UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended:
or
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________.
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(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.
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).
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 | ☐ |
☐ | 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 ☐
As of November 22, 2021, there were shares of the registrant’s common stock outstanding.
ADHERA THERAPEUTICS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
2 |
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
September 30, 2021 | December 31, 2020 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | $ | ||||||
Total current assets | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | $ | ||||||
Due to related party | ||||||||
Accrued expenses | ||||||||
Accrued dividends | ||||||||
Term loan | ||||||||
Convertible notes payable, net | ||||||||
Derivative liability | ||||||||
Total current liabilities | ||||||||
Total liabilities | ||||||||
Commitments and contingencies (Note 7) | ||||||||
Stockholders’ deficit | ||||||||
Preferred stock, $ | ||||||||
Series D convertible preferred stock, $ | ||||||||
Series E convertible preferred stock, $ | ||||||||
Series F convertible preferred stock, $ | ||||||||
Series G convertible preferred stock, $ par value, shares designated; shares outstanding as of September 30, 2021, and December 31, 2020. | ||||||||
Common stock, $ par value; shares authorized, and shares issued and outstanding as of September 30, 2021, and December 31, 2020, respectively | ||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total stockholders’ deficit | ( | ) | ( | ) | ||||
Total liabilities and stockholders’ deficit | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for share and per share amounts)
For the Three-Months ended | For the Nine-Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Operating expenses | ||||||||||||||||
Sales and marketing | $ | $ | $ | $ | ||||||||||||
General and administrative | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income (expense) | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other Income | - | - | ||||||||||||||
Loss on extinguishment of debt | ( | ) | - | ( | ) | - | ||||||||||
Derivative expense | ( | ) | - | ( | ) | - | ||||||||||
Amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net Loss Applicable to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Net loss per share – Common Stockholders - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Weighted average shares outstanding - basic and diluted |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except for share amounts)
(Unaudited)
Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Series F Preferred Stock | Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||
Number | Par Value | Number | Par Value | Number | Par Value | Number | Par Value | Number | Par Value | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2019 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
Issuance of warrants with notes payable | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
Share based compensation | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
Balance, March 31, 2020 | - | - | - | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
Benefical conversion feature - convertible notes | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
Share based compensation | - | - | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
Balance, June 30, 2020 | - | - | - | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
Accrued dividend | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
Share based compensation | - | - | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
Balance, September 30, 2020 | - | - | - | $ | $ | $ | ( | ) | $ | ( | ) |
Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Series F Preferred Stock | Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||
Number | Par Value | Number | Par Value | Number | Par Value | Number | Par Value | Number | Par Value | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
Accrued and deemed dividend | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
Issuance of common stock for convertible note conversion | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
Issuance of warrants with convertible notes | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
Accrued and deemed dividend | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
Issuance of warrants with convertible notes | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for cashless exercise of warrants | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for Series E conversion | - | - | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
Accrued dividend | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
Issuance of warrants and common stock with convertible notes - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for convertible note and interest conversions | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification of derivative | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for Series E conversion | - | - | - | - | ( | ) | - | - | - | ( | ) | - | - | |||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
For the Nine Months ended September 30, | ||||||||
2021 | 2020 | |||||||
Cash Flows Used in Operating Activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Share based compensation | - | |||||||
Loss on debt extinguishment | - | |||||||
Amortization of debt discount | ||||||||
Derivative expense | - | |||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other assets | - | |||||||
Accounts payable | ||||||||
Accrued interest | ||||||||
Accrued expenses | ||||||||
Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
Cash Flows Provided By Financing Activities: | ||||||||
Proceeds from notes payable, net or original issue discounts | ||||||||
Notes payable issuance costs | ( | ) | ( | ) | ||||
Net Cash Provided by Financing Activities | ||||||||
Net (decrease) in cash | ( | ) | ||||||
Cash – Beginning of Period | ||||||||
Cash - End of Period | $ | $ | ||||||
Supplementary Cash Flow Information: | ||||||||
Non-cash Investing and Financing Activities: | ||||||||
Dividends | $ | $ | ||||||
Conversion of Series E to common stock | - | |||||||
Beneficial conversion feature on issuance notes payable | - | |||||||
Cashlesss exercise of Series E warrants | - | |||||||
Issuance of common stock for conversion of convertible debt | - | |||||||
Debt discounts for issuance costs, warrants and derivatives |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
ADHERA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
Note 1 – Nature of Operations, Basis of Presentation and Significant Accounting Policies
Business Overview
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,” or the “Company”), is an emerging specialty biotech company that, to the extent that resources and opportunities become available, is strategically evaluating its focus including a return to a drug discovery and development company.
