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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: June 30, 2023

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

For the transition period from _____________ to _____________.

Commission File Number: 000-13789

ADHERA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware

11-2658569

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

8000 Innovation Parkway

Baton Rouge, LA

70820

(Address of principal executive offices)

(Zip Code)

(919) 518-3748

(Registrant’s telephone number, including area code)

N/A

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

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to13(a) of the Exchange Act: ☐

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

As of August 18, 2023, there were 4,223,505 shares of the registrant’s common stock outstanding.

ADHERA THERAPEUTICS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

TABLE OF CONTENTS

		Page

PART I - FINANCIAL INFORMATION

ITEM 1	Financial Statements	3

	Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	3

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023, and 2022 (unaudited)	4

	Consolidated Statements of Stockholders’ Deficit for the Three and Six Months Ended June 30, 2023, and 2022 (unaudited)	5

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023, and 2022 (unaudited)	6

	Condensed Notes to Unaudited Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	52

ITEM 4.	Controls and Procedures	52

PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings	53

ITEM 1A.	Risk Factors	53

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

ITEM 3.	Defaults on Senior Securities	54

ITEM 4.	Mine Safety Disclosures	54

ITEM 5.	Other Information	54

ITEM 6.	Exhibits	54

SIGNATURES		55

PART I - FINANCIAL INFORMATION

ITEM I – FINANCIAL INFORMATION

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share data)

	June 30, 2023			December 31, 2022
	(unaudited)
ASSETS
Current assets
Cash	$	58		$	32
Prepaid expenses		24			47
Total current assets		82			79
Total assets	$	82		$	79
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable	$	2,318		$	2,397
Due to related parties		16			26
Accrued expenses		5,139			4,373
Accrued dividends		551			498
Term loans, net of discounts		9,415			7,333
Convertible notes payable		1,176			1,252
Derivative liability		4,254			6,386
Total current liabilities		22,869			22,265
Total liabilities		22,869			22,265
Commitments and contingencies (Note 9)		-			-
Stockholders’ deficit
Preferred stock, $0.01 par value; 100,000 shares authorized		—			—
Series C convertible preferred stock, $0.01 par value; 1,200 shares designated; 100 shares issued and outstanding as of June 30, 2023 and December 31, 2022. ($510,000 liquidation preference)		—			—
Series D convertible preferred stock, $0.01 par value; 220 shares designated; 40 shares issued and outstanding as of June 30, 2023, and December 31, 2022. ($12,000 liquidation preference)		—			—
Series E convertible preferred stock, $0.01 par value; 3,500 shares designated; 267 shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively. ($1,886,414 liquidation preference)		—			—
Series F convertible preferred stock, $0.01 par value; 2,200 shares designated; no shares issued and outstanding as of June 30, 2023, and December 31, 2022.		—			—
Series G convertible preferred stock, $0.01 par value; 6,000 shares designated; no shares issued and outstanding as of June 30, 2023, and December 31, 2022.		—			—
Preferred stock, value		—			—

Common stock, $0.006 par value; 180,000,000 shares authorized, 3,839,454 and 3,160,877 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		23			19
Additional paid-in capital		33,610			33,548
Accumulated deficit		(56,418	)		(55,751	)
Treasury Stock (5,594 shares)		(2	)		(2	)
Total stockholders’ deficit		(22,787	)		(22,186	)
Total liabilities and stockholders’ deficit	$	82		$	79

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

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except share and per share data)

(unaudited)

	2023			2022			2023			2022
	For the Three-Months Ended						For the Six-Months ended
	June 30,						June 30,
	2023			2022			2023			2022

Operating expenses
General and administrative	$	296		$	449		$	648		$	709
Total operating expenses		296			449			648			709
Loss from operations		(296	)		(449	)		(648	)		(709	)
Other income (expense)
Interest expense, net		(357	)		(361	)		(692	)		(672	)
Initial and change in the fair value of derivative liability		1,742			1,012			2,459			1,679
Loan inducement expense		(462	)		-			(809	)		-
Gain on extiguishment of debt		36			210			75			215
Amortization of debt discount		(392	)		(313	)		(1,000	)		(488	)
Total other income (expense)		567			548			33			734
Net income (loss)		271			99			(615	)		25
Accrued dividends		(26	)		(406	)		(53	)		(566	)
Net Income (Loss) Applicable to Common Stockholders	$	245		$	(307	)	$	(668	)	$	(541	)

Net loss per share – Common Stockholders - basic	$	0.07		$	(0.27	)	$	(0.20	)	$	(0.27	)
Weighted average shares outstanding - basic		3,462,539			1,140,083			3,260,540			2,003,921

Net loss per share – Common Stockholders - diluted	$	(0.01	)	$	(0.27	)	$	(0.20	)	$	(0.27	)
Weighted average shares outstanding - diluted		98,538,396			1,140,083			3,260,540			2,003,921

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

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(in thousands, except share and per share amounts)

(unaudited)

	Number		Par Value		Number		Par Value		Number			Par Value		Number			Par Value		Number		Par Value		Capital		Deficit			Stock			Total
	Series C Preferred Stock				Series D Preferred Stock				Series E Preferred Stock					Series F Preferred Stock					Common Stock				Additional Paid-in		Accumulated			Treasury
	Number		Par Value		Number		Par Value		Number			Par Value		Number			Par Value		Number		Par Value		Capital		Deficit			Stock			Total

Balance as of December 31, 2021		100	$	-		40	$	-		3,326			-		358			-		853,946	$	5	$	27,906	$	(53,017	)	$	-		$	(25,106	)
Accrued dividend		-		-		-		-		-			-		-			-		-		-		-		(364	)		-		$	(364	)
Issuance of common stock with convertible notes		-		-		-		-		-			-		-			-		12,500		-		18		-			-		$	18
Issuance of common stock for convertible note conversions		-		-		-		-		-			-		-			-		12,721		-		28		-			-		$	28
Net loss		-		-		-		-		-			-		-			-		-		-		-		(74	)		-		$	(74	)
Balance as of March 31, 2022		100	$	-		40	$	-		3,326		$	-		358		$	-		879,167		5	$	27,952	$	(53,455	)	$	-		$	(25,498	)
Accrued dividend		-		-		-		-		-			-		-			-		-		-		-		(202	)		-		$	(202	)
Issuance of common stock with term loan		-		-		-		-		-			-		-			-		19,231		-		11		-			-		$	11
Conversion of Series E Preferred to common stock		-		-		-		-		(3,059	)		-		-			-		2,035,306		12		5,044		-			-		$	5,056
Conversion of Series F Preferred to common stock		-		-		-		-		-			-		(358	)		-		233,127		1		540		-			-		$	541
Repurchase of common stock								-		-			-		-			-		-5,954		-		-		-			(2	)	$	(2	)
Net loss		-		-		-		-		-			-		-			-		-		-		-		99			-		$	99
Balance as of June 30, 2022		100	$	-		40	$	-		267		$	-		-		$	-		3,160,877		18	$	33,547	$	(53,558	)	$	(2	)	$	(19,995	)

Balance as of December 31, 2022		100		-		40		-		267		$	-		-		$	-		3,160,877	$	19	$	33,548	$	(55,751	)	$	(2	)	$	(22,186	)
Accrued dividends		-		-		-		-		-			-		-			-		-		-		-		(26	)		-		$	(26	)
Issuance of Common stock for convertible note conversions		-		-		-		-		-			-		-			-		17,861		-		5		-			-		$	5
Net Loss		-		-		-		-		-			-		-			-		-		-		-		(886	)		-		$	(886	)
Balance as of March 31, 2023		100				40	$	-		267		$	-		-		$	-		3,178,738	$	19	$	33,553	$	(56,663	)	$	(2	)	$	(23,093	)
Beginning balance		100				40	$	-		267		$	-		-		$	-		3,178,738	$	19	$	33,553	$	(56,663	)	$	(2	)	$	(23,093	)
Accrued dividends		-		-		-		-		-			-		-			-		-		-		-		(26	)		-		$	(26	)
Issuance of Common stock for convertible note conversions		-		-		-		-		-			-		-			-		660,716		4		57		-			-		$	61
Net Loss		-		-		-		-		-			-		-			-		-		-		-		271			-		$	271
Balance as of June 30, 2023		100				40	$	-		267		$	-		-		$	-		3,839,454	$	23	$	33,610	$	(56,418	)	$	(2	)	$	(22,787	)
Ending balance		100				40	$	-		267		$	-		-		$	-		3,839,454	$	23	$	33,610	$	(56,418	)	$	(2	)	$	(22,787	)

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

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	2023			2022
	For the Six-Months Ended June 30,
	2023			2022
Cash Flows Used in Operating Activities:
Net income (loss)	$	(615	)	$	25
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount and fees		1,000			488
Accrued interest expense		692			672
Derivative (income) expense		(2,459	)		(1,679	)
Loan inducement fee		809			-
Gain on debt extinguishment		(75	)		(215	)
Changes in operating assets and liabilities:
Prepaid expenses		23			(7	)
Accounts payable		(89	)		30
Accrued expenses		88			(4	)
Net Cash Used in Operating Activities		(626	)		(690	)
Cash Flows Provided by Financing Activities:
Proceeds from notes payable, net of original issue discounts		805			2,200
Notes payable issuance costs		(58	)		(328	)
Repurchase of common stock		-			(2	)
Repayment of principal and interest on notes payable		(95	)		(407	)
Net Cash Provided by Financing Activities		652			1,463
Net increase (decrease) in cash		26			773
Cash – Beginning of Period		32			76
Cash - End of Period	$	58		$	849
Supplementary Cash Flow Information:
Cash paid for interest	$	4		$	81
Cash paid for taxes		-			-

Non-cash Investing and Financing Activities:
Conversion of Series E Preferred stock to Common stock	$	-		$	5,056
Conversion of Serie F Preferred stock to Common stock	$	-		$	541
Debt discounts for issuance costs, warrants and derivatives	$	407		$	10
Issuance of common stock for conversion of convertible notes	$	4		$	28
Issuance of common stock with convertible notes	$	-		$	20
Accrued dividends	$	53		$	566

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

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Note 1 – Organization and Business Operations

Adhera Therapeutics, Inc. and its wholly-owned subsidiaries, MDRNA Research, Inc. (“MDRNA”), Cequent Pharmaceuticals, Inc. (“Cequent”), Atossa Healthcare, Inc. (“Atossa”), and IThenaPharma, Inc. (“IThena”) (collectively “Adhera,” we or the “Company”), is an emerging specialty biotech company that, to the extent that resources and opportunities become available, is focused on drug development and commercialization of “small molecule” drugs to treat Parkinson’s disease (PD) and Type 1 diabetes.

On July 28, 2021, the Company as licensee and Melior Pharmaceuticals II, LLC (“Melior II”) entered into an exclusive license agreement for the development, commercialization and exclusive license of MLR-1019. MLR-1019 is being developed as a new class of therapeutic and is, to the best of our knowledge, the only drug candidate today to address both movement and non-movement aspects of PD. Under the Agreement, the Company was granted an exclusive license to use the Melior II Patents and know-how to develop products in consideration for cash payments upon meeting certain performance milestones as well as a royalty of 5% of gross sales.

On August 20, 2021, the Company as licensee, entered into an exclusive license agreement regarding the development and commercialization of Melior’s MLR-1023 (the “MLR-1023 Agreement”) with Melior Pharmaceuticals I, Inc. (“MP1”). The Company refers to MP2 and MP1 as “MP” or “Melior”. This second license is for the development and commercialization of MLR-1023, which is being developed as a novel therapeutic for Type 1 diabetes.

Under the original terms of the MLR-1023 Agreement, if the Company failed to raise $4.0 million within 120 days of the effective date of the agreement, then the MLR-1023 Agreement would immediately terminate unless, by 120 days Adhera was in the process of completing transactions to complete the fundraising then an additional 30 days would be provided to allow for the completion of the raise (the “Raise Requirement”).

On October 20, 2021, the Company licensee expanded the exclusive licensing agreement with Melior I to include two additional clinical indications for Non-Alcoholic Steatohepatitis (NASH) and pulmonary inflammation.

On November 17, 2021, Melior I extended the Company’s timeline from 120 days to 180 days from the effective of the MLR-1023 Agreement for the Raise Requirement, if by 180 days Adhera is in the process of completing transactions to complete the fundraising then an additional 30 days shall be provided to allow for the completion of required fundraising.

On February 16, 2022, an addendum to the MLR-1023 Agreement dated August 4, 2021 (the “First Addendum”), was executed by the Company and Melior, which extended the Raise Requirement to June 16, 2022.

On July 18, 2022, the Company and Melior entered into the Second Addendum to the License Agreement (the “Second Addendum”). In accordance with the Second Addendum and subject to the terms and conditions therein, the Raise Requirement was extended to February 1, 2023, in exchange for a $136,921 licensing payment that was made by the Company on July 28, 2022. In addition, the Company was required to hire and retain a Chief Scientific Officer, and raise an additional $500,000 in capital in addition to other requirements set forth in the Second Addendum and MLR-1023 Agreement.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

As of June 30, 2023, no performance milestones requiring cash consideration had been met under the MLR-1023 Agreement.

To the extent that resources have been available, the Company has continued to work with its advisors in an effort to restructure our company and to identify potential strategic transactions to enhance the value of our company as such opportunities arise, including potential transactions and capital raising initiatives involving our current assets, as well as business combination transactions with operating companies. There can be no assurance that the Company will be successful at identifying any such transactions, that it will continue to have sufficient resources to actively attempt to identify such transactions, or that such transactions will be available upon terms acceptable to us or at all. If the Company does not complete any significant strategic transactions, or raise substantial additional capital, in the immediate future, it is likely that the Company will discontinue all operations and seek bankruptcy protection.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. This quarterly report should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The information furnished in this Report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results of operations for the six months ended June 30, 2023, are not necessarily indicative of the results for the year ending December 31, 2023, or for any future period.

Principles of Consolidation

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

Going Concern and Management’s Liquidity Plans

The accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2023, the Company had approximately $58,000 of cash and has negative working capital of approximately $22.8 million.

