E Preferred is initially convertible into shares of our common stock at a conversion price of $0.50 per share of common stock. In addition, each investor received a 5-year warrant (the “Warrants”, and collectively with the Series E Preferred, the “Securities”) to purchase 0.75 shares of common stock for each share of common stock issuable upon the conversion of the Series E Preferred purchased by such investor at an initial exercise price equal to $0.55 per share of common stock, subject to adjustment thereunder. The Series E Preferred accrues 8% dividends per annum and are payable in cash or stock at the Company’s discretion. The Series E Preferred has voting rights, dividend rights, liquidation preferences, conversion rights and anti-dilution rights as described in the Certificate of Designation of Preferences, Rights and Limitations of the Preferred Stock, which we filed with the Secretary of State of Delaware in April 2018. The Warrants have full-ratchet anti-dilution protection, are exercisable for a period of five years and contain customary exercise limitations.

 

We accrued dividends on the Series E Preferred of $344,108 for the three months ended March 31, 2019. No similar dividends were accrued in 2018.

 

Series F Convertible Preferred Share Private Placement

 

In July 2018, we entered into Subscription Agreements with certain accredited investors and conducted a closing pursuant to which we sold 308 shares of our Series F Preferred, at a purchase price of $5,000 per share of Series F Preferred. Each share of Series F Preferred is initially convertible into shares of our common stock at a conversion price of $0.50 per share of common stock. In addition, each investor received a 5-year warrant (the “Warrants”, and collectively with the Preferred Stock, the “Securities”) to purchase 0.75 shares of common stock for each share of common stock issuable upon the conversion of the Series F Preferred purchased by such investor at an initial exercise price equal to $0.55 per share of common stock, subject to adjustment thereunder. The Series F Preferred accrues 8% dividends per annum and are payable in cash or stock at the Company’s discretion. The Series F Preferred has voting rights, dividend rights, liquidation preferences, conversion rights and anti-dilution rights as described in the Certificate of Designation of Preferences, Rights and Limitations of the Preferred Stock, which we filed with the Secretary of State of Delaware in July 2018. The Warrants have full-ratchet anti-dilution protection, are exercisable for a period of five years and contain customary exercise limitations.

 

We received proceeds of approximately $1.4 million from the sale of the Securities, after deducting placement agent fees and estimated expenses payable by us of approximately $180,000 associated with such closing. We used the proceeds of the offering for funding our commercial operations to the sale and promotion of our Prestalia product, working capital needs, capital expenditures, the repayment of certain liabilities and other general corporate purposes. In connection with the private placement described above, we also issued to the placement agent for such private placement a Warrant to purchase 308,000 shares of our common stock. The Warrant has a five-year term and an exercise price of $0.55 per share.

 

  17  
 

 

On November 9, 2018, we entered into Subscription Agreements with certain accredited investors and conducted a closing pursuant to which we sold 73 shares of our Series F Preferred Stock, at a purchase price of $5,000 per share of Preferred Stock. Each share of Series F Preferred is initially convertible into shares of our common stock at a conversion price of $0.50 per share of common stock. In addition, each investor received a 5-year warrant to purchase 0.75 shares of common stock for each share of common stock issuable upon the conversion of the Series F Preferred purchased by such investor at an initial exercise price equal to $0.55 per share of common stock, subject to adjustment thereunder. We received total net proceeds of approximately $0.31 million from the issuance of the securities described above, after deducting placement agent fees and estimated expenses payable by us associated with such closing. In connection with the private placement described above, we also issued to the placement agent for such private placement a Warrant to purchase 73,000 shares of our common stock. The Warrant has a five-year term and an exercise price of $0.55 per share.

 

We accrued dividends on the Series F Preferred of $37,578 for the three months ended March 31, 2019. No similar dividends were accrued in 2018.

 

Stock Option Grants

 

During the three months ended March 31, 2019, Mr. Moscato, Mr. Emerson, and Mr. Teague resigned (See Note 5 – Related Party Transactions). All vested options held by Mr. Teague are set to expire 90 days after his resignation date and all vested options held by Mr. Moscato are set to expire 12 months after his resignation date.