Previously, the Company was a commercially focused entity that leveraged innovative distribution models and technologies to improve the quality of care for patients in the United States suffering from chronic and acute diseases with a focus on fixed dose combination therapies in hypertension. On January 4, 2021, the licensor terminated the licensing agreement for the product candidate.
On July 28, 2021, the Company and Melior Pharmaceuticals II, LLC 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 the MP 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. In October 2021, the company commenced the manufacturing of drug product for use in the development of MLR-1019.
On August 24, 2021, the Company as licensee entered into an exclusive license agreement with Melior Pharmaceuticals I, Inc. for the development, commercialization and exclusive license of Melior’s MLR-1023. MLR-1023 is being developed as a novel therapeutic for Type 1 diabetes.
On October 20, 2021 the Company as licensee expanded the exclusive licensing agreement with Melior Pharmaceuticals I, Inc. to include two additional clinical indications for Melior’s Non-Alcoholic Steatohepatitis (NASH) and pulmonary inflammation.
To the extent that resources have been available, the Company has continued to work with its advisors to restructure our company and to identify potential strategic transactions, including the Melior transactions described above. There can be no assurance that the Company will be successful in raising sufficient capital to meet its obligations under the Melior license agreements. If the Company does not raise substantial additional capital to develop and commercialize repay its indebtedness which is in default or restructure the indebtedness, it is likely that the Company will discontinue all operations and seek bankruptcy protection.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete 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, 2020. 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 Nine months ended September 30, 2021, are not necessarily indicative of the results for the year ending December 31, 2021 or for any future period.
7 |
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Adhera Therapeutics, Inc. and the wholly-owned subsidiaries, Ithena, Cequent, MDRNA, and Atossa, and eliminate any inter-company balances and transactions. All wholly-owned subsidiaries of Adhera Therapeutics, Inc. are inactive.
Going Concern and Management’s Liquidity Plans
The
accompanying condensed consolidated financial statements have been prepared on the basis that 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 September 30, 2021,
the Company had cash and cash equivalents of approximately $
The
Company 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 of approximately $
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 us or at all. General market conditions, as well as market conditions for companies in our financial and business position, as well as the ongoing issue arising from the COVID-19 pandemic, may make it difficult for us to seek financing from the capital markets, and the terms of any financing may adversely affect the holdings or the rights of our 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 condensed consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.
Summary of Significant Accounting Policies
Reclassification
Certain reclassifications have been made to prior periods consolidated statements of operations including adjustments related to the adoption of ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) to conform to current period presentation. These reclassifications had no material effect on prior periods consolidated net loss or stockholders’ deficit.
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Significant areas requiring the use of management estimates include 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.
8 |
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 three broad levels. The following is a brief description of those three levels:
Level 1: | Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
Level 2: | Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
Level 3: | Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use. |
As
of September 30, 2021, the Company measured conversion features on outstanding convertible notes 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 $
Fair Value Measurements at September 30, 2021 | ||||||||||||||||
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 | $ | $ | $ | $ | ||||||||||||
Total | $ | $ | $ | $ |
A roll forward of the level 3 valuation financial instruments is as follows:
Nine months Ended September 30, 2021 | ||||||||||||
(In thousands) | Warrants | Notes | Total | |||||||||
Balance at December 31, 2020 | $ | $ | $ | |||||||||
Initial valuation of derivative liabilities included in debt discount | ||||||||||||
Initial valuation of derivative liabilities included in derivative expense | ||||||||||||
Reclassification of derivative liabilities to gain on debt extinguishment | ( | ) | ( | ) | ||||||||
Reclass from Additional paid-in capital | ||||||||||||
Change in fair value included in derivative expense | ||||||||||||
Balance at September 30, 2021 | $ | $ | $ |
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.
Convertible Debt and Warrant Accounting
Debt with warrants
In accordance with ASC Topic 470-20-25, when the Company issues debt with warrants, the Company treats the relative fair value of the warrants as a debt discount, recorded as a contra-liability against the debt, and amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. The offset to the contra-liability is recorded as additional paid in capital in the Company’s consolidated balance sheets if the warrants are not treated as a derivative. The Company determines the fair value of the warrants using the Black-Scholes Option Pricing Model (“Black-Scholes”),the binomial model or the Monte Carlo Method based upon the underlying conversion features of the debt and then computes and records the relative fair value as a debt discount. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations.
Convertible debt – derivative treatment
When the Company issues debt with a conversion feature, it first assess whether the conversion feature meets the requirements to be accounted for as stock settled debt. If it does not meet that 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.
9 |
Convertible debt – beneficial conversion feature
Prior to the Company’s adoption of ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) on January 1, 2021, if the conversion feature was not treated as a derivative, the Company assessed whether it is a beneficial conversion feature (“BCF”). A BCF exists if the effective conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible and is recorded as additional paid in capital and as a debt discount in the consolidated balance sheets. The Company amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations.