The Company has no revenues and has incurred recurring losses and negative cash flows from operations since inception and has funded its operating losses through the sale of common stock, preferred stock, warrants to purchase common stock, convertible notes and secured promissory notes. The Company incurred a net loss and net cash used in operating activities of approximately $615,000 and $626,000, respectively for the six months ended June 30, 2023. The Company had a stockholders’ deficit of approximately $22.8 million and an accumulated deficit of approximately $56.4 million as of June 30, 2023.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

In addition, to the extent that the Company continues its business operations, the Company anticipates that it will continue to have negative cash flows from operations, at least into the near future. However, the Company cannot be certain that it will be able to obtain such funds required for our operations at terms acceptable to the Company or at all. General market conditions, as well as market conditions for companies in the Company’s financial and business position, as well as the ongoing issue arising from the COVID-19 pandemic, the war in Ukraine, federal bank failures or other world-wide events, may make it difficult for the Company to seek financing from the capital markets, and the terms of any financing may adversely affect the holdings or the rights of its stockholders. If the Company is unable to obtain additional financing in the future, there may be a negative impact on the financial viability of the Company. The Company plans to increase working capital by managing its cash flows and expenses, divesting development assets and raising additional capital through private or public equity or debt financing. There can be no assurance that such financing or partnerships will be available on terms which are favorable to the Company or at all. While management of the Company believes that it has a plan to fund ongoing operations, there is no assurance that its plan will be successfully implemented. Failure to raise additional capital through one or more financings, divesting development assets or reducing discretionary spending could have a material adverse effect on the Company’s ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this Report. The consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.

Reverse Stock-split

On September 30, 2022, the Company filed a Certificate of Amendment to the Certificate of Incorporation with the Delaware Secretary of State to effect a reverse stock split of all outstanding shares of the Company’s common stock at a ratio of 1-for-20. On October 5, 2022, the Company effected the 1-for-20 reverse stock split of its common stock. The reverse stock split did not cause an adjustment to the par value or the authorized shares of the common stock. As a result of the reverse stock split, the Company retroactively adjusted all outstanding common stock equivalents including options, warrants, convertible notes and other agreements with third parties.

All disclosures of common shares and per common share data in the accompanying consolidated financial statements and related notes reflect the reverse stock split for all periods presented.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. As of June 30, 2023, the Company had approximately $58,000 in cash.

The Company deposits its cash with a major financial institution that may at times exceed the federally insured limit. As of June 30, 2023, the Company’s cash balance did not exceed the federal deposit insurance limit.

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Significant areas requiring the use of management estimates include accruals related to our operating activity including legal and other consulting expenses, the fair value of non-cash equity-based issuances, the fair value of derivative liabilities, and the valuation allowance on deferred tax assets. Actual results could differ materially from such estimates under different assumptions or circumstances.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Fair Value of Financial Instruments

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

Level 1:		Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:		Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3:		Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

As of June 30, 2023, the Company measured conversion features on outstanding convertible notes and warrants as a derivative liability using significant unobservable prices that are based on little or no verifiable market data, which is Level 3 in the fair value hierarchy, resulting in a fair value estimate of approximately $4.3 million. The value of the derivative liability as of June 30, 2023, was determined by using the binomial lattice model using the following inputs: 4.13% to 5.55% risk free rate, volatility of 263% to 408% and time to maturity of 0 – 1.10 years. There were no liabilities or assets measured at fair value on a non-recurring basis as of June 30, 2023.

Schedule of Fair Value Measurements

(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
	Fair Value Measurements at June 30, 2023
	Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Derivative liability	$	-	$	-	$	4,254	$	4,254
Total	$	-	$	-	$	4,254	$	4,254

A roll forward of the level 3 valuation financial instruments is as follows:

(In thousands)	Warrants			Notes			Total
	Six Months Ended June 30, 2023
(In thousands)	Warrants			Notes			Total
Balance at December 31, 2022	$	5,075		$	1,311		$	6,386
Initial valuation of derivative liabilities included in debt discount		407			-			407
Initial valuation of derivative liabilities included in derivative expense		565			-			565
Reclassification of derivative liabilities to gain on debt extinguishment		-			(80	)		(80	)
Change in fair value included in derivative expense (income)		(2,782	)		(242	)		(3,024	)
Balance at June 30, 2023	$	3,265		$	989		$	4,254

ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding equity instruments.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Convertible Debt and Warrant Accounting

Debt with warrants

In accordance with ASC Topic 470-20-25, when the Company issues debt with warrants, the Company treats the relative fair value of the warrants as a debt discount, recorded as a contra-liability against the debt, and amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. The offset to the contra-liability is recorded as additional paid-in capital in the Company’s consolidated balance sheets if the warrants are not treated as a derivative. The Company determines the fair value of the warrants using the Black-Scholes Option Pricing Model (“Black-Scholes”), the binomial model or the Monte Carlo Method based upon the underlying conversion features of the debt and then computes and records the relative fair value as a debt discount. If the warrant is treated as a derivative liability, the derivative liability is recorded at fair value and the difference between the derivative liability and debt discount is recorded as an initial derivative expense. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations.

Convertible debt – derivative treatment

When the Company issues debt with a conversion feature, it first assesses whether the conversion feature meets the requirements to be accounted for as stock settled debt. If it does not meet those requirements then it is assessed on whether the conversion feature should be bifurcated and treated as a derivative liability, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in stockholders’ equity in its statement of financial position.

Recently Issued Accounting Pronouncements

Recently Adopted

In May 2021, FASB issued ASU 2021-04: Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in ASU 2021-04 provide the following guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic:

1.	An entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument.

2.	An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows:

	a.	For a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged. Specifically, an entity should consider:

		i.	An increase or a decrease in the fair value of the modified or exchanged written call option in applying the 10 percent cash flow test and/or calculating the fees between debtor and creditor in accordance with Subtopic 470-50, Debt—Modifications and Extinguishments.

		ii.	An increase (but not a decrease) in the fair value of the modified or exchanged written call option in calculating the third-party costs in accordance with Subtopic 470-50.

	b.	For all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

3.	An entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the substance of the transaction, in the same manner as if cash had been paid as consideration, as follows:

	a.	A financing transaction to raise equity. The effect should be recognized as an equity issuance cost in accordance with the guidance in Topic 340, Other Assets and Deferred Costs.

	b.	A financing transaction to raise or modify debt. The effect should be recognized as a cost in accordance with the guidance in Topic 470, Debt, and Topic 835, Interest.

	c.	Other modifications or exchanges that are not related to financings or compensation for goods or services or other exchange transactions within the scope of another Topic. The effect should be recognized as a dividend. For entities that present EPS in accordance with Topic 260, that dividend should be an adjustment to net income (or net loss) in the basic EPS calculation.

An entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option to compensate for goods or services in accordance with the guidance in Topic 718, Compensation—Stock Compensation. In a multiple-element transaction (for example, one that includes both debt financing and equity financing), the total effect of the modification should be allocated to the respective elements in the transaction.

The amendments in ASU 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company adopted ASU No. 2021-04 on January 1, 2022. Management determined such adoption did not have a material impact on the overall stockholders’ equity (deficit) in the Company’s consolidated financial statements.

Not Yet Adopted

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

Net Loss per Common Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common stock equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. Potentially dilutive securities which include outstanding warrants, stock options, convertible notes and preferred stock have been excluded from the computation of diluted net loss per share as their effect would be anti-dilutive. For all periods presented, basic and diluted net loss were the same.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The following table presents the computation of net loss per share (in thousands, except share and per share data):

(in thousands except share and per share data)	2023			2022			2023			2022
	Three Months ended						Six Months ended
(in thousands except share and per share data)	2023			2022			2023			2022
Numerator
Net income (loss)	$	271		$	99		$	(615	)	$	25
Dividends		(26	)		(406	)		(53	)		(566	)
Net Loss allocable to common stockholders	$	245		$	(307	)	$	(668	)	$	(541	)
Denominator
Weighted average common shares outstanding used to compute net loss per share, basic		3,462,539			1,140,083			3,260,540			2,003,921
Net loss per share of common stock, basic
Net loss per share	$	0.07		$	(0.27	)	$	(0.20	)	$	(0.27	)

Income loss per share - diluted
Numerator
Net Loss allocable to common stockholders - basic	$	245		$	(307	)	$	(668	)	$	(541	)
add back:
Preferred stock dividends		26
Interest on convertible notes		59
Fair value adjustments on warrants and convertible notes		(1,742	)
Net Loss allocable to common stockholders - diluted	$	(1,412	)	$	(307	)	$	(668	)	$	(541	)

Denominator
Weight Average common share - basic		3,462,539			1,140,083			3,260,540			2,003,921
add dilutive shares related to:
Warrants		33,292,474			-			-			-
Convertible notes		61,591,569			-			-			-
Preferred stock		191,814			-			-			-
Weighted average common shares outstanding used to compute net loss per share, diluted		98,538,396			1,140,083			3,260,540			2,003,921

Net loss per share of common stock, diluted
Net loss per share	$	(0.01	)	$	(0.27	)	$	(0.20	)	$	(0.27	)

The following number of shares for the three-month periods ended June 30, 2023 and 2022, have been excluded from diluted net (loss) since such inclusion would be anti-dilutive:

	2023		2022
	June 30,
	2023		2022
Stock options outstanding		-		19,000
Convertible notes		2,138,951		2,440,137
Warrants		32,252,367		5,132,784
Series C Preferred Stock		-		3,334
Series D Preferred Stock		-		2,500
Series E Preferred Stock		2,663		177,961
Total		34,393,981		7,775,716

The following number of shares for the six-month periods ended June 30, 2023 and 2022, have been excluded from diluted net (loss) since such inclusion would be anti-dilutive:

	2023		2022
	June 30,
	2023		2022
Stock options outstanding		-		19,000
Convertible notes		63,730,520		2,440,137
Warrants		65,544,841		5,132,784
Series C Preferred Stock		3,334		3,334
Series D Preferred Stock		2,500		2,500
Series E Preferred Stock		188,643		177,961
Total		129,469,838		7,775,716

Stock-Based Compensation

The Company applies the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and non-employees, including stock options, in the statements of operations.

For stock options issued, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised if and when a forfeiture becomes probable.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Note 3 – Prepaid Expenses

As of June 30, 2023, and December 31, 2022, prepaid expenses totaled approximately $24,000 and $47,000, respectively and included prepaid insurance and other prepaid operating expenses.

Note 4 – Notes Payable and Convertible Promissory Notes

The following table summarizes the Company’s outstanding term loans:

Schedule of Outstanding Term Loans

(in thousands)	June 30, 2023			December 31, 2022
2019 Term Loan	$	5,677		$	5,677
2022 Term Loans		3,046			2,365
2023 Term Loans		1,332			-
Notes payable		10,055			8,042
Unamortized discounts and fees		(640	)		(709	)
Loans payable	$	9,415		$	7,333

As of June 30, 2023, the 2019 Term Loan was in default.

2019 Term Loan

During 2019, the Company entered into term loan subscription agreements with certain accredited investors, pursuant to which the Company issued secured promissory notes in the aggregate principal amount of approximately $5.7 million. The Company paid $707,000 in debt issuance costs which was recorded as a debt discount to be amortized as interest expense over the term of the loan using the straight-line method.

The promissory notes accrued interest at a rate of 12% per annum. Interest is payable quarterly with the first interest payment to be made on December 28, 2019, and each subsequent payment every six months thereafter. On December 28, 2019, the Company defaulted on the initial interest payment on the loan and the interest rate per annum increased to the default rate of 15%.

The unpaid principal balance of the notes, plus accrued and unpaid interest thereon, matured on June 28, 2020. The notes are secured by a first lien and security interest on all the assets of the Company and certain of its wholly owned subsidiaries. On June 28, 2020, the Company defaulted on the maturity date principal payment.

On June 26, 2021, the holders of the 2019 Term Loans agreed to subordinate their lien and security interest in the assets of the Company and its subsidiaries as set forth in the Security Agreement dated June 28, 2019, to the holders of the June 2021 convertible notes.

On April 19, 2022, a majority of the noteholders of the secured non-convertible promissory notes of the Company issued between June 18, 2019, and August 5, 2019, which matured on August 5, 2020, consented to forbear collection efforts until September 30, 2022. Accordingly, the collateral agent for the noteholders in consideration of the signed noteholder agreements agreed to forbear all notes outstanding.

On November 16, 2022, holders of outstanding promissory notes representing a majority of the outstanding principal and accrued interest of the Notes, agreed to amend the Notes to make them automatically convertible into units consisting of a new series of convertible preferred stock and warrants upon an up listing financing transaction in which the Company’s common stock is listed on The Nasdaq Capital Market or the NYSE American, in exchange for the Holders agreeing to forbear repayment of their Notes and accrued interest until the Up listing Transaction has been completed.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The terms for the amendment of the Notes include no less than the following:

	●	The Notes will automatically convert upon the Uplisting Transaction into the Preferred Stock at 90% of the public offering price;
	●	In addition, each Holder will receive 0.3 Warrants for every $1.00 of principal on the Holder’s original Note;
	●	The shares of Preferred Stock will be subject to a six-month lock-up period from date of issuance; and
	●	The Company has agreed to register the Holders’ sale of the shares of common stock issuable upon conversion of the Preferred Stock and upon the exercise of the Warrants such that those shares will be freely tradeable following the up-list transaction and expiration of the lock-up period.

The shares of the Preferred Stock will be entitled to vote on an as-converted-to-common basis together with the Company’s common stock. The shares of the Preferred Stock will automatically convert into shares of common stock upon expiration of the lock-up period at the conversion price of a percentage of a 30-day VWAP of common stock.

The interest on the Notes, as accrued through the date of conversion, will convert into common stock at the offering price for the up-list transaction.

The Company recognized approximately $212,300 and $422,300 in interest expense related to the 2019 Term Loan for both of the three and six months ended June 30, 2023, and 2022. As of June 30, 2023, the debt discount and issuance costs for the term loan were fully amortized.

As of June 30, 2023, the Company had approximately $3.3 million of accrued interest on the notes included in accrued expenses and remains in default on the repayment of approximately $5.7 million in principal and $3.3 million in accrued interest on the 2019 Term Loan.

2022 Term Loan – May

On May 11, 2022, the Company entered into a Securities Purchase Agreement with investors whereby the Company issued the Purchasers Original Issue Discount Promissory Notes in the aggregate principal amount of $2,222,222, net of an original issue discount of $222,222 for a purchase price of $2,000,000 and warrants to purchase 1,111,112 shares of the Company’s common stock, pursuant to the terms and conditions of the SPA and secured by a Security Agreement as described below. In addition, the Company issued 19,231 commons shares to an investment banker as commission on the sale. The Company received total consideration of $1,692,200 after debt issuance costs of $307,800.

