Notes Payable

3 Months Ended

Mar. 31, 2021

Debt Disclosure [Abstract]

Notes Payable

Note 2 – Notes Payable

2019 Term Loan

On June 28, July 3, July 17, and August 5, 2019, the Company entered into term loan subscription agreements with certain accredited investors, pursuant to which the Company issued secured promissory notes (the “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 Notes accrue 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 three months thereafter.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Unaudited)

The unpaid principal balance of the Notes, plus accrued and unpaid interest thereon, will mature on the earliest to occur of: (i) June 28, 2020 (subject to extension for up to (60) days based upon the mutual agreement of the Company and the holders of a majority of the unpaid principal balance of all outstanding Notes) or (ii) at any time following an Event of Default. The Notes may not be prepaid without the prior written consent of the holders of the Notes. 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 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 Company recognized approximately $390,000 in interest expense related to the Notes for three months ended March 31, 2020 including $177,000 related to the amortization of debt issuance costs. The Company recognized approximately $210,000 in interest expense related to the Notes for the three months ended March 31, 2021. As of March 31, 2021, the debt discount and issuance costs for this term loan were fully amortized.

As of March 31, 2021 the Company has approximately $1.4 million of accrued interest on the notes. The Company remains in default on the repayment of principal and interest on the notes.

2020 Term Loan

On February 5, 2020, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to purchase: (i) original issue discount unsecured Convertible Promissory Notes (the “Notes”), 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 maturity date is the six (6) month anniversary of the original issue date, or August 5, 2020, or such earlier date as the Note is required or permitted to be repaid as provided thereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of the Note. Interest shall accrue 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 shall accrue daily commencing on the original issue date until payment in full of the outstanding principal (or conversion to the extent applicable), together with all accrued and unpaid interest, liquidated damages and other amounts which may become due thereunder, has been made.

On or after May 5, 2020 until the Notes are no longer outstanding, the Notes shall be 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 shall be the lower of: (i) $0.50 per share of Common Stock and (ii) 70% of the volume weighted average price of the Common Stock on the trading market on which the Common Stock is then listed or quoted for trading for the prior ten (10) trading days (as adjusted for stock splits, stock combinations and similar events); provided, that if the Notes are not prepaid on or before May 5, 2020, then the conversion price shall be the lower of (x) 60% of the conversion price as calculated above or (y) $0.05 (as adjusted for stock splits, stock combinations and similar events). The conversion price of the 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 Notes, provided, that on the date that the Notes are no longer outstanding, the exercise price shall be fixed at the conversion price of the 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, including a discount of $30,000 and issuance costs of $53,000 based on the relative fair value of the instruments as determined by using the Monte-Carlo simulation model. The Company also recorded a debt discount related to the convertible debt of approximately $21,000 and debt issuance cost 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.

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%.

The Company recognized $20,000 in interest expense related to the notes for the three months ended March 31, 2020, including $12,000 related to the amortization of debt issuance costs. The Company amortized $105,000 of debt discount for the three months ended March 31, 2020. The Company recognized approximately $25,000 in interest expense related to the notes for the three months ended March 31, 2021.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Unaudited)

As of March 31, 2021, the debt discount and issuance costs for this term loan were fully amortized. The Company remains in default on the repayment of principal and interest on the notes.

On March 19, 2021, the holder of the note converted $25,900 of interest into 518,000 shares of common stock. As of March 31, 2021, the Company has accrued interest on the note of approximately $74,000.

Secured 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. The Note matures on the date that is the six (6) month anniversary of the original issue date. Interest shall accrue on the aggregate unconverted and then outstanding principal amount of the Note at the rate of 10% per annum, calculated on the basis of a 360-day year. The Company recorded approximately $14,000 in debt issuance cost to be amortized over the life of the loan using the straight-line method.