If the conversion feature does not qualify for either the derivative treatment or as a BCF, the convertible debt is treated as traditional debt.
Recently Issued Accounting Pronouncements
Recently Adopted
In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-04, Intangibles-Goodwill and Other (Topic 350) (“ASU 2017-04”), which will simplify the goodwill impairment calculation by eliminating Step 2 from the current goodwill impairment test. The new standard does not change how a goodwill impairment is identified. The Company will continue to perform its quantitative goodwill impairment test by comparing the fair value of its reporting unit to its carrying amount, but if the Company is required to recognize a goodwill impairment charge, under the new standard, the amount of the charge will be calculated by subtracting the reporting unit’s fair value from its carrying amount. Under the current standard, if the Company is required to recognize a goodwill impairment charge, Step 2 requires it to calculate the implied value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination and the amount of the charge is calculated by subtracting the reporting unit’s implied fair value of goodwill from the goodwill carrying amount. The standard was effective January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on the Company’s historical consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which will simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including certain convertible instruments and contracts on an entity’s own equity. Specifically, the new standard will remove the separation models required for convertible debt with cash conversion features and convertible instruments with beneficial conversion features. It will also remove certain settlement conditions that are currently required for equity contracts to qualify for the derivative scope exception and will simplify the diluted earnings per share calculation for convertible instruments. ASU 2020-06 will be effective January 1, 2022, for the Company and may be applied using a full or modified retrospective approach. Early adoption is permitted, but no earlier than January 1, 2021, for the Company. The Company adopted ASU No. 2020-06 on January 1, 2021. 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
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. | ||
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 is evaluating the impact of the revised guidance and believes that it will not have a significant impact on its financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Basic net loss per share is calculated by dividing the net 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 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.
10 |
Three Months Ended September 30, | Nine
Months Ended
September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Numerator | ||||||||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net Loss allocable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Denominator | ||||||||||||||||
Weighted average common shares outstanding used to compute net loss per share, basic and diluted | ||||||||||||||||
Net loss per share of common stock, basic and diluted | ||||||||||||||||
Net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
2021 | 2020 | |||||||
Convertible Notes | ||||||||
Stock options outstanding | ||||||||
Warrants | ||||||||
Series C Preferred Stock | ||||||||
Series D Preferred Stock | ||||||||
Series E Preferred Stock | ||||||||
Series F Preferred Stock | ||||||||
Total |
Note 2 – Notes Payable
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 (the “Notes”) in the aggregate principal amount of approximately $
The
Notes accrue interest at a rate of
The
unpaid principal balance of the Notes, plus accrued and unpaid interest thereon, matured on
11 |
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
The
Company recognized approximately $
As
of September 30, 2021, the Company had approximately $
CONVERTIBLE PROMISSORY NOTES
The following table summarizes the Company’s outstanding convertible notes as of September 30, 2021, and December 31, 2020:
(in thousands) | September 30, 2021 | December 31, 2020 | ||||||
Convertible Notes | $ | $ | ||||||
Unamortized discounts | ( | ) | ( | ) | ||||
$ | $ |
Five
convertible notes with outstanding principal of approximately $
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 (the “Convertible Notes”), with a principal of $
The
maturity date was August 5, 2020. Interest shall accrue to the Holders on the aggregate unconverted and then outstanding principal
amount of the Notes at the rate of
On
or after May 5, 2020, 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) $
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
The
Company recorded a discount related to the Warrants of approximately $
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
12 |
The
Company recognized $
On
March 19, 2021, the holder of the Convertible Note converted $
On
July 29, 2021, the holder of the Convertible Note converted $
On
August 16, 2021, the holder of the Convertible Note converted $
On
September 13, 2021, the holder of the Convertible Note converted $
The total note principal and
interest converted during the nine months ended September 30, 2021 was $
During the quarter ended September
30, 2021, the Company reclassified the warrant and conversion feature on the note from equity and recognized approximately $
As
of September 30, 2021, the Company had accrued interest on the Convertible Note of approximately $
As
of September 30, 2021, the Company remains in default on the repayment of remaining principal of $
Secured Convertible Promissory Note – June 2020
On
June 26, 2020, the Company issued to an existing investor in the Company a
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 $
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 $
For
the three and nine months ended September 30, 2020, the Company recognized approximately $
On
August 5, 2020, the Company defaulted on certain covenants in the loan and the interest rate reset to the default rate of
For
the three and nine months ended September 30, 2021, the Company recognized approximately $
As
of September 30, 2021, the Company remains in default on the repayment of principal of $
13 |
Secured Convertible Promissory Note – October 2020
On
October 30, 2020, the Company issued to an existing investor in and lender to the Company a
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 $
The
interest rate on the note was
Additionally,
the Company issued the noteholder
The
Company recorded a discount related to the warrants of approximately $
For
the three and nine months ended September 30, 2021, the Company recognized approximately $