The Notes are due on the earliest to occur of (i) the 12-month anniversary of the original issuance date of the Notes, or May 11, 2023, (ii) a financing transaction which results in the Company’s common stock being listed on a national securities exchange, and (iii) an event of default. If an event of default occurs before the Company’s common stock is listed on a national securities exchange, the event of default would require a repayment of 125% of the outstanding principal, accrued interest and other amounts owing thereon unless the Company is trading on a national securities exchange in which case the repayment would be 100%. The Notes bear interest at 8% per annum, subject to an increase to 15% in case of an event of default as provided for therein. In addition, at any time before the 12-month anniversary of the date of issuance of the Notes, the Company may, upon five days’ prior written notice to the Purchaser, prepay all of the then outstanding principal amount of the Notes for cash in an amount equal to the sum of 105% of all amounts due and owing hereunder, including all accrued and unpaid interest.

The Company recorded a total debt discount of $1,693,000 including an original issue discount of $222,222, a discount related to issuance costs of $307,800, a discount related to the issuance of common stock of $11,820, and a $1,151,137 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.

The Company’s obligations under the Notes are secured by a first priority lien on all of the assets of the Company and its wholly-owned subsidiaries pursuant to a Security Agreement, dated May 11, 2022 and among the Company, its wholly-owned subsidiaries, the Purchasers, and the lead investor as the collateral agent.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The Warrants were exercisable for a 66-month period (five years and six months) ending November 11, 2027, at an exercise price of $0.80 per share, subject to certain adjustments.

On January 10, 2023, the conversion price of the warrants was adjusted to $0.56 as a result of issuing common stock for a convertible note conversion.

On April 14, 2023, the conversion price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.

On April 28, 2023, the conversion price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.

On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.

On May 11, 2023, the Company elected to extend the maturity date on the loan by six-months to November 11, 2023.

On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.

During the three and six months ended June 30, 2023, the Company increased the outstanding principal amount of the notes by approximately $333,300 and $680,600, respectively as an incentive to invest in the 2023 Bridge Loans and recorded a corresponding expense to loan inducement fees on the accompanying consolidated statement of operations.

For the three and six months ended June 30, 2023, the Company recognized approximately $185,500 and $603,000 of expense related to the amortization of debt discounts and fees and approximately $56,700 and $106,300 in interest expense, respectively. For both the three and six months ended June 30, 2022, the Company recognized approximately $100,600 related to the amortization of debt discounts and fees and approximately $25,200 in interest expense related to the note.

As of June 30, 2023, the Company has recorded approximately $2.9 million of outstanding principal and approximately $222,400 of accrued interest in accrued expenses on the accompanying consolidated balance sheet. As of June 30, 2023, the debt discounts on the loan were fully amortized.

2022 Term Loan – December

On December 14, 2022, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the Company issued and sold the investor a non-convertible Original Issue Discount Senior Secured Promissory Note in the principal amount of $142,857 and 158,537 Common Stock Purchase Warrants (“Warrants”) for total purchase price of $100,000. The Company received total consideration of $82,400 after debt issuance costs of $17,600 and an original issue discount of $42,857.

The Notes are due on the earliest to occur of (i) the 12-month anniversary of the original issuance date of the Notes, or December 14, 2023, (ii) a financing transaction which results in the Company’s common stock being listed on a national securities exchange, and (iii) an event of default. If an event of default occurs before the Company’s common stock is listed on a national securities exchange, the event of default would require a repayment of 125% of the outstanding principal, accrued interest and other amounts owing thereon unless the Company is trading on a national securities exchange in which case the repayment would be 100%. The Notes bear interest at 8% per annum, subject to an increase to 15% in case of an event of default as provided for therein. In addition, at any time before the 12-month anniversary of the date of issuance of the Notes, the Company may, upon five days’ prior written notice to the Purchaser, prepay all of the then outstanding principal amount of the Notes for cash in an amount equal to the sum of 105% of all amounts due and owing hereunder, including all accrued and unpaid interest.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The unpaid principal amount of this Note, together with any interest accrued but unpaid thereon, may, at the sole discretion of the Company, be converted into shares of a new class of convertible preferred stock of the Company on the closing date on which the Company completes a public offering for cash of common stock and/or common stock equivalents which results in the listing of the Company’s common stock on a “national securities exchange” as defined in the Securities Exchange Act of 1934 (a “Qualified Financing”).

The Company recorded a total debt discount of $111,523 including an original issue discount of $42,857, a discount related to issuance costs of $17,600, and a $51,066 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.

The Warrants were exercisable for a 66-month period (five years and six months) ending June 15, 2028, at an exercise price of $0.82 per share, subject to certain adjustments.

On January 10, 2023, the conversion price of the warrants was adjusted to $0.56 as a result of issuing common stock for a convertible note conversion.

On April 14, 2023, the conversion price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.

On April 28, 2023, the conversion price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.

On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.

On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.

For the three and six months ended June 30, 2023, the Company recognized approximately $27,800 and $55,300 related to the amortization of debt discounts and fees and approximately $2,800 and $5,700 in interest expense, respectively. No interest expense or debt discount was recognized for the same period of 2022.

As of June 30, 2023, the Company has recorded $142,857 of outstanding principal, $6,300 of accrued interest in accrued expenses on the accompanying consolidated balance sheet and approximately $50,700 of unamortized discount and issuance expenses on the 2022 December Term Loan.

2023 Term Loans

January 18, 2023

On January 18, 2023, the Company entered into a Securities Purchase Agreement with two accredited investors pursuant to which the Company issued and sold the investors a non-convertible Original Issue 30% Discount Senior Secured Promissory Note in the principal amount of $285,714 and 452,962 Common Stock Purchase Warrants for total purchase price of $200,000. The Company received total consideration of $173,850 after debt issuance costs of $26,150.

The Company also agreed to increase the principal amount of prior Original Issue Discount Promissory Notes issued to the investor in May 2022 by 25%. The principal increase in the May 2022 note totaled $277,777. The Company recorded $277,777 as a loan inducement fee related to the notes.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The Notes are due on the earliest to occur of (i) the 12-month anniversary of the original issuance date of the Notes, or January 18, 2024, (ii) a financing transaction which results in the Company’s common stock being listed on a national securities exchange, and (iii) an event of default. If an event of default occurs before the Company’s common stock is listed on a national securities exchange, the event of default would require a repayment of 125% of the outstanding principal, accrued interest and other amounts owing thereon unless the Company is trading on a national securities exchange in which case the repayment would be 100%. The Notes bear interest at 8% per annum, subject to an increase to 15% in case of an event of default as provided for therein. In addition, at any time before the 12-month anniversary of the date of issuance of the Notes, the Company may, upon five days’ prior written notice to the Purchaser, prepay all of the then outstanding principal amount of the Notes for cash in an amount equal to the sum of 105% of all amounts due and owing hereunder, including all accrued and unpaid interest.

The Company recorded a total debt discount of $203,000 including an original issue discount of approximately $85,700, a discount related to issuance costs of $26,200, and a $91,100 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.

The Warrants were exercisable for a 66-month period (five years six months) ending July 18, 2028, at an exercise price of $0.82 per share, subject to certain adjustments.

On April 14, 2023, the conversion price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.

On April 28, 2023, the conversion price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.

On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.

On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.

During both the three and six months ended June 30, 2023, the Company increased the outstanding principal amount of the notes by approximately $64,300 as an incentive to invest in the April 2023 Bridge Loan and recorded a corresponding expense to loan inducement fees on the accompanying consolidated statement of operations.

For the three and six months ended June 30, 2023, the Company recognized approximately $50,600 and $91,200 related to the amortization of debt discounts and fees and approximately $6,800 and $11,400 in interest expense, respectively. No interest expense or debt discount was recognized for the same period of 2022.

As of June 30, 2023, the Company has recorded $350,000 of outstanding principal, $11,400 of accrued interest in accrued expenses on the accompanying consolidated balance sheet and approximately $111,800 of unamortized discount and issuance expenses on the note.

February 3, 2023

On February 3, 2023, the Company entered into a Securities Purchase Agreement with an affiliated accredited investor pursuant to which the Company issued and sold the investor a non-convertible Original Issue 30% Discount Senior Secured Promissory Note in the principal amount of $267,857 and 424,652 Common Stock Purchase Warrants for a total purchase price of $150,000. The Company received total consideration of $133,900 after debt issuance costs of $16,100.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The Notes are due on the earliest to occur of (i) the 12-month anniversary of the original issuance date of the Notes, or February 3, 2024, (ii) a financing transaction which results in the Company’s common stock being listed on a national securities exchange, and (iii) an event of default. If an event of default occurs before the Company’s common stock is listed on a national securities exchange, the event of default would require a repayment of 125% of the outstanding principal, accrued interest and other amounts owing thereon unless the Company is trading on a national securities exchange in which case the repayment would be 100%. The Notes bear interest at 8% per annum, subject to an increase to 15% in case of an event of default as provided for therein. In addition, at any time before the 12-month anniversary of the date of issuance of the Notes, the Company may, upon five days’ prior written notice to the Purchaser, prepay all of the then outstanding principal amount of the Notes for cash in an amount equal to the sum of 105% of all amounts due and owing hereunder, including all accrued and unpaid interest.

The Company recorded a total debt discount of approximately $224,000 including an original issue discount of approximately $64,300 a discount of approximately $53,600 as a loan inducement fee, a discount related to issuance costs of $16,100, and a $90,000 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.

The Warrants were exercisable for a 66-month period (five years and six months) ending August 3, 2028, at an exercise price of $0.82 per share, subject to certain adjustments.

On April 14, 2023, the conversion price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.

On April 28, 2023, the conversion price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.

On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.

On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.

For the three six months ended June 30, 2023, the Company recognized approximately $55,800 and $90,800 related to the amortization of debt discounts and fees and approximately $5,500 and $8,900 in interest expense, respectively. No interest expense or debt discount was recognized for the same period of 2022.

As of June 30, 2023, the Company has recorded $267,857 of outstanding principal, $8,900 of accrued interest in accrued expenses on the accompanying consolidated balance sheet and approximately $133,200 of unamortized discount and issuance expenses on the note.

February 16, 2023

On February 16, 2023, the Company entered into a Securities Purchase Agreement with an affiliated accredited investor pursuant to which the Company issued and sold the investor a non-convertible Original Issue 30% Discount Senior Secured Promissory Note in the principal amount of $214,286 and 339,722 Common Stock Purchase Warrants for a total purchase price of $150,000. The Company received total consideration of $133,850 after debt issuance costs of $16,150.

The Company also agreed to increase the principal amount of prior Original Issue Discount Promissory Notes issued to the investor in May 2022 by 25%. The principal increase in the May 2022 note totaled $69,444. The Company recorded $69,444 as a loan inducement fee related to the notes.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The Notes are due on the earlier of (i) the 12 month anniversary of the issuance date, and (ii) the date on which the Company completes a public offering for cash of common stock and/or common stock equivalents which results in the listing of the Company’s common stock on a “national securities exchange” as defined in the Securities Exchange Act of 1934 (a “Qualified Financing”), provided that unless there is an event of default, the Company may extend the maturity date by six months in its discretion. The Notes bear interest at 8% per annum, payable monthly, subject to an increase to 15% in case of an event of default as provided for therein. Furthermore, at any time before the 12 month anniversary of the date of issuance of a Note, the Company may, after providing written notice to the holder, prepay all of the then outstanding principal amount of the Note for cash in an amount equal to the sum of 105% of the then outstanding principal amount of the Note, accrued but unpaid interest and all liquidated damages and other amounts due in respect of the Note (if any).

The Notes may, at the discretion of the Company, be converted into shares of a new class of convertible preferred stock of the Company (the “Convertible Preferred Stock”) on the closing date of the Qualified Financing. In the event of the conversion, the holder will receive a number of shares of Convertible Preferred Stock equal to the quotient obtained by dividing (i) the unpaid principal amount of this Note (together with any interest accrued but unpaid thereon) by (ii) the closing price of the securities issued in the Qualified Financing on the closing date of the Qualified Financing. Upon issuance, the conversion price of the Convertible Preferred Stock will be equal to the closing price of the securities issued in the Qualified Financing, subject to adjustment.

The Company recorded a total debt discount of $163,600 including an original issue discount of approximately $64,200, a discount related to issuance costs of $16,200, and an $83,200 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.

The Warrants were exercisable for a 66-month period (five years six months) ending August 16, 2028, at an exercise price of $0.82 per share, subject to certain adjustments.

On April 14, 2023, the conversion price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.

On April 28, 2023, the conversion price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.

On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.

On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.

During both the three and six months ended June 30, 2023, the Company increased the outstanding principal amount of the notes by approximately $64,300 respectively as an incentive to invest in the April 2023 Bridge Loan and recorded a corresponding expense to loan inducement fees on the accompanying consolidated statement of operations.

For the three and six months ended June 30, 2023, the Company recognized approximately $40,800 and $60,500, respectively related to the amortization of debt discounts and fees and approximately $5,300 and $7,400 in interest expense, respectively. No interest expense or debt discount was recognized for the same period of 2022.

As of June 30, 2023, the Company has recorded $278,571 of outstanding principal, $7,400 of accrued interest in accrued expenses on the accompanying consolidated balance sheet and approximately $103,100 of unamortized discount and issuance expenses on the note.

April 28, 2023

On April 28, 2023, the Company entered into a Securities Purchase Agreement with two affiliated accredited investors pursuant to which the Company issued and sold the investors a non-convertible Original Issue 30% Discount Senior Secured Promissory Note in the principal amount of $285,714 and 452,964 Common Stock Purchase Warrants for a total purchase price of $200,000. The Company received total consideration of $200,000.

The Company also agreed to increase the principal amount of prior Original Issue Discount Promissory Notes issued to the investor in May 2022 and January 2023 by 30% as a loan inducement fee. The principal increases totaled $461,904.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The Company recorded a total debt discount of $166,400 including an original issue discount of approximately $85,700, and a $80,700 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.

The Warrants issued with promissory notes were exercisable for a 66-month period (five years and six months) at an exercise price of $0.82 per share, subject to certain adjustments.

On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.

On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.

For both the three and six months ended June 30, 2023, the Company recognized approximately $29,200, respectively related to the amortization of debt discounts and approximately $5,800 in interest expense. No interest expense or debt discount was recognized for the same period of 2022.

As of June 30, 2023, the Company has recorded $285,714 of outstanding principal, $5,800 of accrued interest in accrued expenses on the accompanying consolidated balance sheet and approximately $137,200 of unamortized discount and issuance expenses on the note.