 

During the three months ended March 31, 2019, we granted an aggregate of 135,000 stock options to employees.

 

Common Stock

 

Our common stock currently trades on the OTCQB tier of the OTC Markets under the symbol “ATRX”. As of March 31, 2019, we have 10,761,684 shares of our common stock outstanding.

 

Stock Issuances

 

We issued no common stock during the three months ended March 31, 2019.

 

Warrants

 

As of March 31, 2019, there were 36,267,329 warrants outstanding, with a weighted average exercise price of $0.79 per share, and annual expirations as follows:

 

Expiring in 2019     600,000  
Expiring in 2020     1,189,079  
Expiring in 2021     343,750  
Expiring in 2022     66,667  
Expiring in 2023     33,729,180  
Expiring thereafter     338,653  
Total     36,267,329  

 

The above includes price adjustable warrants totaling 34,373,030.

 

No warrants expired during the three months ended March 31, 2019.

 

  18  
 

 

Note 7 - Stock Incentive Plans

 

Stock Options

 

The following table summarizes stock option activity for the three months ended March 31, 2019:

 

    Options Outstanding  
    Shares     Weighted
Average
Exercise Price
 
Outstanding, December 31, 2018     5,613,057     $ 0.83  
Options granted     135,000       0.31  
Options expired / forfeited     (1,225,250 )     1.10  
Outstanding, March 31, 2019     4,522,807       0.86  
Exercisable, March 31, 2019     1,736,414     $       0.90  

 

The following table summarizes additional information on Adhera’s stock options outstanding at March 31, 2019.

 

    Options Outstanding     Options Exercisable  
Range of
Exercise
Prices
  Number Outstanding     Weighted-Average
Remaining Contractual Life (Years)
    Weighted Average Exercise Price     Number Exercisable     Weighted Average Exercise Price  
$0.28 - $0.98     3,875,000       9.85     $ 0.69       1,567,500     $ 0.71  
$1.00     7,000       2.63     $ 1.00       7,000     $ 1.00  
$1.50 - $1.80     493,207       8.43     $ 1.79       134,314     $ 1.78  
$2.60 - $8.20     135,200       3.28     $ 2.77       15,200     $ 4.48  
$10.70 - $22.00     12,400       0.46     $ 10.70       12,400     $ 10.70  
                                         
Totals     4,522,807       8.60     $ 0.86       1,736,414     $ 0.90  

 

Weighted-Average Exercisable Remaining Contractual Life (Years) 7.93

 

During the three months ended March 31, 2019, we granted an aggregate of 135,000 stock options to employees at exercise prices ranging from $0.28 to $0.34 per share. 35,000 stock options vest at a rate of one-third at the end of each annual anniversary over three years from the grant date and have a 10-year term. 100,000 options vest at a rate of 25,000 upon grant and 25,000 at the end of each annual anniversary over three years from the grant date and have revised 90 day term based on our former CFO’s resignation.

 

As of March 31, 2019, we had $680,057 of total unrecognized compensation expense related to unvested stock options. Total expense related to stock options was $395,390 and $118,879 for the three months ended March 31, 2019 and 2018, respectively.

 

As of March 31, 2019, the intrinsic value of options outstanding or exercisable was $15,100 as there were options outstanding with an exercise price less than $0.40, the per share closing market price of our common stock at that date.

 

Note 8 - Intellectual Property and Collaborative Agreements

 

License of DiLA 2 Assets

 

On March 16, 2018, Adhera entered into a Licensing Agreement, whereby Adhera granted exclusive rights to the company’s DiLA 2 delivery system in exchange for an upfront payment of $200,000 and further potential future consideration dependent upon event and sales-based milestones. Under the terms of the agreement, Adhera has agreed to assign ownership of the intellectual property associated with the DiLA 2 delivery system to the purchaser. The Company has not completed, and will not complete, certain performance obligations under the agreement and accordingly has classified the $200,000 payment in accrued expenses as of March 31, 2019 and December 31, 2018.