During the quarter ended September
30, 2021, the Company reclassified the warrant and conversion feature on the note from equity and recognized approximately $
As
of September 30, 2021, the Company has outstanding principal of $
As
of September 30, 2021, 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
14 |
Secured Convertible Promissory Note – January 2021
On
January 31, 2021, the Company issued to an existing investor in and lender to the Company a
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
The
Company recorded approximately $
The
interest rate on the note was
The
Company recorded a discount related to the warrants of approximately $
The
Company also recorded a debt discount related to the convertible debt of approximately $
Total discounts recorded including the original issue discount wer
approximately $
For
the three and nine-month periods ended September 30, 2021, the Company recognized approximately $
As
of September 30, 2021, the Company has outstanding principal of $
As
of September 30, 2021, 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
15 |
Secured Convertible Promissory Note – April 2021
On
April 12, 2021, the Company issued to an accredited investor in and lender to the Company a
The
note matured on
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 $
The
Company recorded a discount related to the warrants of approximately $which includes approximately $
On
June 25, 2021, the exercise price of the warrants was adjusted to $
For
the three and nine-month period ended September 30, 2021, the Company recognized approximately $
As
of September 30, 2021, the Company has recorded $
On
October 12, 2021, the Company defaulted on the note and the interest rate on the note reset to
Secured Convertible Promissory Note – June 2021
On
June 25, 2021, the Company issued to an accredited investor in and lender to the Company a
The
note matures on
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 $
16 |
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 $
The company also
issued shares of common stock as a commission fee
to the investment banker. The fair value of the common stock which was approximately $
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 $
Total
discounts recorded were $
On
August 11, 2021, the exercise price of the warrants was adjusted to $
For
the three and nine-month period ended September 30, 2021, the Company recognized approximately $
At
September 30, 2021, the Company has recorded $
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
$
The
note matures
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.
17 |
The
Warrants are initially exercisable for a period of three years at a price of $
The
Company incurred approximately $
The Company also issued shares of common stock to the investment banker as a commission on the note.
Due to the variability in
the conversion price of the Note the embedded conversion option has been bifurcated and reflected as a derivative liability with an
initial fair value of $
The
Company recorded a total debt discount of $
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
For
the three and nine-month period ended September 30, 2021, the Company recognized approximately $
At
September 30, 2021, the Company has remaining $
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 Buyer its Original Issue Discount Secured Convertible Promissory Note in the principal amount of $
The
note matures
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.
18 |
The
Warrants are initially exercisable for a period of three years at a price of $
The
Company incurred approximately $
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 $
The Company recorded a
total debt discount of $
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
At September 30, 2021, the
Company has recorded $
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 option 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. In accordance with ASC 815-40 –Derivatives and Hedging – Contracts in an Entity’s Own Stock, the embedded conversion option contained in the Notes and Warrants were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion options was determined using the Binomial Lattice valuation model. At the end of each period and on note conversion date or repayment, the Company revalues the derivative liabilities resulting from the embedded option.
During
the nine months ended September 30, 2021, in connection with the issuance of the Notes and Warrants, on the initial measurement dates,
the fair values of the embedded conversion options of $
At
the end of the period, the Company revalued the embedded conversion option derivative liabilities. In connection with these revaluations,
the Company recorded a loss from the change in the derivative liabilities fair value of approximately $
During the nine months ended September 30, 2021, the fair value of the derivative liabilities was estimated at issuance and at the September 30, 2021, using the Binomial Lattice valuation model with the following assumptions:
Dividend rate | % | |||
Term (in years) | ||||
Volatility |
to | % | ||
Risk-free interest rate | % |
For
the three and nine-month period ended September 30, 2021, the Company recognized approximately $
Note 3 - 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®.
Novosom Agreements
In
2010, the Company entered into an asset purchase agreement with Novosom Verwaltungs GmbH (“Novosom”), pursuant to which the
Company acquired intellectual property for Novosom’s SMARTICLES-based liposomal delivery system. In May 2018, the Company issued
to Novosom
The
Company recognized $
19 |
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 $
Note 4 - 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 $
Note 5 - Stockholders’ Equity
Preferred Stock
Adhera has authorized shares of preferred stock for issuance and has designated shares as Series B Preferred Stock (“Series B Preferred”) and shares as Series A Junior Participating Preferred Stock (“Series A Preferred”). shares of Series A Preferred or Series B Preferred are outstanding. In March 2014, Adhera designated shares as Series C Convertible Preferred Stock (“Series C Preferred”). In August 2015, Adhera designated shares as Series D Convertible Preferred Stock (“Series D Preferred”). In April 2018, Adhera designated shares of Series E Convertible Preferred Stock (“Series E Preferred”). In July 2018, Adhera designated shares of Series F Convertible Preferred Stock (“Series F Preferred”). In December 2019, Adhera designated shares of Series G Convertible Preferred Stock (“Series G Preferred”). The Company plans to file a certificate of elimination with respect to the Series B stock and a certificate of decrease with respect to each of its Series C, D and F Preferred stock.