June 22, 2023

On June 22, 2023, the Company entered into a Securities Purchase Agreement with four accredited investors pursuant to which the Company issued and sold the investors a non-convertible Original Issue Discount Senior Secured Promissory Note in the principal amount of $150,000 and 3,000,000 Common Stock Purchase Warrants for total gross proceeds of $105,000.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The Notes may, at the discretion of the Company, be converted into shares of a new class of convertible preferred stock of the Company (the “Convertible Preferred Stock”) on the closing date of the Qualified Financing. In the event of the conversion, the holder will receive a number of shares of Convertible Preferred Stock equal to the quotient obtained by dividing (i) the unpaid principal amount of this Note (together with any interest accrued but unpaid thereon) by (ii) the closing price of the securities issued in the Qualified Financing on the closing date of the Qualified Financing. Upon issuance, the conversion price of the Convertible Preferred Stock (the “Preferred Conversion Price”) will be equal to the closing price of the securities issued in the Qualified Financing, subject to adjustment.

The Notes provide for certain customary events of default which include failure to maintain the required reserve of shares for the Warrants, a restatement of the financial statements of the Company resulting in a reduction to the stock price by an enumerated threshold, and certain other customary events of default, subject to certain exceptions and limitations. Upon an event of default, the Notes will become immediately due and payable at a 125% premium, which will be reduced to 100% if the event of default occurs while the Company’s common stock is listed on a national securities exchange.

The Notes contain customary restrictive covenants which apply for as long as at least 75% of the Notes remain outstanding, including covenants against incurring new indebtedness or liens, repurchasing shares of common stock or common stock equivalents, paying dividends or distributions on equity securities, and transactions with affiliates, subject to certain exceptions and limitations. In addition, the SPA imposes certain additional negative covenants and obligations on the Company, including a prohibition on filing a registration statement (other than on Form S-8) unless at least 30% of the Notes have been repaid as of such filing, a prohibition on incurring new indebtedness at any time while any Notes are outstanding, and a 90-day restriction against issuing shares of common stock or common stock equivalents, subject to certain exceptions and limitations.

The Company recorded a total debt discount of $106,800 including an original issue discount of approximately $45,000, and a $61,800 discount related to the initial warrant derivative liability. The discounts are being amortized over the life of the note.

The Warrants issued with promissory notes were exercisable for a 66-month period (five years and six months) at an exercise price of $0.05 per share, subject to certain adjustments.

On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion.

For both the three and six months ended June 30, 2023, the Company recognized approximately $2,600 related to the amortization of debt discounts and approximately $3,100 in interest expense. No interest expense or debt discount was recognized for the same period of 2022.

As of June 30, 2023, the Company has recorded $150,000 of outstanding principal, $3,100 of accrued interest in accrued expenses on the accompanying consolidated balance sheet and approximately $104,000 of unamortized discount and issuance expenses on the note.

Convertible Promissory Notes

The following table summarizes the Company’s outstanding convertible notes as of June 30, 2023, and December 31, 2022:

(in thousands)	June 30, 2023		December 31, 2022
Convertible Notes	$	1,176	$	1,319
Unamortized discounts		-		(67	)
Convertible notes payable, net	$	1,176	$	1,252

All convertible notes including accrued interest were in default as of the issuance date of this Report. As of June 30, 2023, accrued interest totaled approximately $532,900 on all outstanding convertible notes.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Secured Convertible Promissory Note – February 2020

On February 5, 2020, the Company entered into a Securities Purchase Agreement with accredited investors and issued the investors, (i) original issue discount Convertible Promissory Notes with a principal of $550,500 issued at a 10% original issue discount, for a total purchase price of $499,950, and (ii) warrants to purchase up to such number of shares of the common stock of the Company as is equal to the product obtained by multiplying 1.75 by the quotient obtained by dividing (A) the principal amount of the Notes by (B) the then applicable conversion price of the Notes.

The Convertible Notes matured on August 5, 2020. Prior to default, interest accrued to the Holders on the aggregate unconverted and then outstanding principal amount of the Notes at the rate of 10% per annum, calculated on the basis of a 360-day year and accrues daily. On June 15, 2020, the Company defaulted on certain covenants in the 2020 term loan and the interest rate reset to the default rate of 18%.

Until the Convertible Notes are no longer outstanding, the Convertible Notes are convertible, in whole or in part, at any time, and from time to time, into shares of Common Stock at the option of the noteholder. The conversion price is the lower of: (i) $10.00 per share of Common Stock and (ii) 70% of the volume weighted average price of the Common Stock on the trading market on which the Common Stock is then listed or quoted for trading for the prior ten (10) trading days (as adjusted for stock splits, stock combinations and similar events); provided, that if the Notes are not prepaid on or before May 5, 2020, then the conversion price shall be the lower of (x) 60% of the conversion price as calculated above or (y) $1.00 (as adjusted for stock splits, stock combinations and similar events). The conversion price of the Convertible Notes shall also be adjusted as a result of subsequent equity sales by the Company, with customary exceptions.

The exercise price of the Warrants shall be equal to the conversion price of the Convertible Notes, provided, that on the date that the Convertible Notes are no longer outstanding, the exercise price shall be fixed at the conversion price of the Convertible Notes on such date, with the exercise price of the Warrants thereafter (and the number of shares of Common Stock issuable upon the exercise thereof) being subject to adjustment as set forth in the Warrants. The warrants have a 5-year term.

The Company recorded a discount related to the Warrants of approximately $322,000, which includes an allocation of original issue discount (“OID”) and issue costs of $30,000 and $53,000 based on the relative fair value of the instruments as determined by using the Monte-Carlo simulation model. The Company also recorded the remaining debt discount related to the convertible debt OID of approximately $21,000 and debt issuance costs of $38,000 using the relative fair value method to be amortized as interest expense over the term of the loan using the straight-line method. Total discounts recorded were approximately $381,000.

On January 27, 2022, the conversion price of the notes and warrants was adjusted to be the lower of (x) 60% of the conversion price as calculated above or (y) $0.78 as a result of issuance of common stock for a convertible note conversion.

On January 10, 2023, the conversion price of the notes and warrants was adjusted to be the lower of (x) 60% of the conversion price as calculated above or (y) $0.56 as a result of issuance of common stock for a convertible note conversion.

On April 14, 2023, the conversion price of the notes and warrants was adjusted to be the lower of (x) 60% of the conversion price as calculated above or (y) $0.279 as a result of issuance of common stock for a convertible note conversion.

On April 28, 2023, the conversion price of the notes and warrants was adjusted to be the lower of (x) 60% of the conversion price as calculated above or (y) $0.18 as a result of issuance of common stock for a convertible note conversion.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

On May 10, 2023, the conversion price of the notes and warrants was adjusted to be the lower of (x) 60% of the conversion price as calculated above or (y) $0.054 as a result of issuance of common stock for a convertible note conversion.

On June 23, 2023, the conversion price of the notes and warrants was adjusted to be the lower of (x) 60% of the conversion price as calculated above or (y) $0.036 as a result of issuance of common stock for a convertible note conversion.

The Company recognized $20,800 and $45,100 in interest expense related to the notes for the three and six months ended June 30, 2023, respectively. For the three and six months ended June 30, 2022, the Company recognized approximately $20,800 and $45,800 in interest expense related to the note, respectively. As of June 30, 2023, the debt discounts were fully amortized.

As of June 30, 2023, the Company remains in default on the repayment of $457,359 in principal and $230,500 of accrued interest on the February 2020 Convertible Notes. Upon demand for repayment at the election of the holder, the holder of the Convertible Note is due 140% of the aggregate of outstanding principal, interest, and other expenses due in respect of this Convertible Note. The 40% premium will be recorded once a demand occurs.

Secured Convertible Promissory Note – June 2020

On June 26, 2020, the Company issued to an existing investor in the Company a 10% original issue discount Senior Secured Convertible Promissory Note with a principal of $58,055, for a purchase price of $52,500, net of the original issue discount of $5,555. The Convertible Note matured on December 26, 2020. Prior to default, interest accrued on the aggregate unconverted and then outstanding principal amount of the Note at the rate of 10% per annum, calculated on the basis of a 360-day year. The Company incurred approximately $14,000 in debt issuance costs. On August 5, 2020, the Company defaulted on certain covenants in the loan and the interest rate reset to the default rate of 18%.

The Note is convertible, in whole or in part, into shares of common stock of the Company at the option of the noteholder at a conversion price of $0.40 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of default has occurred under the Note, then the conversion price shall be 65% of the lowest closing bid price of the Company’s common stock as reported on its principal trading market for the twenty consecutive trading day period ending on (and including) the trading day immediately preceding the date on which the conversion notice was delivered. The conversion price shall also be adjusted for subsequent equity sales by the Company. Because the share price on the commitment date was in excess of the conversion price, the Company recorded a beneficial conversion feature of $50,000 related to this note that was credited to additional paid in capital and reduced the carrying amount. At the commitment date, the actual intrinsic value of the beneficial conversion feature was approximately $203,000. The discount recorded is being amortized to interest expense over the life of the loan using the straight-line method.

The obligations of the Company under the Note are secured by a senior lien and security interest in all of the assets of the Company and certain of its wholly-owned subsidiaries pursuant to the terms and conditions of a Security Agreement dated June 26, 2020 by the Company in favor of the noteholder. In connection with the issuance of the Note, the holders of the secured promissory notes that the Company issued to select accredited investors between June 28, 2019 and August 5, 2019 in the aggregate principal amount of approximately $5.7 million agreed to subordinate their lien and security interest in the assets of the Company and its subsidiaries as set forth in the Security Agreement dated June 28, 2019 that such holders entered into with the Company and its subsidiaries to the security interest granted to the holder of the Note.

On January 27, 2022, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its principal trading market for the twenty consecutive trading day period ending on (and including) the trading day immediately preceding the date on which the conversion notice was delivered or $0.78 as a result of issuance of common shares for a convertible note conversion.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

On January 10, 2023, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its principal trading market for the twenty consecutive trading day period ending on (and including) the trading day immediately preceding the date on which the conversion notice was delivered or $0.56 as a result of issuance of common shares for a convertible note conversion.

On April 14, 2023, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its principal trading market for the twenty consecutive trading day period ending on (and including) the trading day immediately preceding the date on which the conversion notice was delivered or $0.279 as a result of issuance of common shares for a convertible note conversion.

On April 28, 2023, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its principal trading market for the twenty consecutive trading day period ending on (and including) the trading day immediately preceding the date on which the conversion notice was delivered or $0.18 as a result of issuance of common shares for a convertible note conversion.

On May 10, 2023, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its principal trading market for the twenty consecutive trading day period ending on (and including) the trading day immediately preceding the date on which the conversion notice was delivered or $0.054 as a result of issuance of common shares for a convertible note conversion.

On June 23, 2023, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its principal trading market for the twenty consecutive trading day period ending on (and including) the trading day immediately preceding the date on which the conversion notice was delivered or $0.036 as a result of issuance of common shares for a convertible note conversion.

For both the six months ended June 30, 2023, and June 30, 2022, the Company recognized approximately $2,600 and $5,300 in interest expense related to the notes. As of June 30, 2023, the debt discount and issuance costs for the loan were fully amortized.

As of June 30, 2023, the Company remains in default on the repayment of principal of $58,055 and approximately $31,400 in accrued interest on the notes. Upon demand for repayment at the election of the holder, the holder of the note is due 140% of the aggregate of outstanding principal, interest, and other expenses due in respect of this Note. The 40% premium will be recorded once a demand occurs.

Secured Convertible Promissory Note – October 2020

On October 30, 2020, the Company issued to an existing investor in and lender to the Company a 10% original issue discount senior secured convertible promissory note with a principal of $111,111, for a purchase price of $100,000. The note is convertible into shares of common stock of the Company at the option of the noteholder at a conversion price of $1.40 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of default has occurred under the Note, then the conversion price shall be 70% of then conversion price. The conversion price of the notes is subject to anti-dilution price protection and on March 19, 2021, the conversion price of the notes was adjusted to $1.00 per share as a result of subsequent equity sales by the Company.

The obligations of the Company under the note are secured by a senior lien and security interest in all of the assets of the Company.

The Company recorded approximately $9,000 in debt issuance cost to be amortized over the life of the loan using the straight-line method.

The interest rate on the note was 10% per annum, calculated on the basis of a 360-day year. On April 30, 2021, the note matured and the Company defaulted on the note and the interest rate on the loan reset to 18%.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Additionally, the Company issued the noteholder 79,366 warrants to purchase the Company’s common stock at $1.60 per share subject to certain adjustments as defined in the agreement. Until the Notes are no longer outstanding, the warrants have full-ratchet protection, are exercisable for a period of five years, and contain customary exercise limitations. On March 19, 2021, the exercise price of the warrants was adjusted to $1.00 and the Company issued an additional 47,619 warrants to the note holder. The Company recorded approximately $57,000 as a deemed dividend upon the repricing based upon the change in fair value of the warrants using a binomial valuation model. The Company used a risk-free rate of 0.16%, volatility of 262.27%, and expected term of 0.92 years in calculating the fair value of the warrants.

The Company recorded a discount related to the warrants of approximately $66,000, Including a discount of $6,000 and issuance costs of $5,000 based on the relative fair value of the instruments as determined by using the Black-Scholes valuation model. The Company recorded a beneficial conversion feature of $45,000 related to the note that was credited to additional paid in capital and reduced the carrying amount. The discount recorded is being amortized to interest expense over the life of the loan using the straight-line method. At the commitment date, the actual intrinsic value of the beneficial conversion feature was approximately $69,000. The Company also recorded a debt discount related to the convertible debt of approximately $5,000 and debt issuance cost of $4,000 using the relative fair value method to be amortized as interest expense over the term of the loan using the straight-line method.

On January 27, 2022, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.98 to $0.78 as a result of a convertible note exercise and the Company issued an additional 35,816 warrants to the note holder.

On January 10, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.78 to $0.56 as a result of a convertible note exercise and the Company issued an additional 64,001 warrants to the note holder.

On April 14, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.56 to $0.279 as a result of a convertible note exercise and the Company issued an additional 226,882 warrants to the note holder.

On April 28, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.279 to $0.18 as a result of a convertible note exercise and the Company issued an additional 251,794 warrants to the note holder.

On May 10, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.18 to $0.054 as a result of a convertible note exercise and the Company issued an additional 1,642,202 warrants to the note holder.

On June 23, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.054 to $0.036 as a result of a convertible note exercise and the Company issued an additional 1,170,913 warrants to the note holder.