 

  19  
 

 

Asset Purchase Agreement

 

In July 2017, Adhera 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 4).

 

Note 9 - Commitments and Contingencies

 

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.

 

Litigation

 

Because of the nature of our activities, we are subject to claims and/or threatened legal actions, which arise out of the normal course of business. Other than the disclosure below, as of the date of this filing, we are not aware of any pending lawsuits against us, our officers or our directors.

 

Paragraph IV Challenge

 

Our Prestalia product was involved in a paragraph IV challenge regarding patents issued to perindopril arginine. This challenge, which was pending in the United States District Court for the District of Delaware (No. 1:17-cv-00276), was captioned Apotex Inc. and Apotex Corp. v. Symplmed Pharmaceuticals, LLC and Les Laboratoires Servier . The challengers (Apotex Inc. and Apotex Corp. (“Apotex”)) filed an Abbreviated New Drug Application seeking FDA approval to market a generic version of Prestalia and included a Paragraph (IV) certification. In the litigation, Apotex sought a declaratory judgment that no valid claims of the two patents Symplmed listed in the FDA Orange Book as having claims covering Prestalia, U.S. Patent No. 6,696,481 and 7,846,961, will be infringed by the Apotex proposed generic version of Prestalia and that the claims of those patents are invalid. The challenge was designed to provide Apotex with an opportunity to enter the market with a generic version of Prestalia, ahead of the expiration of the patents with claims covering that product.

 

Apotex entered into negotiations with Symplmed Pharmaceuticals, LLC (which entity sold its assets relating to Prestalia to us in June 2017, including its License and Commercialization Agreement with Les Laboratories Servier) and Les Laboratories Servier (which entity owns or controls intellectual property rights relating to pharmaceutical products containing as an active pharmaceutical ingredient perindopril in combination with other active pharmaceutical ingredients, which rights have been licensed to Symplmed Pharmaceuticals) to resolve the challenge in the second quarter of 2017. Such parties, along with us, have reached an agreement on terms that result in a delay to the challengers’ ability to enter the market with a generic version of Prestalia, while still providing the challenger with the right to enter the market prior to the expiration of the patent covering such product. Specifically, the parties have entered into a Confidential Settlement Agreement in connection with the settlement of the matter, pursuant to which, among other things, the parties entered into a Confidential License Agreement, whereby Symplmed, Servier and our company agreed to grant to Apotex a non-transferable, non-sublicensable, perpetual, irrevocable, royalty-free, non-exclusive license to the two patents listed in the FDA Orange Book as having claims covering Prestalia to make, use and market a generic version of Prestalia, or import a generic version of Prestalia from India into the United States, on or after January 1, 2021.

 

  20  
 

 

As a result of the foregoing, the matter is now settled.

 

Litigation Regarding Vaya Pharma

 

We had been named on a complaint filed in New York State as a defendant in the matter entitled Vaya Pharma, Inc. v. Symplmed Technologies, Inc., Symplmed Pharmaceuticals, Inc., Erik Emerson and Marina Biotech, Inc. While this complaint had been filed in the Supreme Court of the State of New York, we had not been legally served. The complaint alleged, 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 creditors of the Symplmed Defendants, including Vaya Pharma, Inc., of funds that could have been used to pay their debts; and (ii) we were liable, as successor, for any and all claims by Vaya Pharma, Inc. against the Symplmed Defendants, though pursuant to the agreement we are 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. In April 2018, we entered into a Stipulation of Settlement pursuant to which we issued to Vaya Pharma 210,084 shares of our common stock with a fair value of $250,000.

 

Leases

 

We have entered into a Standard Form Office Lease with ROC III Fairlead Imperial Center, LLC, as landlord, pursuant to which we lease our corporate headquarters located at 4721 Emperor Boulevard, Suite 350, Durham, North Carolina 27703 for a term of 37 months starting on October 1, 2018. Our base monthly rent for such space is currently $6,458, which amount will increase to $7,057 for the final month of the term. Other than the lease for our corporate headquarters, we do not own or lease any real property or facilities that are material to our current business operations. As we expand our business operations, we may seek to lease additional facilities of our own in order to support our operational and administrative needs under our current operating plan.