Series C Preferred
Each
share of Series C Preferred has a stated value of $
As of September 30, 2021, and December 31, 2020, shares of Series C Preferred stock were outstanding.
Series D Preferred
Each
share of Series D Preferred has a stated value of $
20 |
As of September 30, 2021, and December 31, 2020, shares of Series D Preferred were outstanding.
Series E Convertible Preferred Stock and Warrants
The
Series E Preferred Stock has a stated value of $
On
March 19, 2021, the exercise price of the Series E warrants was adjusted from $
As of May 17, 2021, the three-year anniversary of the closing of the Series E Preferred stock offering, all outstanding Series E Preferred stock may be converted by the Company into common stock upon written notification being provided by the Company to stockholders.
On
June 8, 2021, an investor converted
On
July 30, 2021, and investor converted
As
of September 30, 2021, the Company had a total of
The
Company had accrued dividends on the Series E Preferred stock of approximately $
At September 30, 2021 and December 31, 2020, there were and Series E shares outstanding, respectively.
Series F Convertible Preferred Shares and Warrants
The
Series F Preferred Stock has a stated value of $
On
October 30, 2019, the Company repurchased
On
March 19, 2021, the exercise price of the Series F warrants was adjusted from $
As
of September 30, 2021, the Company had a total of
The
Company had accrued dividends on the Series F Preferred stock of approximately $
At September 30, 2021 and December 31, 2020, there were Series F Preferred shares outstanding.
21 |
Series G Convertible Preferred Shares
The Series G Preferred Stock has a stated value of $ per share and accrues dividends per annum that are payable in cash or stock at the Company’s discretion. The Series G Preferred has voting rights, dividend rights, liquidation preferences, conversion rights and anti-dilution rights. Series G Preferred stock is convertible into shares of common stock at $ .
As of September 30, 2021, no Series G Preferred Stock has been issued by the Company.
Common Stock
On
March 19, 2021, the Company issued unregistered shares of common stock to the holder
of the January 2020 convertible note for conversion of $
On
June 8, 2021, an investor converted
On
July 30, 2021, and investor converted shares of Series E Preferred stock with a stated
value of $
On
August 11, 2021, the Company issued shares of common stock to a convertible
note investor as a commitment fee which was valued at it relative fair value of $
On
August 18, 2021, the Company issued shares of common stock to a convertible
note investor as a commitment fee which was valued at its relative fair value of $
On
September 22, 2021, the Company issued shares
of common stock to an investment banker for commissions due under a banking agreement. The shares were recorded at their
relative fair value of approximately $
During
the three-month period ending September 30, 2021 the company issued million common shares upon the conversion of
$
The
common shares issued upon conversions of convertible notes for the nine months ended September 30,2021 were valued at fair value based
on the quoted trading prices on the conversion dates aggregating $
Warrants
As
of September 30, 2021, there were
Warrant Summary: | ||||||||||||||||||||
Shares | 2023 | 2024 | 2025 | 2026 | ||||||||||||||||
Series E Preferred | ||||||||||||||||||||
Series F Preferred | ||||||||||||||||||||
Convertible Notes | ||||||||||||||||||||
Other | ||||||||||||||||||||
Total Warrants |
The above includes price adjustable warrants.
A
total of warrants expired during the period. There were
Stock Options
Options Outstanding | ||||||||
Shares | Weighted Average Exercise Price | |||||||
Outstanding, December 31, 2020 | $ | |||||||
Options granted | ||||||||
Options expired / forfeited | ( | ) | ||||||
Outstanding, September 30, 2021 | ||||||||
Exercisable, September 30, 2021 | $ |
22 |
Options Outstanding | Options Exercisable | |||||||||||||||||||||
Range of Exercise Prices | Number Outstanding | Weighted- Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
$ | - $ | $ | $ | |||||||||||||||||||
$ | $ | $ | ||||||||||||||||||||
Totals | $ | $ |
During the nine months ended September 30, 2021, the Company granted no stock options.
Total expense related to stock options was approximately $for the nine months ended September 30, 2020, respectively. stock-based compensation expense was recognized for the nine-month period ended September 30, 2021.
As of September 30, 2021, the Company had no unrecognized compensation expense related to unvested stock options.
As of September 30, 2021, the intrinsic value of stock options outstanding was zero.
Note 7 - 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.