As of June 30, 2023, 3,518,592 warrants were outstanding that were issued with the October 2020 convertible note at an exercise price of $0.036.

For both the six months ended June 30, 2023, and June 30, 2022, the Company recognized approximately $5,000 and $10,100 in interest expense for the note. As of June 30, 2023, the debt discount and issuance costs for the note were fully amortized.

As of June 30, 2023, the Company has outstanding principal of $111,111 and accrued interest on the note of approximately $49,600.

As of June 30, 2023, the Company remains in default on the repayment of principal and interest on the notes. Upon demand for repayment at the election of the holder, the holder of the note is due 125% of the aggregate of outstanding principal, interest, and other expenses due in respect of this Note. The 25% premium will be recorded once a demand occurs.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Secured Convertible Promissory Note – January 2021

On January 31, 2021, the Company issued to an existing investor in and lender to the Company a 10% original issue discounted Senior Secured Convertible Promissory Note with a principal of $52,778, for a purchase price of $47,500, net of original issue discount of $5,278. The Note is convertible into shares of common stock of the Company at the option of the noteholder at a conversion price of $1.40 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of default has occurred under the Note, then the conversion price shall be 70% of the then conversion price. The conversion price of the notes is subject to anti-dilution price protection and will be adjusted upon subsequent equity sales by the Company.

The obligations of the Company under the Note are secured by a senior lien and security interest in all assets of the Company.

Additionally, the Company issued to the investor 37,699 warrants to purchase the Company’s common stock at an exercise price of $1.60 per share subject to certain adjustments as defined in the agreement. Until the Notes are no longer outstanding, the warrants have full-ratchet protection, are exercisable for a period of five years, and contain customary exercise limitations. On March 19, 2021, the exercise price of the warrants was adjusted to $1.00 and the Company issued an additional 22,619 warrants to the note holder. The Company recorded approximately $27,000 as a deemed dividend upon the repricing based upon the change in fair value of the warrants using a binomial valuation model. The Company used a risk-free rate of 0.16%, volatility of 262.27%, and expected term of 0.97 years in calculating the fair value of the warrants.

The Company recorded approximately $2,000 in debt issuance cost to be amortized over the life of the loan using the straight-line method.

The interest rate on the note was 10% per annum, calculated on the basis of a 360-day year. On July 31, 2021, the note matured and the Company defaulted on the note and the interest rate on the loan reset to the default rate of 18% per annum.

The Company recorded a discount related to the warrants of approximately $32,000, which includes an allocated original issue discount, of $3,000 and allocated issuance costs of $1,000 based on the relative fair value of the instruments as determined by using the Black-Scholes valuation model. The assumptions used in the Black-Scholes model were a risk-free rate of 0.45%, volatility of 240.83%, and an expected term of one year in calculating the fair value of the warrants.

The Company also recorded a debt discount related to the convertible debt of approximately $2,000 remaining original issue discount and remaining debt issuance cost of $1,000 using the relative fair value method to be amortized as interest expense over the term of the loan using the straight-line method.

Total discounts recorded including the original issue discount were approximately $35,000.

On January 27, 2022, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.98 to $0.78, as a result of a convertible note exercise and the Company issued an additional 17,012 warrants to the note holder.

On January 10, 2023, the exercise price of the notes and warrants was adjusted from the default conversion price of $0.78 to $0.56, as a result of a convertible note exercise and the Company issued an additional 30,398 warrants to the note holder.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

As of June 30, 2023, 1,671,294 warrants were outstanding that were issued with the January 2021 convertible note at an exercise price of $0.036.

For both six months ended June 30, 2023 and June 30, 2022, the Company recognized approximately $2,400 and $4,800 in interest expense. As of June 30, 2023, the debt discount and issuance costs on the note were fully amortized.

As of June 30, 2023, the Company has outstanding principal of $52,778 on the note and has recorded approximately $21,100 of accrued interest included in accrued expenses on the accompanying consolidated balance sheet.

As of June 30, 2023, the Company remains in default on the repayment of principal and accrued interest on the notes. Upon demand for repayment at the election of the holder, the holder of the note is due 125% of the aggregate of outstanding principal, interest, and other expenses due in respect of this Note. The 25% premium will be recorded once a demand occurs.

Secured Convertible Promissory Note – April 2021

On April 12, 2021, the Company issued to an accredited investor in and lender to the Company a 10% original issue discounted Senior Secured Convertible Promissory Note with a principal amount of $66,667, for a purchase price of $60,000 net of an original discount of $6,667. Additionally, the Company issued to the investor 40,000 five-year warrants to purchase the Company’s common stock at an exercise price of $1.90 per share. The warrants have full ratchet protection.

The note matured on October 12, 2021, prior to default, interest accrued on the aggregate unconverted and then outstanding principal amount of the note at the rate of 10% per annum, calculated on-the-basis of a 360-day year. On October 12, 2021, the Company defaulted on the note and the interest rate on the note reset to 18% per annum.

The Company recorded a discount related to the warrants of approximately $34,000, which includes approximately $3,700 of OID discount allocated under the relative fair value method, and a remaining discount related to the OID of $3,000 based on the relative fair value of the instruments. The fair value of the warrants on which the relative fair value is based was determined by using the Black-Scholes valuation model. The assumptions used in the Black-Scholes model were a risk-free rate of 0.89%, volatility of 240.64%, and an expected term of one year in calculating the fair value of the warrants.

On June 25, 2021, the exercise price of the warrants was adjusted to $1.50 and the Company issued an additional 10,667 warrants to the note holder. The Company recorded approximately $11,000 as a deemed dividend upon the repricing based upon the change in fair value of the warrants using a binomial valuation model. The Company used a risk-free rate of 0.92%, volatility of 247.52%, and expected term of 0.96 years in calculating the fair value of the warrants.

On November 4, 2021, the Company issued 7,662 shares of common stock upon a cashless exercise of 12,500 warrants issued with the April 2021 Convertible Note.

On November 30, 2021, the exercise price of the warrants was adjusted to $1.00 based on a note conversion at $1.00 and the Company issued an additional 19,084 warrants to the note holder.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

On January 27, 2022, the exercise price of the note and warrants was adjusted from the default conversion price of $1.05 to $0.78 based on a convertible note conversion at $0.78 and the Company issued an additional 16,147 warrants to the note holder.

During the year ended December 31, 2022, the Company repaid $25,000 of principal on the note. The Company recorded approximately $19,500 gain on debt extinguishment resulting from the settlement of the derivative as a result of repayment of the note.

On January 10, 2023, the exercise price of the note and warrants was adjusted from the default conversion price of $0.78 to $0.56 based on a convertible note exercise at $0.56 and the Company issued an additional 28,834 warrants to the note holder.

As of June 30, 2023, 1,586,311 warrants were outstanding that were issued with the April 2021 convertible note at an exercise price of $0.036.

For the three and six months ended June 30, 2023, the Company recognized approximately $1,900 and $3,800 in interest expense. respectively for the notes. For the three and six months ended June 30, 2022, the Company recognized approximately $3,000 and $6,000 in interest expense for the notes. As of June 30, 2023, the debt discount and issuance costs on the note were fully amortized.

As of June 30, 2023, the Company has recorded $41,667 of principal and approximately $20,200 of accrued interest for the note on the accompanying consolidated balance sheet.

Secured Convertible Promissory Note – June 2021

On June 25, 2021, the Company issued to an accredited investor in and lender to the Company a 5% original issue discounted Senior Secured Convertible Promissory Note with a principal amount of $66,500, for a purchase price of $63,000, net of an original issue discount of $3,500. Additionally, the Company issued to the investor 40,000 six-year warrants to purchase the Company’s common stock at an exercise price of $1.90 per share. Upon subsequent down-round equity sales by the Company, the number of shares issuable upon exercise of the Warrant shall be proportionately adjusted such that the aggregate exercise price of this Warrant shall remain $76,000 which is a full ratchet price protection provision.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The note matures one year from issuance, or such earlier date as the note is required or permitted to be repaid. Interest shall accrue on the aggregate unconverted and then outstanding principal amount of the note at the rate of 10% per annum, calculated on the basis of a 365-day year.

The Note is convertible, in whole or in part, at any time, and from time to time, into shares of the common stock of the Company at the option of the noteholder at a conversion price of $1.50 (as adjusted for stock splits, stock combinations and similar events); provided, however that in the event, the Company’s Common Stock trades below $1.60 per share for more than six (3) consecutive trading days, the Holder of this Note is entitled, at its option, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company’s common stock at a price for each share of Common Stock equal to 65% of the lowest trading price of the Common Stock for the twenty prior trading days including the day upon which a Notice of Conversion is received. The conversion discount, look back period and other terms of the Note will be adjusted on a ratchet basis if the Company offers a more favorable conversion discount, prepayment rate, interest rate, (whether through a straight discount or in combination with an original issue discount), look back period or other more favorable term to another party for any financings while this Note is in effect.

The obligations of the Company under the Note are secured by a senior lien and security interest in all assets of the Company.

The Company incurred approximately $9,300 in debt issuance costs.

The Company also issued 2,377 shares of common stock as a commission fee to the investment banker. The fair value of the common stock which was approximately $5,040 was recorded as debt issuance expense.

Due to the variability in the conversion price of the Note the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $102,823 with $87,039 charged to derivative expense and $15,784 recorded as a debt discount.

Total discounts recorded were $66,500. The Company recorded an original issue discount of $3,500, a discount of $9,300 for issuance costs, a discount related to the warrants of approximately $37,916 and a discount related to the derivative of $15,784 based on the relative fair value of the instruments. The warrant fair value on which the relative fair value was based was determined by using a simple binomial lattice model. The assumptions used in the model were a risk-free rate of 0.48%, volatility of 302.11%, and an expected term of 0.60 years in calculating the fair value of the warrants.

On August 11, 2021, the exercise price of the warrants was adjusted to $1.50 and the Company issued an additional 10,667 warrants to the note holder. The Company recorded approximately $25,000 as a deemed dividend upon the repricing based upon the change in fair value of the warrants using a binomial valuation model. The Company used a risk-free rate of 0.81, volatility of 209%, and expected term of 0.57 years in calculating the fair value of the warrants.

On October 27, 2021, the Company and the institutional investor who holds the convertible promissory note agreed to extend the maturity date of the note by six months to December 25, 2022, for no consideration.

On November 30, 2021, the exercise price of the warrants was adjusted to $1.00 based on a note conversion at $1.00 and the Company issued an additional 25,333 warrants to the note holder.

On January 27, 2022, the holder of the June 25, 2021, convertible note converted $9,500 of principal and $421 of interest at $0.78 per share into 12,721 shares of common stock that were valued at fair value based on the quoted trading prices on the conversion dates aggregating approximately $28,000 resulting in a loss on debt extinguishment of $18,000. In addition, derivative fair value of $23,000 relating to the portion of the Note converted was settled resulting in a gain on extinguishment of approximately $23,000. The net gain on extinguishment was approximately $5,000. In addition, the conversion price of the warrants issued with the notes were adjusted to $0.78 per share and the Company issued an additional 21,436 warrants to the holder of the note.

On December 25, 2022, the Company defaulted on the extended maturity date of the note.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

As of June 30, 2023, 2,105,846 warrants were outstanding that were issued with the June 2021 convertible note at an exercise price of $0.036.

For the three and six months ended June 30, 2023, the Company recognized $3,400 and $6,800, respectively in interest expense related to the note. For the three and six months ended June 30, 2022, the Company recognized approximately $9,900 and $19,600 related to the amortization of debt discounts and approximately $3,400 and $7,000 in interest expense related to the note. As of June 30, 2023, the debt discount on the note was fully amortized.

At June 30, 2023, the Company has recorded $57,000 of outstanding principal and approximately $25,900 of accrued interest.

Convertible Promissory Note – August 11, 2021

On August 11, 2021, the Company entered into a Securities Purchase Agreement with an accredited institutional investor pursuant to which the Company issued to the investor its Original Issue Discount Secured Convertible Promissory Note in the principal amount of $220,500 and warrants to purchase 40,000 shares of the common stock of the Company for which the Company received consideration of $210,000 net of an original issue discount of $10,500. In addition, the Company entered into a Registration Rights Agreement with the investor and issued the investor 5,000 common shares as a commitment fee.

The note matured in August 2021 and absent an event of default provides for an interest rate of 10% per annum, payable at maturity, and is convertible into common stock of the Company at a price of $1.50 per share, subject to anti-dilution adjustments in the event of certain corporate events as set forth in the Note, provided that if the average closing price of the Company’s common stock during any Nine consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. On November 9, 2021, the Company defaulted on certain covenants in the note and the interest rate on the note reset to 24% per annum.

In addition to customary anti-dilution adjustments the Note provides, subject to certain limited exceptions, that if the Company issues any common stock or common stock equivalents, as defined in the Note, at a per share price lower than the conversion price then in effect, the conversion price will be reduced to the per share price at which such shares or common share equivalents were sold.

The Warrants are initially exercisable for a period of five years at a price of $1.90 per share, subject to customary anti-dilution adjustments upon the occurrence of certain corporate events as set forth in the Warrant.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The Company incurred approximately $30,000 in debt issuance costs.

The Company also issued 7,000 shares of common stock to the investment banker as a commission on the note.

Due to the variability in the conversion price of the Note the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $340,893 with $234,388 charged to derivative expense and $106,505 recorded as a debt discount.

The Company recorded a total debt discount of $220,500 including an original issue discount of $10,500, a discount related to the warrants of approximately $56,454 a discount related to issuance costs of $30,000 and a discount related to the issuance of common stock of approximately $17,041, and a $106,505 discount related to the initial derivative value of the embedded conversion feature on the note all based on the relative fair value of the instruments,

The fair value of the warrants on which the relative fair value was based was determined by using a simple binomial lattice model. The assumptions used in the model were a risk-free rate of 0.81%, volatility of 253%, and an expected term of one year in calculating the fair value of the warrants. The discounts are being amortized over the term of the convertible note.

On November 30, 2021, the exercise price of the warrants was adjusted to $1.00 based on a note conversion at $1.00 and the Company issued an additional 36,000 warrants to the note holder.

On January 27, 2022, the conversion price of the notes was adjusted to the lower of $0.78 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $0.78 per share and the Company issued an additional 21,436 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.78 per share.