 

The Company adopted ASU No. 2016-02 on January 1, 2019, using a modified retrospective approach at the adoption date through a cumulative-effect adjustment to retained earnings. The adoption did not have a material impact on its condensed consolidated statement of operations. However, the new standard required the Company to establish approximately $0.2 million of liabilities and corresponding right-of-use assets of approximately $0.2 million on its condensed consolidated balance sheet for operating leases on rented office properties that existed as of the January 1, 2019, adoption date. The total right-of-use asset was approximately $0.2 million as of March 31, 2019 and is reflected in the operating lease right of use asset on the accompanying condensed consolidated balance sheet. The total related liability was approximately $0.2 million as of March 31, 2019, of which approximately $0.1 million is included in current portion of operating lease liability and approximately $0.1 million is reflected in operating lease liability, net of current portion on the accompanying condensed consolidated balance sheet. The future minimum lease payments as of March 31, 2019 are approximately $0.07 million for the remaining nine months of 2019, $0.08 million for 2020, and $0.07 million for 2021.

 

Note 10 - Subsequent Events

 

Except for the event(s) discussed below, there were no subsequent events that required recognition or disclosure. We evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission.

 

On April 4, 2019, we entered into an employment agreement with our new CEO, Nancy R. Phelan, effective immediately, who was also appointed to serve as our Secretary. In connection with the appointment of our new CEO and Secretary, Robert C. Moscato, Jr. resigned from such positions, and also from his position as a member of our Board of Directors effective immediately (See Note 5 – Related Party Transactions).

 

In April 2019, we issued 107,846 unregistered shares of our common stock to a holder of our Series E Convertible Preferred Stock in connection with the conversion of $53,923 of “Stated Value” of our Series E Convertible Preferred Stock.

 

  21  
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q includes a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that reflect management’s current views with respect to future events and financial performance. The following discussion should be read in conjunction with the financial statements and related notes contained in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (“SEC”) on April 16, 2019. Forward-looking statements are projections in respect of future events or financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology.

 

Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform them to actual results, new information, future events or otherwise, except as otherwise required by securities and other applicable laws.

 

The following factors, among others, could cause our or our industry’s future results to differ materially from historical results or those anticipated:

 

  our ability to obtain additional and substantial funding for our company on an immediate basis, whether pursuant to a capital raising transaction arising from the sale of our securities, a strategic transaction or otherwise;
  our ability to attract and/or maintain research, development, commercialization and manufacturing partners;
  the ability of our company and/or a partner to successfully complete product research and development, including pre-clinical and clinical studies and commercialization;
  the ability of our company and/or a partner to obtain required governmental approvals, including product patent approvals;
  the ability of our company and/or a partner to develop and commercialize products that can compete favorably with those of our competitors;
  the timing of costs and expenses related to the research and development programs of our company and/or our partners;
  the timing and recognition of revenue from milestone payments and other sources not related to product sales;
  our ability to satisfy our disclosure obligations under the Exchange Act of 1934 and to maintain the registration of our common stock thereunder;
  our ability to attract and retain qualified officers, employees and consultants as necessary; and
  costs associated with any product liability claims, patent prosecution, patent infringement lawsuits and other lawsuits.

 

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, 2018, as filed with the SEC on April 16, 2019, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

 

  22  
 

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. We are under no duty to update any forward-looking statements after the date of this report to conform these statements to actual results.

 

As used in this quarterly report and unless otherwise indicated, the terms “we,” “us,” “our” or the “Company” refer to Adhera Therapeutics, Inc., a Delaware corporation, and its wholly-owned subsidiaries, MDRNA Research, Inc., Cequent Pharmaceuticals, Inc., Atossa Healthcare, Inc., and IthenaPharma, Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars. Our common stock is currently listed on the OTC Market, OTCQB tier, under the symbol “ATRX.”