Share Repurchase Agreement
On
October 30, 2019, the Company repurchased
Licensing Agreement– MLR 1019
On
July 28, 2021, the Company and Melior Pharmaceuticals II, LLC (“MP”) 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 the MP Patents and know-how to develop products
in consideration for cash payments up to $
The license terminates upon the last expiration of the patents licensed by the Company, which is presently 2034 subject extensions and renewals of any of such patents. If the Company fails to get 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 MP’s data shall terminate. Additionally, if the Company has completed the necessary steps to affect an Uplisting Event, the Company will have the option to purchase the all rights held by MP 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 September 30, 2021, no performance milestones had been met.
Licensing Agreement – MLR 1023
On August 24, 2021, the Company as licensee entered into an exclusive license agreement with Melior Pharmaceuticals I, Inc. for the development, commercialization and exclusive license of Melior’s MLR-1023. MLR-1023 is being developed as a novel therapeutic for Type 1 diabetes.
Under
the Agreement, the Company was granted an exclusive license to use the MP Patents and know-how to develop products in consideration for
cash payments up to $
Note 8 - Subsequent Events
Except for the events discussed below, there were no subsequent events that required recognition or disclosure.
Issuance of Common Stock
On
October 4, 2021, the Company issued shares of common stock upon the conversion
of $
Secured Note Default
On
July 30, 2021, the Company defaulted under the Secured Convertible Promissory Note from January 2021 and the interest rate on the note
reset to
23 |
Issuance of Common Stock
On October 4, 2021, the Company issued shares of common stock upon the conversion of shares Series E Preferred stock and accrued dividends.
Issuance of Common Stock
On October 15, 2021, the Company issued shares of common stock upon the conversion of shares of Series F Preferred stock and accrued dividends.
Issuance of a Convertible Note
On
October 7, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional investor pursuant
to which the Company issued the Buyer a
The
Note is due
The
Warrants are exercisable for -years from October 5, 2021, at an exercise price of $
Issuance of a Convertible Note
On
October 13, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional investor pursuant
to which the Company issued the Buyer a
The
Note is due
The
Warrants are exercisable for -years from October 7, 2021, at an exercise price of $
Extension of Notes Maturity Date
Issuance of Common Stock
On November 4, 2021, the Company issued
Licensing Agreement MLR-1023 Amendment
24 |
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 license agreement and our liquidity. The following discussion should be read in conjunction with the financial statements and related notes contained in our Annual Report on Form 10-K, for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (“SEC”) on April 7, 2021. 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; and |
● | our ability to attract and retain qualified officers, directors, employees and consultants as necessary. |
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 listed on the OTC Pink Market, under the symbol “ATRX.”
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Corporate Overview
Nature of Business
We are an emerging specialty biotech company that, to the extent that resources and opportunities become available, is strategically evaluating its focus including a return to a drug discovery and development company.
On July 28, 2021, we as licensee and Melior Pharmaceuticals II, LLC 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 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 the MP 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 24, 2021, we as licensee entered into an exclusive license agreement with Melior Pharmaceuticals I, Inc. for the development, commercialization and exclusive license of MLR-1023. MLR-1023 is being developed as a novel therapeutic for Type 1 diabetes.
On October 20, 2021, we as licensee expanded the an exclusive licensing agreement with Melior Pharmaceuticals I, Inc. to include two additional clinical indications for Non-Alcoholic Steatohepatitis (NASH) and pulmonary inflammation.
To the extent that resources have been available, we have continued to work with its 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 and seek bankruptcy protection.
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Results of Operations
Comparison of the Three Months Ended September 30, 2021 to the Three Months Ended September 30, 2020
Operating Expenses
Our operating expenses for the three months ended September 30, 2021, and 2020 are summarized as follows:
Three Months Ended | ||||||||||||
September
30, 2021 | September
30, 2020 | Increase/ (Decrease) | ||||||||||
(in thousands) | ||||||||||||
Sales and marketing | $ | - | $ | 20 | $ | (20 | ) | |||||
General and administrative expenses | 232 | 174 | 58 | |||||||||
Total operating expenses | $ | 232 | $ | 194 | $ | 38 |
Sales and Marketing
For the three months ended September 30, 2021, sales and marketing expense decreased by approximately $20,000 as compared to the three months ended September 30, 2020. Sales and marketing expenses for the three months ended September 30, 2020, and September 30, 2021 were primarily related to storage and other related costs incurred for Prestalia® inventory.
General and Administrative
General and administrative expense increased by approximately $58,000 for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020. The increase was primarily due to an increase in public company fees including legal expenses and fees paid for investor relation services.