On May 12, 2022, the Company repaid $135,695 of principal and $64,305 of interest including $54,278 of interest due as a result of early redemption on the note. In addition, the holder of the note extended the maturity date on the note to September 30, 2022, when the outstanding balance of principal and interest of $128,502 is due on the note. The Company recorded a $45,200 gain on debt extinguishment as a result of repayment of the note. On September 30, 2022, the Company defaulted on the outstanding balance of principal and interest on the note.

On January 10, 2023, the conversion price of the notes was adjusted to the lower of $0.56 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $0.56 per share and the Company issued an additional 38,303 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.56 per share.

On April 14, 2023, the conversion price of the notes was adjusted to the lower of $0.279 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.279 per share and the Company issued an additional 135,787 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.279 per share.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

On April 28, 2023, the conversion price of the notes was adjusted to the lower of $0.18 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.18 per share and the Company issued an additional 150,697 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.18 per share.

On May 10, 2023, the conversion price of the notes was adjusted to the lower of $0.054 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.054 per share and the Company issued an additional 982,843 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.054 per share.

On June 23, 2023, the conversion price of the notes was adjusted to the lower of $0.036 per share, or provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. In addition, the exercise price of the warrant was adjusted to $.036 per share and the Company issued an additional 700,781 warrants to the holder of the note. Both the conversion price of the note and warrants were adjusted as a result of a convertible note exercise at $0.036 per share.

As of June 30, 2023, 2,105,846 warrants were outstanding that were issued with the August 11, 2021 convertible note at an exercise price of $0.036.

For the three and six months ended June 30, 2023, the Company recognized approximately $5,100 and $10,100, respectively of interest expense related to the note. For the three and six months ended June 30, 2022, the Company recognized approximately $40,000 and $94,000 related to the amortization of debt discount and approximately $73,000 and $85,400 in interest expense related to the note. Interest expense for the three months ended June 30, 2022, included approximately $67,000 in additional interest accrued due to penalties incurred for early redemption of the note. As of June 30, 2023, the debt discount on the note was fully amortized.

At June 30, 2023, the Company has remaining $84,800 of outstanding principal and approximately $58,900 of accrued interest.

Convertible Promissory Note – August 17, 2021

On August 17, 2021, the Company entered into a Securities Purchase Agreement with an accredited institutional investor pursuant to which the Company issued to the investor its Original Issue Discount Secured Convertible Promissory Note in the principal amount of $220,500 and warrants to purchase 40,000 shares of the common stock of the Company for which the Company received consideration of $210,000 net of original discount of $10,500. In addition, the Company entered into a Registration Rights Agreement with the investor and issued the investor 5,000 common shares as a commitment fee.

The note matures one year from issuance and provides for an interest rate of 10% per annum, payable at maturity, and is convertible into common stock of the Company at a price of $1.50 per share, subject to anti-dilution adjustments in the event of certain corporate events as set forth in the Note, provided that if the average closing price of the Company’s common stock during any six consecutive trading days is below $1.60, the conversion price shall be reduced to 65% of the lowest trading price during the 20 consecutive trading days immediately preceding the conversion date. The embedded conversion option will be treated as a bifurcated derivative liability.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The Company incurred approximately $30,000 in debt issuance costs. The Company also issued 5,631 shares of common stock to the investment banker as a commission on the note.

Due to the variability in the conversion price of the Note, the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $398,404 with $297,833 charged to derivative expense and $100,571 recorded as a debt discount.

The Company recorded a total debt discount of $220,500 including an original issue discount of $10,500, a discount related to the warrants of approximately $62,220 a discount related to issuance costs of $30,000 a discount related to the issuance of common stock of approximately $17,209, and a $100,571 discount related to the initial derivative value of the embedded conversion feature on the Note all based on the relative fair value of the instruments.

The fair value of the warrants on which the relative fair value was based was determined by using a simple binomial lattice model. The assumptions used in the model were a risk-free rate of 0.77%, volatility of 254%, and an expected term of one year in calculating the fair value of the warrants. The discounts are being amortized over the life of the convertible note.

On October 27, 2021, the Company and the institutional investor who holds the promissory note agreed to extend the maturity date the notes by six months to February 17, 2023, for no consideration.

On November 15, 2021, the Company defaulted on certain covenants in the note and the interest rate on the note reset to 24% per annum.

On November 30, 2021, the exercise price of the warrants was adjusted to $1.00 based on a note conversion at $1.00 and the Company issued an additional 36,000 warrants to the note holder.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

On February 17, 2023, the Company defaulted on the extended maturity date for the convertible note.

As of June 30, 2023, 2,105,846 warrants were outstanding that were issued with the convertible note at an exercise price of $0.036.

For the three and six months ended June 30, 2023, the Company recognized approximately $12,600 and $25,000, respectively in interest expense related to the note. For the three and six months ended June 30, 2022, the Company recognized approximately $32,700 and $65,000 related to the amortization of debt discount and approximately $244 and $5,200 in interest expense related to the note, respectively. As of June 30, 2023, the debt discount on the note was fully amortized.

As of June 30, 2023, the Company has recorded $220,500 of outstanding principal and approximately $90,800 of accrued interest on the note.

Convertible Promissory Note – October 4, 2021

On October 4, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional investor pursuant to which the Company issued the Buyer a 10% Convertible Redeemable Note in the principal amount of $131,250 and a six-year warrant to purchase 23,810 shares of common stock of the Company for which the Company received proceeds of $110,000. In addition, the Company entered into a Registration Rights Agreement with the investor and issued the investor 2,977 common shares as a commitment fee.

The Note is due October 4, 2022. The Note provides for interest at the rate of 10% per annum, payable in seven equal monthly payments beginning on August 15, 2022, through the maturity date. The Note is convertible into shares of common stock at any time following the date of cash payment at the Buyer’s option at a conversion price of $1.50 per share, subject to certain adjustments.

The warrants are exercisable for six-years from October 4, 2021, at an exercise price of $1.90 per share, subject to certain adjustments, which exercise price may be paid on a cashless basis. The aggregate exercise price is $45,238.

The Company incurred approximately $15,000 in debt issuance costs. The Company also issued 2,173 shares of common stock to the investment banker as a commission on the note.

Due to the lack of authorized shares, the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $564,943 with $487,052 charged to derivative expense and $77,891 recorded as a debt discount.

The Company recorded a total debt discount of $131,250 including an original issue discount of $6,250, a discount related to issuance costs of $15,000, a discount related to the issuance of common stock of $32,109, and a $77,891 discount related to the initial derivative value of the embedded conversion feature on the Note all based on the relative fair value of the instruments. The discounts are being amortized over the life of the convertible note.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

On January 2, 2022, the Company defaulted on certain covenants contained in the October 4, 2021, convertible note and the interest rate reset to 16%.

On January 27, 2022, the exercise price of the note was adjusted to $0.78 based on a convertible note conversion at $0.78.

On May 12, 2022, the Company repaid $83,500 of principal on the note and repurchased 2,977 shares of common stock issued to the holder as an original commitment fee on the note for $1,000. The repurchase was recorded at cost as treasury stock on the accompanying consolidated balance sheet. In addition during 2022, the Company repaid an additional $31,042 of principal and $8,905 of interest on the note. The Company recorded approximately $96,000 gain on debt extinguishment resulting from the settlement of the derivative as a result of repayment of the note.

On January 10, 2023, the exercise price of the note was adjusted to $0.56 based on a convertible note conversion at $0.56.

On March 9, 2023, the Company repaid $2,500 of principal on the note.

On April 14, 2023, the exercise price of the note was adjusted from the default conversion price of $0.56 to $0.279 as a result of a convertible note exercise.

On April 28, 2023, the exercise price of the note was adjusted from the default conversion price of $0.279 to $0.18 as a result of a convertible note exercise.

On May 10, 2023, the exercise price of the note was adjusted from the default conversion price of $0.18 to $0.054 as a result of a convertible note exercise.

On June 23, 2023, the exercise price of the note was adjusted from the default conversion price of $0.054 to $0.036 as a result of a convertible note exercise.

For the three and six months ended June 30, 2023, the Company recognized approximately $600 and $1,200, respectively in interest expense related to the note. For the three and six months ended June 30, 2022, the Company recognized approximately $32,700 and $65,000 related to the amortization of debt discount and approximately $244 and $5,200 in interest expense related to the note, respectively. As of June 30, 2023, the debt discount on the note was fully amortized.

As of June 30, 2023, the Company has recorded approximately $14,200 of outstanding principal and approximately $2,000 of accrued interest.

Convertible Promissory Note – October 7, 2021

On October 7, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional investor pursuant to which the Company issued the investor a 10% Convertible Redeemable Note in the principal amount of $131,250 and a six-year warrant to purchase 23,810 shares of common stock of the Company for which the Company received proceeds of $110,000. In addition, the Company entered into a Registration Rights Agreement with the investor and issued the investor 2,977 common shares as a commitment fee and an additional 2,632 shares as a commission to the broker.

The Note is due October 7, 2022. The Note provides for interest at the rate of 10% per annum, payable at maturity. The Note is convertible into shares of common stock at any time following the date of cash payment at the Buyer’s option at a conversion price of $1.50 per share, subject to certain adjustments.

The warrants are exercisable for six-years from October 7, 2021, at an exercise price of $1.90 per share, subject to certain adjustments, which exercise price may be paid on a cashless basis. The aggregate exercise price is $45,238.

The Company incurred approximately $15,000 in debt issuance costs.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Due to the lack of authorized shares, the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $564,184 with $487,667 charged to derivative expense and $76,517 recorded as a debt discount.

The Company recorded a total debt discount of $131,250 including an original issue discount of $6,250, a discount related to issuance costs of $15,000, a discount related to the issuance of common stock of approximately $33,483, and a $76,517 discount related to the initial derivative value of the embedded conversion feature on the Note all based on the relative fair value of the instruments. The discounts are being amortized over the life of the convertible note.

On January 5, 2022, the Company defaulted on certain covenants contained in the October 7, 2021, convertible note and the interest rate reset to 16%.

On January 27, 2022, the exercise price of the note was adjusted to $0.78 based on a convertible note conversion at $0.78.

On May 12, 2022, the Company repaid $83,500 of principal on the note and repurchased 2,977 shares of common stock issued to the holder as an original commitment fee on the note for $1,000. The repurchase was recorded at cost as treasury stock on the accompanying consolidated balance sheet. In addition, the Company repaid an additional $31,042 of principal and $8,905 of interest on the note during the year ended December 31, 2022. The Company recorded approximately $98,000 gain on debt extinguishment related to the settlement of the derivative liability as a result of repayment of the note.

On January 10, 2023, the exercise price of the note was adjusted to $0.56 based on a convertible note conversion at $0.56.

On April 14, 2023, the exercise price of the note was adjusted from the default conversion price of $0.56 to $0.279 as a result of a convertible note exercise.

On April 28, 2023, the exercise price of the note was adjusted from the default conversion price of $0.279 to $0.18 as a result of a convertible note exercise.

On May 10, 2023, the exercise price of the note was adjusted from the default conversion price of $0.18 to $0.054 as a result of a convertible note exercise.

On June 23, 2023, the exercise price of the note was adjusted from the default conversion price of $0.054 to $0.036 as a result of a convertible note exercise.

For the three and six months ended June 30, 2023, the Company recognized approximately $700 and $1,300, respectively in interest expense related to the note. For the three and six months ended June 30, 2022, the Company recognized approximately $32,700 and $65,100 related to the amortization of debt discounts and approximately $295 and $5,300 in interest expense related to the note. As of June 30, 2023, the debt discount on the note was fully amortized.

As of June 30, 2023, the Company has recorded $16,700 of outstanding principal and approximately $2,100 of accrued interest.

Convertible Promissory Note – March 15, 2022

On March 15, 2022, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional investor pursuant to which the Company issued the investor a 10% Convertible Note in the principal amount of $250,000 for a purchase price of $200,000 reflecting a $50,000 original issue discount. The Company received total consideration of $180,000 after debt issuance costs of $20,000. In addition, the Company issued 2,500 shares of common stock as a commitment fee to the investor. The Company also issued 10,000 shares to the broker as a commission on the sale.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

The Note provides for guaranteed interest at the rate of 10% per annum for the 12 months from and after the original issue date of the Note for an aggregate guaranteed interest of $25,000, all of which guaranteed interest shall be deemed earned as of the date of the note. The principal amount and the guaranteed interest shall be due and payable in seven equal monthly payments each, $39,285, commencing on August 15, 2022, and continuing on the 15^th day of each month until paid in full not later than March 15, 2023, the maturity date.

The Note is convertible into shares of common stock at any time following any event of default at the investor’s option at a conversion price of ninety percent (90%) per share of the lowest per-share trading price of the Company; stock during the ten trading day periods before the conversion, subject to certain adjustments.

The Company recorded a total debt discount of $250,000 including an original issue discount of $50,000, a discount related to issuance costs of $34,384, a discount related to the issuance of common stock of approximately $3,596, and a $162,020 discount related to the initial derivative value of the embedded conversion feature on the Note all based on the relative fair value of the instruments. The discounts are being amortized over the life of the convertible note.

On September 16, 2022, the Company defaulted on the repayment of the note and the interest rate reset to 18%. In addition, the Company recognized approximately $32,000 of additional interest expense related to default provisions contained in the note.

For the year ended December 31, 2022, the Company repaid $43,828 of principal and $31,400 of interest on the note. The Company recorded approximately $68,600 gain on debt extinguishment resulting from the settlement of the derivative as a result of repayments on the note.

On January 10, 2023, the holder of the March 15, 2022, convertible note converted $3,839 of principal and $1,661 of interest at $0.56 per share into 17,861 shares of common stock. (see note 7)

On January 23, 2023, the Company repaid $10,819 in principal and $4,191 in interest on the note.

On February 1, 2023, the Company repaid $15,000 of outstanding principal on the note.

On February 17, 2023, the Company repaid $32,500 of outstanding principal.

On March 13, 2023, the Company repaid $30,000 of outstanding principal on the note.

On April 14, 2023, the holder of the March 15, 2022, convertible note converted $10,000 of principal of interest at $0.28 per share into 35,716 shares of common stock.

On April 28, 2023, the holder of the March 15, 2022, convertible note converted $21,314 of principal and $6,586 of interest at $0.18 per share into 155,000 shares of common stock.

On May 10, 2023, the holder of the March 15, 2022, convertible note converted $6,001 of principal and $489 of interest at $0.054 per share into 120,000 shares of common stock.

On May 30, 2023, the holder of the March 15, 2022, convertible note converted $9,203 of principal and $756 of interest at $0.059 per share into 170,000 shares of common stock.