 

Corporate Overview

 

Nature of Business

 

We are an emerging specialty pharmaceutical company that leverages innovative distribution models and technologies to improve the quality of care for patients in the United States suffering from chronic and acute diseases. We are focused on fixed dose combination (“FDC”) therapies in hypertension, with plans to expand the portfolio of drugs we commercialize to include other therapeutic areas.

 

Our mission is to provide effective and patient centric treatment for hypertension and resistant hypertension while actively seeking additional assets that can be commercialized through our proprietary Total Care System (“TCS”). At the core of our TCS is DyrctAxess, our patented technology platform. DyrctAxess is designed to offer enhanced efficiency, control and access to the information necessary to empower patients, physicians and manufacturers to achieve optimal care.

 

We began marketing Prestalia ® , a single-pill FDC of perindopril arginine (“perindopril”) and amlodipine besylate (“amlodipine”) in June of 2018. By combining Prestalia, DyrctAxess and an independent pharmacy network, we have created a proprietary system for drug adherence and the effective treatment of hypertension, improving the distribution of FDC hypertensive drugs, such as our FDA-approved product Prestalia, as well as improving the distribution of devices for therapeutic drug monitoring (“TDM”) (e.g., blood pressure monitors), as well as patient counseling and prescription reminder services. We are focused on demonstrating the therapeutic and commercial value of our TCS through the commercialization of Prestalia. Prestalia was developed in coordination with Les Laboratories Servier, a French pharmaceutical conglomerate, that sells the formulation outside the United States under the brand names Coveram ® and/or Viacoram ® . Prestalia was approved by the U.S. Food and Drug Administration (“FDA”) in January 2015 and is distributed through our DyrctAxess platform, which we acquired in 2017.

 

By combining Prestalia, DyrectAxess, and a specialty pharma network, we have created a proprietary platform for drug adherence and the effective treatment of hypertension, improving the distribution of FDC hypertensive drugs, such as our FDA-approved product Prestalia, devices for therapeutic drug monitoring (e.g., blood pressure and other cardiac monitors), as well as patient counseling and prescription reminder services.

 

As our strategy is to be a commercial pharmaceutical company, we will drive a primary corporate focus on revenue generation through our commercial assets, while continiuing to develop our technology platform and TCS. We intend to create value through the expanded commercialization of our FDA-approved product, Prestalia, while continuing to develop and leverage our TCS to further strengthen our commercial presence.

 

  23  
 

 

Recent Developments During the Three Months Ended March 31, 2019

  

Co-Promotion Agreement

 

On March 4, 2019, we entered into a co-promotion agreement with Alyvant, Inc. The agreement affords us with the opportunity to increase the frequency of communication to healthcare providers and educate physicians beyond the reach of our sales team.

 

Resignation and Appointment of Officer and Directors

 

Eric Teague, our Chief Financial Officer, and Erik Emerson, our Chief Commerical Officer, resigned from such positions, during the three months ended March 31, 2019. On April 4, 2019, we appointed Nancy Phelan as Chief Executive Officer. In connection with the appointment of Ms. Phelan, Robert J. Moscato, Jr., a director and officer, resigned from his positions as CEO, Secretary, and as a director. These management changes are more fully described in Note 5 – Related Party Transaction herein.

 

Results of Operations

 

Comparison of the Three Months Ended March 31, 2019 to the Three Months Ended March 31, 2018

 

Net Sales

 

Net sales were $2,881 for the three months ended March 31, 2019, and represents revenues from the sale of Prestalia, net of discounts. We had no sales during the three months ended March 31, 2018. 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.

 

Cost of Sales

 

Cost of sales were $116,933 for the three months ended March 31, 2019, and represents cost of sales from the sale of Prestalia. We had no sales or cost of sales during the three months ended March 31, 2018.

 

Operating Expenses

 

Our operating expenses for the three months ended March 31, 2019 are summarized as follows in comparison to our expenses for the three months ended March 31, 2018.