Other Expense
Three Months Ended | ||||||||||||
September 30, 2021 | September 30, 2020 | Increase/ (Decrease) | ||||||||||
(in thousands) | ||||||||||||
Interest expense | $ | (261 | ) | $ | (255 | ) | $ | 6 | ||||
Other income | - | 5 | 5 | |||||||||
Loss on extinguishment of debt | (177 | ) | - | 177 | ||||||||
Derivative expense | (2,968 | ) | - | 2,968 | ||||||||
Amortization of debt discount | (101 | ) | (95 | ) | 6 | |||||||
Total other expense, net | $ | (3,507 | ) | $ | (345 | ) | $ | 3,162 |
Interest expense for the three months ended September 30, 2021 increased by $6,000 compared to the three months ended September 30, 2020 primarily due to an increase in interest as a result of an increase in our outstanding convertible notes. Other income for the three months ended September 30, 2020, was a result of fees received from release of certain intellectual property rights in 2019 from a third-party vendor and fees received from the cancellation of a contractual obligation with a third-party vendor. The increase of $2,968 for derivative expense was due to conversion features and warrants on convertible notes that were classified as a derivative on our balance sheet as of September 30, 2021. The loss on extinguishment of debt was due to the conversion of principal and interest on our outstanding convertible notes.
Comparison of the Nine Months Ended September 30, 2021, to the Nine Months Ended September 30, 2020
Operating Expenses
Our operating expenses for the Nine months ended September 30, 2021, and 2020 are summarized as follows:
Nine Months Ended | ||||||||||||
September 30, 2021 | September 30, 2020 | Increase/ (Decrease) | ||||||||||
(in thousands) | ||||||||||||
Sales and marketing | $ | 17 | $ | 818 | $ | (801 | ) | |||||
General and administrative expenses | 454 | 1,055 | (601 | ) | ||||||||
Total operating expenses | $ | 471 | $ | 1,873 | $ | (1,402 | ) |
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Sales and Marketing
For the three months ended September 30, 2021, sales and marketing expense decreased by approximately $801,000 as compared to the nine months ended September 30, 2020. Sales and marketing expenses for the nine months ended September 30, 2020 were primarily related to regulatory costs incurred for maintaining the Prestalia® NDA including approximately $679,000 of PFUFA fees. No such costs were incurred for the same period of 2021.
General and Administrative
General and administrative expense decreased by approximately $601,000 for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. The decrease was primarily due to a reduction in personnel related expenses and public company fees including legal expenses and insurance for the nine months ended September 30, 2021 as compared to the same period of 2020.
Other Expense
Nine Months Ended | ||||||||||||
September 30, 2021 | September 30, 2020 | Increase/ (Decrease) | ||||||||||
(in thousands) | ||||||||||||
Interest expense | $ | (749 | ) | $ | (1,082 | ) | $ | (333 | ) | |||
Other income | - | 45 | 45 | |||||||||
Derivative expense | (3,055 | ) | 3,055 | |||||||||
Loss on extinguishment of debt | (177 | ) | - | 177 | ||||||||
Amortization of debt discount | (230 | ) | (373 | ) | (143 | ) | ||||||
Total other expense, net | $ | (4,211 | ) | $ | (1,410 | ) | $ | 2,801 |
Interest expense for the nine months ended September 30, 2021, decreased by $333,000 compared to the nine months ended September 30, 2020 primarily due to a decrease in the amortization of debt issuance costs for our term notes. The amortization of debt discount decreased by $143,000 primarily due to the maturity of our outstanding convertible notes. Other income for the nine months ended September 30, 2020, was a result of fees received from release of certain intellectual property rights in 2019 from a third-party vendor and fees received from the cancellation of a contractual obligation with a third-party vendor. The increase in derivative expense was due to conversion features on a convertible notes that were classified as a derivative on our balance sheet as of September 30, 2021. The loss on extinguishment of debt was due to the conversion of principal and interest on our outstanding convertible notes.
Liquidity & Capital Resources
Working Capital
(in thousands) | September 30, 2021 | December 31, 2020 | ||||||
Current assets | $ | 151 | $ | 1 | ||||
Current liabilities | (20,390 | ) | (14,774 | ) | ||||
Working capital deficit | $ | (20,239 | ) | $ | (14,773 | ) |
Negative working capital as of September 30, 2021, was approximately $20.2 million as compared to negative working capital of approximately $14.8 million as of December 31, 2020. The decrease in working capital is primarily related to an increase in current liabilities of approximately $3.5 million including approximately $1.1 million in accrued dividends, $762,000 of accrued expenses and $3.5 million for a derivative liability related to our convertible notes.
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Cash Flows and Liquidity
Net cash used in Operating Activities
Net cash used in operating activities was approximately $369,000 during the nine months ended September 30, 2021. This was primarily due to our net operating loss of approximately $4.6 million, partially offset by to our derivative expense of approximately $3.1 million, non-cash interest expense related to term loans of $749,000, non-cash amortization of debt discount of $230,000 and other changes in operating assets and liabilities including an increase in accounts payable and accrued expenses of approximately $102,000.