On June 23, 2023 the holder of the March 15, 2022, convertible note converted $5,697 of principal and $799 of interest at $0.036 per share into 120,000 shares of common stock.

The Company recognized approximately a $36,400 and $75,000 gain on extinguishment of debt for the three and six months ended June 30, 2023 related to the settlement of the derivative liability as a result of conversions and repayments made on the note.

For the three and six months ended June 30, 2023, the Company recognized zero and $50,000 related to the amortization of debt discounts and approximately $3,900 and $11,100 in interest expense related to the note. For the three and six months ended June 30, 2022, the Company recognized approximately $62,300 and $74,000 related to the amortization of debt discounts and approximately $25,000 in interest expense related to the note that was deemed earned as of the date of issuance. As of June 30, 2023, the debt discount on the note was fully amortized.

As of June 30, 2023, the Company has recorded approximately $61,800 of outstanding principal and $200 of accrued interest on the note.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Derivative Liabilities Pursuant to Convertible Notes and Warrants

In connection with the issuance of the unrelated party convertible notes (collectively referred to as “Notes”) and warrants (collectively referred to as “Warrants”), discussed above, the Company determined that the terms of certain Notes and Warrants contain an embedded conversion options to be accounted for as derivative liabilities due to the holder having the potential to gain value upon conversion and provisions which includes events not within the control of the Company. Due to the fact that the number of shares of common stock that may be issuable for warrants and notes with variable conversion features may exceed the Company’s authorized share limit as of June 30, 2023, the equity environment was tainted and all convertible debentures and warrants were included in the value of the derivative. Accordingly, for existing embedded conversion options and existing warrants that were not previously accounted for as derivatives, the Company reclassified $3,462,000 from additional paid-in capital to derivative liability on December 31, 2021. In accordance with ASC 815-40 –Derivatives and Hedging – Contracts in an Entity’s Own Stock, the embedded conversion options contained in the Notes and the Warrants were accounted for as derivative liabilities at the date of issuance or on the reclassification date and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion options and the warrants was determined using the Binomial Lattice valuation model. At the end of each period and on note conversion, repayment or on the warrant exercise date, the Company revalues the derivative liabilities resulting from the embedded option.

During the period ended June 30, 2023, in connection with the issuance of the Notes and Warrants, on the initial measurement dates, the fair values of the embedded conversion options and warrants of approximately $972,000 was recorded as derivative liabilities of which $407,000 was allocated as a debt discount and $565,000 as derivative expense.

At the end of each reporting period, the Company revalued the embedded conversion option and warrants as derivative liabilities. In connection with the initial valuations and these revaluations, the Company recorded a gain from the initial and change in the derivative liabilities fair value of approximately $2.5 million for the six months ended June 30, 2023, including a $3.0 million gain for the change in the fair value of derivative liabilities for the period and a $565,000 initial derivative expense.

During the six months ended June 30, 2023, the fair value of the derivative liabilities was estimated at issuance and at the June 30, 2023, using the Binomial Lattice valuation model with the following assumptions:

Dividend rate	—	%
Term (in years)	0.00 to 1.10 year
Volatility	178.2% to 409	%
Risk-free interest rate	3.36% to 5.55	%

During the six month period ended Juna 30, 2023, other than the effect on the derivative valuation recognized in operations, there was no accounting effect to the ratchet adjustments of certain convertible notes and warrants since all of the embedded conversion options in the convertible notes were treated as derivatives which are reported at fair value.

Note 5 - Licensing Agreements

Les Laboratories Servier

As a result of the Asset Purchase Agreement that the Company entered into with Symplmed Pharmaceuticals LLC in June 2017, Symplmed assigned to the Company an Amended and Restated License and Commercialization Agreement with Les Laboratories Servier, pursuant to which the Company has the exclusive right to manufacture, have manufactured, develop, promote, market, distribute and sell Prestalia® in the U.S. (and its territories and possessions).

On January 4, 2021, the licensor terminated the licensing agreement with the Company for the commercialization of Prestalia®. As of June 30, 2023 and December 31, 2022, the Company had $24,500 recorded as a liability on the accompanying consolidated balance sheet for royalties due under the agreement.

No royalties were incurred for the six-month periods ended June 30, 2023, or 2022.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

License of DiLA² Assets

On March 16, 2018, the Company entered into an exclusive sublicensing agreement for certain intellectual property rights to its DiLA2 delivery system. The agreement included an upfront payment of $200,000 and future additional consideration for sales and development milestones. The upfront fee was contingent upon the Company obtaining a third-party consent to the agreement within ninety days of execution. The Company has not obtained consent for the sublicense and has classified the upfront payment it had previously recorded as an accrued liability on its consolidated balance sheet.

Note 6 - Related Party Transactions

Due to Related Party

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

The Company had a Master Services Agreement (“MSA”) with Autotelic Inc., a related party that is partly owned by one of the Company’s former Board members and executive officers, namely Vuong Trieu, Ph.D., effective November 15, 2016. The MSA stated that Autotelic Inc. would provide business functions and services to the Company and allowed Autotelic Inc. to charge the Company for these expenses paid on its behalf. Dr. Trieu resigned as a director of our company effective October 1, 2018. The Company and Autotelic Inc. agreed to terminate the MSA effective October 31, 2018. An unpaid balance for previous years services performed under the agreement of approximately $4,000 is included in due to related party in the accompanying consolidated balance sheets at June 30, 2023 and December 31, 2022.

In addition, as of June 30, 2023 and December 31, 2022 the Company owed various officers and directors approximately $12,000 and $26,000, respectively for services rendered which is included as due to related party on the accompanying consolidated balance sheet.

Note 7 - 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 A Preferred or Series B 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”). In December 2019, Adhera designated 6,000 shares of Series G Convertible Preferred Stock (“Series G Preferred”). The Company plans to file a certificate of elimination with respect to the Series A and Series B stock and a certificate of decrease with respect to each of its Series C, D and F Preferred stock. As of June 30, 2023, the Company has not filed the certificate of elimination. Each subsequent authorization of Preferred Stock has liquidation preference over the previous Series.

Series C Preferred

Each share of Series C Preferred has a stated value of $5,000 per share, has a $5,100 liquidation preference per share, has voting rights of 33.33 votes per Series C Preferred share, and is convertible into shares of common stock at a conversion price of $150.00 per share.

As of June 30, 2023, 100 shares of Series C Preferred stock were outstanding.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Series D Preferred

Each share of Series D Preferred has a stated value of $5,000 per share, has a liquidation preference of $300 per share, has voting rights of 62.5 votes per Series D Preferred share and is convertible into shares of common stock at a conversion price of $80.00 per share. The Series D Preferred has a 5% stated dividend rate when, and if declared by the Board of Directors, is not redeemable and has voting rights on an as-converted basis.

As of June 30, 2023, 40 shares of Series D Preferred were outstanding.

Series E Convertible Preferred Stock and Warrants

The Series E Preferred Stock has a stated value of $5,000 per share and accrues 8% dividends per annum that are payable in cash or stock at the Company’s discretion. The Series E Preferred has voting rights, dividend rights, liquidation preferences, conversion rights at the option of the holder and anti-dilution rights. Series E Preferred stock is convertible into shares of common stock at $10.00. Anti-dilution price protection on Series E Preferred stock expired on February 10, 2020. Warrants issued with Series E Convertible Preferred Stock had anti-dilution price protection, were exercisable for a period of five years, and contain customary exercise limitations.

On March 19, 2021, the exercise price of the Series E warrants was adjusted from $10.00 to $1.00 per share upon the conversion of $25,900 debt for 25,900 shares common stock.

On January 27, 2022, the exercise price of the Series E warrants was adjusted to $0.78 per share as a result of a convertible note exercise at $0.78 per share.

On May 17, 2022, the Company effected the conversion of 3,059 shares of Series E Preferred stock and accrued dividends of approximately $5.1 million into 2,035,306 shares of unregistered common stock at a conversion price of $10.00 per share in accordance with the conversion provisions of the certificate of designation.

On January 10, 2023, the exercise price of the Series E warrants was adjusted to $0.56 per share as a result of a convertible note exercise at $0.56 per share.

On April 14, 2023, the conversion price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.

On April 28, 2023, the conversion price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.

On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.

On May 17, 2023, a total of 1,453,028 warrants issued with Series E Preferred stock expired.

The Company had accrued dividends on the Series E Preferred stock of approximately $525,000 as of June 30, 2023.

At June 30, 2023, there were 267 Series E shares outstanding.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Series F Convertible Preferred Shares and Warrants

The Series F Preferred Stock has a stated value of $5,000 per share and accrues 8% dividends per annum that are payable in cash or stock at the Company’s discretion. The Series F Preferred has voting rights, dividend rights, liquidation preferences, conversion rights at the holders option and anti-dilution rights. Series F Preferred stock is convertible into shares of common stock at $10.00 Anti-dilution price protection on Series F Preferred stock expired on February 10, 2020. Warrants issued with Series F Convertible Preferred Stock have anti-dilution price protection, are exercisable for a period of five years, and contain customary exercise limitations.

On March 19, 2021, the exercise price of the Series F warrants was adjusted from $10.00 to $1.00 upon the conversion of $25,900 of debt for 25,900 shares of common stock. The Company recorded approximately $31,000 as a deemed dividend based upon the change in fair value of the Series F Preferred stock using a binomial valuation model. The Company used a risk-free rate of 0.16%, volatility of 262.27%, and an expected term of .46 to .53 years in calculating the fair value of the warrants.

On January 27, 2022, the exercise price of the Series F warrants was adjusted to $0.78 per share as a result of a convertible note exercise at $0.78 per share.

On May 17, 2022, the Company effected the conversion of 358 shares of Series F Preferred stock and accrued dividends of approximately $543,000 into 233,127 shares of unregistered common stock at a conversion rate of $10.00 per share in accordance with the conversion provisions of the certificate of designation.

On January 10, 2023, the exercise price of the Series F warrants was adjusted to $0.56 per share as a result of a convertible note exercise at $0.56 per share.

On April 14, 2023, the conversion price of the warrants was adjusted to $0.279 as a result of issuing common stock for a convertible note conversion.

On April 28, 2023, the conversion price of the warrants was adjusted to $0.18 as a result of issuing common stock for a convertible note conversion.

On May 10, 2023, the conversion price of the warrants was adjusted to $0.054 as a result of issuing common stock for a convertible note conversion.

On June 23, 2023, the conversion price of the warrants was adjusted to $0.036 as a result of issuing common stock for a convertible note conversion

As of June 30, 2023, the Company had a total of 154,425 Series F Preferred stock warrants outstanding. The warrants expire on November 9, 2023.

At June 30, 2023, and December 31, 2022, there were no Series F Preferred shares outstanding.

Series G Convertible Preferred Shares

The Series G Preferred Stock has a stated value of $5,000 per share and accrues 8% dividends per annum that are payable in cash or stock at the Company’s discretion. The Series G Preferred has voting rights, dividend rights, liquidation preferences, conversion rights and anti-dilution rights. Series G Preferred stock is convertible into shares of common stock at $10.00.

As of June 30, 2023, and December 31, 2022, no Series G Preferred Stock has been issued by the Company.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Common Stock

On January 27, 2022, the Company issued 12,721 shares of common stock upon the conversion of $9,500 principal and $422 of interest on the June 2021 convertible note that were valued at fair value based on the quoted trading prices on the conversion dates aggregating approximately $28,000 resulting in a loss on debt extinguishment of $18,000. In addition, derivative fair value of $23,000 relating to the portion of the Note converted was settled resulting in a gain on extinguishment of approximately $23,000. The net gain on extinguishment was approximately $5,000.

On March 15, 2022, the Company issued 2,500 shares of common stock to a convertible note investor as a commitment fee which was valued at its relative fair value of $3,596.

On March 15, 2022, the Company issued 10,000 shares of common stock to an investment banker for commissions due under a banking agreement for issuance of a convertible note. The shares were recorded at their fair value of approximately $14,384.

On May 11, 2022, the Company issued 19,231 shares of common stock to an investment banker for commissions due under a banking agreement for issuance of a convertible note. The shares were recorded at a fair value of approximately $11,820.

On May 17, 2022, the Company effected the conversion of 358 shares of Series F Preferred stock and accrued dividends of approximately $541,000 into 233,127 shares of unregistered common stock at a conversion rate price $10.00 per share in accordance with the conversion provisions in the certificate of designation.

On January 10, 2023, the Company issued 17,861 shares of common stock for the conversion of $3,839 of principal and $6,161 of interest on the March 2022 convertible note. The shares were issued at a conversion price of $0.56 per share. The Company recognized a $5,500 loss on extinguishment of the debt. (see note 4).

On April 14, 2023, the holder of the March 15, 2022, convertible note converted $10,000 of principal of interest at $0.28 per share into 35,716 shares of common stock.

On April 28, 2023, the holder of the March 15, 2022, convertible note converted $21,314 of principal and $6,586 of interest at $0.18 per share into 155,000 shares of common stock.

On May 10, 2023, the holder of the March 15, 2022, convertible note converted $6,001 of principal and $489 of interest at $0.054 per share into 120,000 shares of common stock.

On May 30, 2023, the holder of the March 15, 2022, convertible note converted $9,203 of principal and $756 of interest at $0.059 per share into 170,000 shares of common stock.

On June 23, 2023, the holder of the March 15, 2022, convertible note converted $5,697 of principal and $799 of interest at $0.039 per share into 180,000 shares of common stock.

Treasury Stock

On May 12, 2022, the Company repurchased 5,954 shares of common stock issued to the holders of outstanding notes as an original commitment fee on the notes for a total purchase price of $2,000. The repurchase was recorded at cost as treasury stock on the accompanying consolidated balance sheet.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Warrants

As of June 30, 2023, there were 65,544,841 common stock warrants outstanding, with a weighted average exercise price of $0.04 per share, that have annual expirations as follows:

Warrants issued with:	Shares		2023		2024		2025		2026		2027 and After
Series F Preferred Stock		154,425		154,425		-		-		-		-
Bridge Loans		5,939,950		-		-		-		-		5,939,950
Convertible Notes (CVN)		59,433,025		-		2,153,466		49,810,259		7,469,299		-
Other		17,441		504		16,775		162		-		-
Total Warrants		65,544,841		1,54,929		2,170,241		49,810,421		7,469,299		5,939,950

The above table includes 65,479,780 price adjustable warrants including warrants with variable conversion rates and full ratchet protection.