On or after September 24, 2020, the Note shall be 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 $0.02 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of default has occurred under the Note, then the conversion price shall be 65% of the lowest closing bid price of the Company’s common stock as reported on its principal trading market for the twenty consecutive trading day period ending on (and including) the trading day immediately preceding the date on which the conversion notice was delivered. The conversion price shall also be adjusted for subsequent equity sales by the Company. Because the share price on the commitment date was in excess of the conversion price, the Company recorded a beneficial conversion feature of $50,000 related to this note that was credited to additional paid in capital and reduced the carrying amount. At the commitment date, the actual intrinsic value of the beneficial conversion feature was approximately $203,000. The discount recorded is being amortized to interest expense over the life of the loan using the straight-line method.

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

On August 5, 2020, the Company defaulted on certain covenants in the loan and the interest rate reset to the default rate of 18%.

For the three months ended March 31, 2021, the Company recognized approximately $2,600 in interest expense related to the note. No interest expense was recognized for the same period of 2020.

As of March 31, 2021, the debt discount and issuance costs for the loan were fully amortized. The Company remains in default on the repayment of principal and interest on the notes. As of March 31, 2021, the Company has accrued interest on the note of approximately $7,000.

Secured Promissory Note – October 2020

On October 30, 2020, the Company issued to an existing investor in and lender to the Company a 10% original issue discount senior secured convertible promissory note with a principal of $111,111, for a purchase price of $100,000. The note is convertible into shares of common stock of the Company at the option of the noteholder at a conversion price of $0.07 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of default has occurred under the Note, then the conversion price shall be 70% of then conversion price. The conversion price of the notes is subject to anti-dilution price protection and will be adjusted as a result of subsequent equity sales by the Company. On March 19, 2021, the conversion price of the notes was adjusted to $0.05 per share.

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.

Additionally, the Company issued the noteholder 1,587,301 warrants to purchase the Company’s common stock at $0.08 per share subject to certain adjustments as defined in the agreement. Until the Notes are no longer outstanding, the warrants have full-ratchet protection, are exercisable for a period of five years, and contain customary exercise limitations. On March 19, 2021, the exercise price of the warrants was adjusted to $0.05 and the Company issued an additional 634,919 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 0.46%, volatility of 262.27%, and expected term of .92 years in calculating the fair value of the warrants.

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 note matures on April 30, 2021, 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 360-day year.

ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Unaudited)

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.

For the three months ended March 31, 2021, the Company recognized approximately $4,700 in interest expense including $1,900 related to the amortization of debt issuance costs, respectively. For the three-month period ended March 31, 2021, the Company recognized $57,000 related to the amortization of debt discount. No interest expense or debt discount was recognized for the same period of 2020.

As of March 31,2021, the Company has recorded $111,000 of debt and approximately $19,000 and $1,000 in unamortized discount and issuance costs, respectively on the accompanying balance sheets.

Secured 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. The Note is convertible into shares of common stock of the Company at the option of the noteholder at a conversion price of $0.07 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of default has occurred under the Note, then the conversion price shall be 70% of 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. On March 19, 2021, the conversion price of the notes was adjusted to $0.05 per share.

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 753,968 warrants to purchase the Company’s common stock at an exercise price of $0.08 per share subject to certain adjustments as defined in the agreement. Until the Notes are no longer outstanding, the warrants have full-ratchet protection, are exercisable for a period of five years, and contain customary exercise limitations. On March 19, 2021, the exercise price of the warrants was adjusted to $0.05 and the Company issued an additional 301,592 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 0.46%, volatility of 262.27%, and expected term of .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 note matures on July 31, 2021, 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 360-day year.

The Company recorded a discount related to the warrants of approximately $32,000, including a discount of $3,000 and 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 recorded a beneficial conversion feature of approximately $19,000 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 $41,000. The Company also recorded a debt discount related to the convertible debt of approximately $2,000 and 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.

For the year ended March 31, 2021, the Company recognized approximately $1,200 in interest expense including approximately $300 related to the amortization of debt issuance costs, respectively. For the three-month period ended March 31, 2021, the Company recognized $18,000 related to the amortization of debt discount. No interest expense was recognized for the same period of 2020.

As of March 31,2021, the Company has recorded $52,778 of debt and approximately $36,000 and $1,000 in unamortized discount and issuance costs, respectively on the accompanying balance sheets.