Net cash used in operating activities was approximately $0.5 million during the nine months ended September 30, 2020. This was primarily due to our net loss of approximately $3.3 million, partially offset by non-cash interest expense related to our term loans of approximately $1.5 million and other changes in operating assets and liabilities including an increase in accounts payable and accrued expenses of approximately $1.0 million.
Net cash used in Investing Activities
There was no cash used in or provided by investing activities for the nine months ended September 30, 2021, or September 30, 2020.
Net cash provided by Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2021, and 2020 was approximately $519,000 and $448,000, respectively from the issuance of convertible notes to certain accredited investors, net of issuance costs
We will need to raise immediate additional operating capital to maintain our operations and to realize our business plan. Without additional sources of cash and/or the deferral, reduction, or elimination of significant planned expenditures, we will not have the cash resources to continue as a going concern thereafter.
Future Financing
We do not have sufficient funds to meet our working capital needs for the next 12 months. We will require immediate additional funds to continue our business. Historically, we have raised additional capital to supplement our commercialization, clinical development and operational expenses. We will need to raise additional funds required through equity financing, debt financing, strategic alliances or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available when needed or, if available, that it can be obtained on commercially reasonable terms. Failure to raise additional capital through one or more financings, divesting development assets or reducing discretionary spending could have a material adverse effect on our ability to achieve our intended business objectives. These factors raise substantial doubt about our ability to continue as a going concern.
Off-Balance Sheet Arrangements
As of September 30, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our financial statements included herein for the period ended September 30, 2021, and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
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New and Recently Adopted Accounting Pronouncements
Any new and recently adopted accounting pronouncements are more fully described in Note 1 to our financial statements included herein for the period ended September 30, 2021.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that, our disclosure controls and procedures were not effective due to the material weakness(es) in internal control over financial reporting described below.
Material Weakness in Internal Control over Financial Reporting
Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2021, based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as of September 30, 2021, was not effective.
A material weakness, as defined in the standards established by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses:
● | Inadequate segregation of duties consistent with control objectives; |
● | Lack of qualified accounting personnel to prepare and report financial information in accordance with GAAP; and |
● | Lack of documentation on policies and procedures that are critical to the accomplishment of financial reporting objectives. |
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Management’s Plan to Remediate the Material Weakness
Providing funds are available, management plans to implement measures designed to ensure that control deficiencies, contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned include:
● | Identifying gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company including the need for outsourced expertise; and |
● | Continuing to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures. |
We will continue to reassess our plans to remedy our internal control deficiencies in light of our personnel structure and our financial condition. We hope that such measures will lead to an improvement in the timely preparation of financial reports and strengthen our segregation of duties at our company. We are committed to developing a strong internal control environment, and we believe that the remediation efforts that we will implement will result in significant improvements in our control environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. However, our significant working capital deficiency may delay remediation.
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2021, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
General
Currently, there is no material litigation pending against our company. From time to time, we may become a party to litigation and subject to claims incident to the ordinary course of our business.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Annual Report”), as filed with the SEC on April 7, 2021, in addition to other information contained in those documents and reports that we have filed with the SEC pursuant to the Securities Act and the Exchange Act since the date of the filing of the Annual Report, including, without limitation, this Quarterly Report on Form 10-Q, in evaluating our company and its business before purchasing shares of our common stock. Our business, operating results and financial condition could be adversely affected due to any of those risks.
The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
If we are unable to successfully commercialize MLR-1019 or any of our other product candidates and are unable to make milestone payments, our result of operations would be adversely affected.
We recently entered into an exclusive license agreement with Melior Pharmaceuticals II, LLC to develop and commercialize MLR-1019 as a new class of therapeutics for Parkinson’s Disease. Upon MLR-1019 meeting certain milestones, the Company is required to make payments which aggregate approximately $21.75 million. We currently do not have enough capital to meet any milestone and cannot assure you will be successful in raising the $250,000 we need to attempt to meet the first milestone. If any milestone is met, we can provide you with no assurance that we will be able to raise capital in order to fund that milestone. If the drug candidate fails to meet any of the milestones and therefore is unable to be commercialized, we will receive no benefits from this license. In any such event, our results of operations will suffer and we may need to cease operations. Additionally, MLR–1019 may be classified as a controlled substance in the United States which may have an adverse effect on our future revenues if we are able to commercialize it in the United States.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
Item 6. Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ADHERA THERAPEUTICS, INC. | ||
Date: November 22, 2021 | By: | /s/ Andrew Kucharchuk |
Andrew Kucharchuk CEO (Principal Executive Officer and Principal Financial Officer) |
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