 

    Three Months Ended  
    March 31, 2019     March 31, 2018  
             
Sales, marketing and commercial operations   $ 1,059,222     $ -  
Research and development     -       173,256  
General and administrative expenses     1,367,303       919,908  
Amortization     17,575       123,261  
Total operating expenses   $ 2,444,100     $ 1,216,425  

 

Sales, Marketing and Commercial Operations

 

For the three months ended March 31, 2019, sales, marketing and commercial operations expense increased by approximately $1.1 million, as compared to the prior period, primarily due to the activities related to the launch and ongoing of sales of Prestalia.

 

Research and Development

 

For the three months ended March 31, 2019, research and development (“R&D”) expense decreased by approximately $0.2 million, as compared to the three months ended March 31, 2018 due to the transition of our primary focus from R&D activities to sales, marketing and commercial operations activities beginning in the second quarter of 2018.

 

  24  
 

 

General and Administrative

 

General and administrative (“G&A”) expense increased by approximately $0.4 million for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018, primarily due to an increase in share based compensation of approximately $0.3 million.

 

Amortization Expense

 

Amortization expenses relate to amortization of intangible assets acquired in the asset purchases on June 5, 2017 and July 21, 2017, with an aggregate estimated fair value of $0.7 million (reduced by the impairment loss of $0.2 million due to the finalization of the purchase price allocation during the year ended December 31, 2018).

 

Other Expense

 

    Three Months Ended  
    March 31, 2019     March 31, 2018  
Interest expense   $       -     $ (144,744 )
Total other expense, net   $ -     $ (144,744 )

 

Total net other expense for the three months ended March 31, 2019 decreased $0.1 million compared to the three months ended March 31, 2018 due to the elimination of notes payable during 2018.

 

Liquidity & Capital Resources

 

Working Capital

 

    March 31, 2019     December 31, 2018  
Current assets   $ 2,617,048     $ 4,677,179  
Current liabilities     (2,760,236 )     (2,214,126 )
Working capital (deficit)   $ (143,188 )   $ 2,463,053  

 

Working capital as of March 31, 2019 was approximately negative $0.1 million as to compared approximately $2.5 million as of December 31, 2018. As of March 31, 2019, current assets were approximately $2.6 million, primarily attributable to cash of approximately $1.8 million. As of December 31, 2018, current assets were approximately $4.7 million primarily attributable to cash of approximately $3.9 million.

 

As of March 31, 2019, current liabilities were approximately $2.8 million, comprised of accounts payable of approximately $0.3 million, due to related party of approximately $0.1 million, accrued expenses of approximately $0.9 million, approximately $0.1 million of current portion of operating lease liability, and accrued dividends of approximately $1.4 million. Comparatively, as of December 31, 2018, current liabilities were $2.2 million, primarily consisting of approximately $0.3 million of accounts payable, accrued expenses of approximately $0.9 million and accrued dividends of approximately $1.0 million. Current liabilities increased by approximately $0.6 million, which was primarily attributable to an increase in accrued dividends and the current portion of the operating lease liability.

 

  25  
 

 

Cash Flows and Liquidity

 

Net cash used in Operating Activities

 

Net cash used in operating activities was approximately $2.1 million during the three months ended March 31, 2019. This was primarily due to our net loss of approximately $2.6 million, partially offset by non-cash share based compensation of approximately $0.4 million.

 

Comparatively, net cash used in operating activities was approximately $59,000 during the three months ended March 31, 2018. This was primarily due to the net loss of approximately $1.4 million offset by non-cash charges of approximately $0.6 million and change in working capital of approximately $0.7 million. The non-cash charges were comprised of approximately $0.1 million of share based compensation, $0.1 million of amortization of intangibles, $0.1 million of non-cash interest expense and deferred revenue of approximately $0.2 million.

 

Net cash used in Investing Activities

 

There was no cash used in or provided by investing activities for the three months ended March 31, 2019 or 2018.

 

Net cash provided by Financing Activities

 

There was no cash used in or provided by financing activities for the three months ended March 31, 2019 or 2018.

 

We will need to raise additional operating capital during the second quarter of 2019 in order to maintain our operations and to realize our business plan. Without additional sources of cash and/or the deferral, reduction, or elimination of significant planned expenditures, we will not have the cash resources to continue as a going concern thereafter.