Schedule of Warrants

	Shares
Warrants as of December 31, 2022		6,785,914
Issued as a result of price adjustments on convertible notes		12,487,902
Variable quantity of warrants related to the February 2020 note		43,121,004
Warrants issued with 2023 Bridge Notes		4,670,301
Expirations		(1,520,280	)
Warrants as of June 30, 2023		65,544,841

The intrinsic value of outstanding warrants as of June 30, 2023, was approximately $1.6 million.

As discussed in Note 2 above, the Company has issued convertible notes and warrants with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock and various default provisions related to the payment of the notes in Company stock. The number of shares of common stock to be issued under the convertible notes and warrants is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the convertible notes is therefore, indeterminate. Due to the fact that the number of shares of common stock are indeterminable, the equity environment was tainted and all convertible debentures and warrants were included in the value of the derivative as of that date. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the warrants were recorded as derivative liabilities. On June 30, 2023, the Company evaluated all outstanding warrants to determine whether these instruments are tainted and, due to reasons discussed above, all warrants outstanding were considered tainted and were therefore, accounted for as derivative liabilities.

Other than the effect on the derivative valuation recognized in operations, there was no accounting effect to the ratchet adjustments of certain warrants to reduce certain conversion prices during the six-month period to $0.036 since all of the embedded conversion options in the warrants were treated as derivatives.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

Note 8 - Stock Incentive Plans

Stock Options

The following table summarizes stock option activity for the six months ended June 30, 2023:

	Options Outstanding
	Shares			Weighted Average Exercise Price
Outstanding, December 31, 2022		19,000		$	19.60
Options expired / forfeited		(19,000	)	$	19.60
Outstanding, June 30, 2023		-		$	-
Exercisable, June 30, 2023		-		$	-

No stock options were granted during the six months ended June 30, 2023.

Note 9 - Commitments and Contingencies

Litigation

Because of the nature of the Company’s business, it is subject to claims and/or threatened legal actions, which arise out of the normal course of business. As of the date of this filing, the Company is not aware of any pending lawsuits against it, its officers or directors.

Leases

The Company does not own or lease any real property or facilities that are material to its current business operations. If the Company continues its business operations, the Company may seek to lease facilities in order to support its operational and administrative needs.

Licensing Agreement – MLR 1019

On July 28, 2021, the Company and Melior II entered into an exclusive license agreement for the development, commercialization and exclusive license of MLR-1019. MLR-1019 is being developed as a new class of therapeutic for Parkinson’s disease (PD) and is, to the best of the Company’s knowledge, the only drug candidate today to address both movement and non-movement aspects of PD. Under the Agreement, the Company was granted an exclusive license to use Melior II’s Patents and know-how to develop products in consideration for cash payments up to approximately $21.8 million upon meeting certain performance milestones, as well as a royalty of 5% of gross sales.

The license agreement terminates upon the last expiration of the patents licensed by the Company, which is presently 2038 subject to any potential extensions and renewals of any of such patents. If the Company fails to have its common stock listed on Nasdaq or the NYSE (an “Uplisting Event”) within 12 months after the Company receives a Clinical Trial Authorization from the European Medicines Agency, then the Company’s commercial license and rights for using Melior II’s data shall terminate. Additionally, if the Company has completed the necessary steps to effect an Uplisting Event, the Company will have the option to purchase all rights held by Melior II on the MLR-1019 licensed products in consideration for 10% of the outstanding shares of the Company’s common stock (immediately post Uplisting Event) and 2.5% royalty of future gross product sales.

As of June 30, 2023, no performance milestones requiring cash consideration had been met under the agreement.

Licensing Agreement – MLR 1023

On August 20, 2021, we as licensee entered into the exclusive license agreement regarding the development and commercialization of Melior’s MLR-1023 (the “MLR-1023 Agreement”) with Melior Pharmaceuticals I, Inc. (“MP1”). We refer to MP2 and MP1 as “MP” or “Melior”. This second license is for the development and commercialization of MLR-1023, which is being developed as a novel therapeutic for Type 1 diabetes.

Under the original terms of the MLR-1023 Agreement, if the Company failed to raise $4.0 million within 120 days of the effective date of the agreement then the MLR-1023 Agreement would immediately terminate unless, by 120 days Adhera was in the process of completing transactions to complete the fundraising then an additional 30 days would be provided to allow for the completion of the raise (the “Raise Requirement”).

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and 2022

(unaudited)

On October 20, 2021, we as licensee expanded the exclusive licensing agreement with Melior I to include two additional clinical indications for Non-Alcoholic Steatohepatitis (NASH) and pulmonary inflammation.

On November 17, 2021, Melior I extended the Company’s timeline from 120 days to 180 days from the effective of the MLR-1023 Agreement for the Raise Requirement, by 180 days Adhera is in the process of completing transactions to complete the fundraising then an additional 30 days shall be provided to allow for the completion of required fundraising.

On July 20, 2022, the Company and Melior entered into the Second Addendum to the License Agreement (the “Second Addendum”). In accordance with the Second Addendum and subject to the terms and conditions therein, the Raise Requirement was extended to February 1, 2023, in exchange for a $136,921 licensing payment that was made by the Company on July 28, 2022. In addition, the Company was required to hire and retain a Chief Scientific Officer, and raise an additional $500,000 in capital in addition to other requirements set forth in the Second Addendum and MLR-1023 Agreement.

As of February 1, 2023, the Company had not raised the additional $500,000 of capital, commenced API manufacturing, nor completed the Raise Requirement. In March 2023, the Company obtained a verbal agreement with Melior to extend the terms of the MLR-1023 Agreement until such time that the milestones have been met and the Company pays outstanding patent maintenance costs. However, Melior may terminate the license of MLR-1023 at any time due to non-performance of continuing license obligations with a 60-day required notice to cure non-performance.

On February 16, 2022, an addendum to the MLR-1023 Agreement dated August 4, 2021 (the “First Addendum”), was executed by the Company and Melior, which extended the requirement by the Company to raise $4 million (the “Raise Requirement”) to June 16, 2022.

As of June 30, 2023, no performance milestones requiring cash consideration had been met under the agreement.

Note 10 - Subsequent Events

Conversion of Principal on Convertible Note

On July 27, 2023, the holder of the June 25, 2021, convertible note converted $2,250 of principal and $805 of interest at $0.016 per share into 187,966 shares of common stock.

On August 10, 2023, the holder of the June 25, 2021, convertible note converted $2,000 of principal and $734 of interest at $0.013 per share into 196,085 shares of common stock.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect management’s current views with respect to future events and financial performance including meeting our obligations under the Melior I and Melior II license agreements and our liquidity. The following discussion should be read in conjunction with the financial statements and related notes and the Risk Factors contained in our Annual Report on Form 10-K, for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on June 30, 2023. Forward-looking statements are projections in respect of future events or financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology.

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

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

	●	our ability to obtain additional funding for our company, whether pursuant to a capital raising transaction arising from the sale of our securities, a strategic transaction or otherwise;

	●	our ability to satisfy our disclosure obligations under the Securities Exchange Act of 1934, as amended, and to maintain the registration of our common stock thereunder;

	●	our ability to attract and retain qualified officers, directors, employees and consultants as necessary;

	●	the inability to comply with or obtain waivers or extensions under our current license agreements which Melior I and II, in which case we may be forced to suspend or terminate certain of our research and development programs;

	●	the cost of our research and development programs may be higher than expected, and there is no assurance that such efforts will be successful in a timely manner or at all; and

	●	failure to meet our financial obligations under outstanding loans and other financing documents.

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in our Annual Report on Form 10-K, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

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

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

Corporate Overview

Nature of Business

We are an emerging specialty biotech company with a focus on drug development and commercialization of “small molecule” drugs to treat Parkinson’s disease (PD) and Type 1 diabetes. Companies operating in the drug development and biotech sectors typically in-license early-stage inventions or pre-clinical (stage) compounds from universities and other companies and apply their own drug discovery and development expertise and resources to further these drug candidates towards regulatory approval by the Food and Drug Administration (FDA), and potentially other regulatory bodies overseas. The ultimate objectives are to secure regulatory authorizations in the USA and territories internationally, and to generate revenues from marketing activities. Drug candidates may also be licensed (out) to pharmaceutical companies prior to obtaining final regulatory approvals and marketing authorizations for valuable consideration, including upfront payments, milestone payments and royalties.

We utilize a “virtual” drug development model, also prevalent in this industry sector. In this model, Contract Research Organizations (CROs) are typically employed to undertake certain drug discovery and development services on the Company’s behalf and under the Company’s direct supervision.

On July 28, 2021, we as licensee and MP2 entered into an exclusive license agreement for the development and commercialization of MLR-1019. MLR-1019 is being developed as a new class of therapeutic for PD and is, to the best of our knowledge, the only drug candidate today to address both movement and non-movement aspects of PD. Under the Agreement, we were granted an exclusive license to use MP’s patents and know-how related to MLR-1019 to develop products in consideration for cash payments upon meeting certain performance milestones as well as a royalty of 5% of gross sales.

On August 20, 2021, we as licensee entered into an exclusive license agreement regarding the development and commercialization of Melior’s MLR-1023 (the “MLR-1023 Agreement”) with Melior Pharmaceuticals I, Inc. (“MP1”). In this 10-Q Report, we refer to MP2 and MP1 as “MP” or “Melior”. This second license is for the development and commercialization of MLR-1023, which is being developed as a novel therapeutic for Type 1 diabetes.

On October 20, 2021, we as licensee expanded the exclusive MLR-1023 Agreement with MP1 to include two additional clinical indications, one for Non-Alcoholic Steatohepatitis (NASH) and the other for pulmonary inflammation.

On November 17, 2021, Melior extended the Company’s timeline under the MLR-1023 Agreement from 120 days to 180 days from the effective of the MLR-1023 Agreement for the Company to raise $4 million unless, by 180 days Adhera is in the process of completing transactions to complete the fundraising, then an additional 30 days would be provided to allow for the completion of required fundraising. On February 16, 2022, an addendum to the MLR-1023 Agreement dated August 4, 2021 (the “First Addendum”), was executed by the Company and Melior, which extended the requirement by the Company to raise $4 million (the “Raise Requirement”) to June 16, 2022.

On July 18, 2022, the Company and Melior entered into the Second Addendum to the License Agreement (the “Second Addendum”). In accordance with the Second Addendum and subject to the terms and conditions therein, the Raise Requirement was extended to February 1, 2023. Pursuant to the Second Addendum, Melior has a right to terminate the MLR-1023 Agreement as a result of the Company’s inability to achieve certain milestones, including the requirement to:

	(i)	raise $500,000 in working capital;
	(ii)	resume engagement with Davos Pharmaceutical Manufacturing and Maladi Drugs & Pharmaceuticals such that the initial steps of MLR-1019 API manufacture were initiated;
	(iii)	pay Melior Pharma l, $136,921 as a license payment;
	(iv)	maintain the full-time employment of the Chief Scientific Officer who was hired pursuant to the First Addendum;
	(v)	continue to engage with Aegis Capital on activities aimed at providing an up-listing event;
	(vi)	for the duration of the MLR-1023 Agreement, Adhera will not in-license any additional assets other than those which it has already in-licensed (MLR-1023 and MLR-1019), except for the Taxeme compound (PGT) previously mentioned in the Second Addendum, however, no funds will be expended on discovery or development of the Taxeme compound during this period; and
	(vii)	fulfill the Raise Requirement defined in the MLR-1023 Agreement which was extended to February 1, 2023.

As of February 1, 2023, the Company had not raised the additional $500,000 of capital, commenced API manufacturing, nor completed the Raise Requirement as defined in the original MLR-1023 Agreement. In March 2023, the Company obtained a verbal agreement with Melior to extend the terms of the MLR-1023 Agreement until such time that the milestones have been met, including payment of the maintenance costs of the MLR-1023 patent. However, Melior may terminate our license of MLR-1023 at any time but only in response to non-performance of continuing license obligations and with the required notice to cure non-performance. Any termination or loss of use of MLR-1023 would have a material adverse effect on our business, which would likely result in the Company discontinuing all operations and seeking bankruptcy protection.

To the extent that resources have been available, we have continued to work with our advisors to restructure our Company and to identify potential strategic transactions, including the Melior transaction described above to enhance the value of the Company. Because of our substantial unpaid debt, if we do not raise substantial additional capital in the immediate future, it is likely that the company will discontinue all operations or seek bankruptcy protection.

Results of Operations

Comparison of the Three Months Ended June 30, 2023 to the Three Months Ended June 30, 2022

Operating Expenses

Our operating expenses for the three months ended June 30, 2023, and 2022 are summarized as follows:

	Three Months Ended
(in thousands)	June 30, 2023		June 30, 2022		Increase/ (Decrease)
General and administrative expenses		296		449		(153	)
Total operating expenses	$	296	$	449	$	(153	)

General and Administrative

General and administrative expenses decreased by approximately $153,000 for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. The decrease was primarily due to a decrease in expenses related to our public company activities including legal fees and investor relations.

Other Expense

	Three Months Ended
(in thousands)	June 30, 2023			June 30, 2022			Increase/ (Decrease)
Interest expense	$	(357	)	$	(361	)	$	(4	)
Gain on extinguishment of debt		36			210			174
Initial and change in derivative liability		1,742			1,012			(730	)
Loan inducement fee		(462	)		-			462
Amortization of debt discount		(392	)		(313	)		79
Total other income (expense)	$	567		$	548		$	19

Interest expense for the three months ended June 30, 2023, decreased by $4,000 compared to the three months ended June 30, 2022, primarily due to a decrease in interest expense related to our outstanding term loans. The derivative liability for the quarter ended June 30, 2023, decreased by $730,000 as a result of a decrease in the fair value of our convertible notes and warrants that were classified as a derivative on our consolidated balance sheet as of June 30, 2023. The gain on extinguishment of debt was due to the payment and conversion of principal and interest on our outstanding convertible notes. The increase of $79,000 for the amortization of debt discounts was due to an increase in our term notes outstanding. The loan inducement fee of approximately $462,000 was related to our 2023 Term Loans.

Comparison of the Six Months Ended June 30, 2023 to the Six Months Ended June 30, 2022

Operating Expenses

Our operating expenses for the six months ended June 30, 2023, and 2022 are summarized as follows:

Six Months Ended

(in thousands)

June 30,
2023

June 30,
2022

Increase/

(Decrease)

General and administrative expenses

648

709

(61

)

Total operating expenses

Adhera Therapeutics, Inc. 10-Q