 

Future Financing

 

We will require immediate substantial additional funds to implement the growth strategy for our business. As mentioned above, we have, in the past, raised additional capital to supplement our commercialization, clinical development and operational expenses. We will need to raise substantial additional funds required through equity financing, debt financing, strategic alliances or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on 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, modify or perhaps even cease our operations.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2019, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

 

Critical Accounting Policies and Estimates

 

Our significant accounting policies are more fully described in the notes to our financial statements included herein for the period ended March 31, 2019 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

  26  
 

 

New and Recently Adopted Accounting Pronouncements

 

Any new and recently adopted accounting pronouncements are more fully described in Note 1 to our financial statements included herein for the period ended March 31, 2019.

 

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4 CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.

 

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that, our disclosure controls and procedures were not effective due to the material weakness(es) in internal control over financial reporting described below.

 

Material Weakness in Internal Control over Financial Reporting

 

Management conducted an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2019 based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as of March 31, 2019 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 which are indicative of many small companies with small number of staff:

 

  Inadequate segregation of duties consistent with control objectives;
  Lack of qualified accounting personnel to prepare and report financial information in accordance with GAAP; and
  Lack of documentation on policies and procedures that are critical to the accomplishment of financial reporting objectives.

 

  27  
 

 

Management’s Plan to Remediate the Material Weakness

 

Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned include:

 

  Identify gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company; and
  Continue to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures.

 

During the three months ended March 31, 2019, we continued to execute upon our planned remediation actions which are all intended to strengthen our overall control environment. Our Company and all subsidiaries use a well-regarded accounting software which restricts personnel access and standardizes daily accounting procedures on journal entries. The software includes built-in controls and documentation to facilitate accounting review of the books and records. Our Audit Committee continues to exercise oversight responsibilities related to financial reporting and internal control, and we have commenced a search to replace our Chief Financial Officer, who recently resigned. In the meantime, the Company’s Chief Executive Officer will assume the responsibilities of the Chief Financial Officer until we hire a full-time executive. We have hired an external consultant with GAAP expertise to assist in the preparation of financial reporting under management oversight.

 

The aforementioned measures taken are expected to lead to an improvement in the timely preparation of financial reports and to strengthen our segregation of duties at the Company. We are committed to maintaining a strong internal control environment, and we believe that these remediation efforts will represent significant improvements in our control environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 2019 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Paragraph IV Challenge

 

Our Prestalia product was involved in a paragraph IV challenge regarding patents issued to perindopril arginine. This challenge, which was pending in the United States District Court for the District of Delaware (No. 1:17-cv-00276), was captioned Apotex Inc. and Apotex Corp. v. Symplmed Pharmaceuticals, LLC and Les Laboratoires Servier . The challengers (Apotex Inc. and Apotex Corp. (“Apotex”)) filed an Abbreviated New Drug Application seeking FDA approval to market a generic version of Prestalia and included a Paragraph (IV) certification. In the litigation, Apotex sought a declaratory judgment that no valid claims of the two patents Symplmed listed in the FDA Orange Book as having claims covering Prestalia, U.S. Patent No. 6,696,481 and 7,846,961, will be infringed by the Apotex proposed generic version of Prestalia and that the claims of those patents are invalid. The challenge was designed to provide Apotex with an opportunity to enter the market with a generic version of Prestalia, ahead of the expiration of the patents with claims covering that product.

 

Apotex entered into negotiations with Symplmed Pharmaceuticals, LLC (which entity sold its assets relating to Prestalia to us in June 2017, including its License and Commercialization Agreement with Les Laboratories Servier) and Les Laboratories Servier (which entity owns or controls intellectual property rights relating to pharmaceutical products containing as an active pharmaceutical ingredient perindopril in combination with other active pharmaceutical ingredients, which rights have been licensed to Symplmed Pharmaceuticals) to resolve the challenge in the second quarter of 2017. Such parties, along with us, have reached an agreement on terms that result in a delay to the challengers’ ability to enter the market with a generic version of Prestalia, while still providing the challenger with the right to enter the market prior to the expiration of the patent covering such product. Specifically, the parties have entered into a Confidential Settlement Agreement in connection with the settlement of the matter, pursuant to which, among other things, the parties entered into a Confidential License Agreement, whereby Symplmed, Servier and our company agreed to grant to Apotex a non-transferable, non-sublicensable, perpetual, irrevocable, royalty-free, non-exclusive license to the two patents listed in the FDA Orange Book as having claims covering Prestalia to make, use and market a generic version of Prestalia, or import a generic version of Prestalia from India into the United States, on or after January 1, 2021.

 

  28  
 

 

As a result of the foregoing, the matter is now settled.

 

General

 

Currently, there is no material litigation pending against our company other than as disclosed above. From time to time, we may become a party to litigation and subject to claims incident to the ordinary course of our business. Although the results of such litigation and claims in the ordinary course of business cannot be predicted with certainty, we believe that the final outcome of such matters will not have a material adverse effect on our business, results of operations or financial condition. Regardless of outcome, litigation can have an adverse impact on us because of defense costs, diversion of management resources and other factors.

 

ITEM 1A. RISK FACTORS

 

An investment in our common stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “Annual Report”), as filed with the SEC on April 16, 2019, in addition to other information contained in those documents and reports that we have filed with the SEC pursuant to the Securities Act and the Exchange Act since the date of the filing of the Annual Report, including, without limitation, this Quarterly Report on Form 10-Q, in evaluating our company and its business before purchasing shares of our common stock. Our business, operating results and financial condition could be adversely affected due to any of those risks.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

In April 2019, we issued 107,846 unregistered shares of our common stock to a holder of our Series E Convertible Preferred Stock in connection with the conversion of $53,923 of “Stated Value” of our Series E Convertible Preferred Stock. These shares were issued in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder.

 

  29  
 

 

Item 6. Exhibits

 

Exhibit No.   Description
     
31.1   Certification of our Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended. (1)
     
32.1   Certification of our Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2)
     
101INS   XBRL Instance Document (1)
     
101SCH   XBRL Taxonomy Extension Schema Document (1)
     
101CAL   XBRL Taxonomy Extension Calculation Linkbase Document (1)
     
101DEF   XBRL Taxonomy Extension Definition Linkbase Document (1)
     
101LAB   XBRL Taxonomy Extension Label Linkbase Document (1)
     
101PRE   XBRL Taxonomy Extension Presentation Linkbase Document (1)
     
(1)   Filed herewith.
(2)   Furnished herewith.

 

  30  
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  ADHERA THERAPEUTICS, INC.
   
Date: May 15, 2019 By: /s/ Nancy R. Phelan.
    Nancy R. Phelan
    Chief Executive Officer and Director
    (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 

  31  
 

 

Adhera Therapeutics Inc. (USOTC:ATRX)
Historical Stock Chart

1 Year : From Jul 2018 to Jul 2019

Click Here for more Adhera Therapeutics Inc. Charts.

Adhera Therapeutics Inc. (USOTC:ATRX)
Intraday Stock Chart

Today : Tuesday 16 July 2019

Click Here for more Adhera Therapeutics Inc. Charts.

Latest ATRX Messages

{{bbMessage.M_Alias}} {{bbMessage.MSG_Date}} {{bbMessage.HowLongAgo}} {{bbMessage.MSG_ID}} {{bbMessage.MSG_Subject}}

Loading Messages....


No posts yet, be the first! No {{symbol}} Message Board. Create One! See More Posts on {{symbol}} Message Board See More Message Board Posts


Your Recent History
LSE
GKP
Gulf Keyst..
LSE
QPP
Quindell
FTSE
UKX
FTSE 100
LSE
IOF
Iofina
FX
GBPUSD
UK Sterlin..
Stocks you've viewed will appear in this box, letting you easily return to quotes you've seen previously.

Register now to create your own custom streaming stock watchlist.


NYSE, AMEX, and ASX quotes are delayed by at least 20 minutes.
All other quotes are delayed by at least 15 minutes unless otherwise stated.