Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect management's current views with respect to future events and financial performance including meeting our obligations under the Melior I and Melior II license agreements and our liquidity. The following discussion should be read in conjunction with the financial statements and related notes and the Risk Factors contained in our Annual Report on Form 10-K, for the year ended December 31, 2021, as filed with the Securities and Exchange Commission ("SEC") on April 15, 2022. Forward-looking statements are projections in respect of future events or financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology.

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

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



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

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

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

  ?  Challenges or inability to comply with or obtain waivers or extensions under
     our license agreements, in which case we may be forced to suspend or
     terminate certain of our research and development programs;

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

  ?  Failure to meet our obligations under outstanding financing documents.

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" set forth in our Annual Report on Form 10-K, 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.



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

Corporate Overview

Nature of Business

We are an emerging specialty biotech company 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 II as licensor 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 Melior II Patents and know-how to develop products in consideration for cash payments upon meeting certain performance milestones as well as a royalty of 5% of gross sales.

On August 24, 2021, we as licensee entered into an exclusive license agreement with Melior I for the development, commercialization and exclusive license of MLR-1023 as a novel therapeutic for Type 1 diabetes.

On October 20, 2021, we as licensee expanded the MLR-1023 licensing agreement with Melior Pharmaceuticals I, Inc. to include two additional clinical indications for Non-Alcoholic Steatohepatitis (NASH) and pulmonary inflammation.

On July 20, 2022, the Company entered into an addendum to the License Agreement for MLR-1023 with Melior I pursuant to which Melior I extended the license to February 1, 2023 in exchange for a $136,921 licensing payment. In addition, the Company is required to hire and retain a Chief Scientific Officer, and raise an additional $500,000 in capital in addition to other requirements set forth in the addendum and the License Agreement.

To the extent that resources have been available, we have continued to work with our advisors in an effort to restructure our Company and to identify potential strategic transactions, including 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 near future, it is likely that the Company will discontinue all operations or seek bankruptcy protection.



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Results of Operations

Comparison of the Three Months Ended June 30, 2022 to the Three Months Ended June 30, 2021

Operating Expenses



Our operating expenses for the three months ended June 30, 2022, and 2021 are
summarized as follows:

                                                 Three Months Ended
                                       June 30,      June 30,       Increase/
(in thousands)                           2022          2021         (Decrease)
Sales and marketing                   $        -     $       8     $         (8 )
General and administrative expenses          449           121              328
Total operating expenses              $      449     $     129     $        320



Sales and Marketing

Sales and marketing expenses for the three months ended June 30, 2021 were primarily related to storage and destruction costs incurred for Prestalia® inventory. No sales and marketing expenses were incurred for the three-month period ended June 30, 2022.

General and Administrative



General and administrative expense increased by approximately $328,000 for the
three months ended June 30, 2022, as compared to the three months ended June 30,
2021. The increase was primarily due to an increase in public company fees
including legal expenses, audit fees and fees paid for director and officer
insurance.

Other Expense

                                                         Three Months Ended
                                              June 30,       June 30,       Increase/
(in thousands)                                  2022           2021         (Decrease)
Interest expense                             $     (361 )   $     (248 )   $        113
Gain on extinguishment of debt                      210              -             (210 )
Initial and change in derivative liability        1,012            (87 )         (1,099 )
Amortization of debt discount                      (313 )          (50 )            263
Total other income (expense)                 $      548     $     (385 )   $        933

Interest expense for the three months ended June 30, 2022 increased by $113,000 compared to the three months ended June 30, 2021 primarily due to an increase in interest expense related to our outstanding convertible notes. The derivative liability for the quarter ended June 30, 2022 decreased by $1,099,000 as a result of a decrease in the fair value of our convertible notes and warrants that were classified as a derivative on our consolidated balance sheet as of June 30, 2022 offset by the initial valuation of a derivative liability for the issuance of convertible notes and warrants during the period. The gain on extinguishment of debt was due to the payment and conversion of principal and interest on our outstanding convertible notes. The increase of $263,000 for the amortization of debt discounts was due an increase in our convertible notes outstanding.

Comparison of the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021

Operating Expenses



Our operating expenses for the six months ended June 30, 2022, and 2021 are
summarized as follows:

                                                  Six Months Ended
                                      June 30,      June 30,       Increase/
(in thousands)                          2022          2021         (Decrease)
Sales and marketing                   $       -     $      17     $        (17 )
General and administrative expenses         709           222              487
Total operating expenses              $     709     $     239     $        470



Sales and Marketing

Sales and marketing expenses for the six months ended June 30, 2021 were primarily related to storage and destruction costs incurred for Prestalia® inventory. No sales and marketing expenses were incurred for the six months ended June 30, 2022.

General and Administrative



General and administrative expense increased by approximately $487,000 for the
six months ended June 30, 2022, as compared to the six months ended June 30,
2021. The increase was primarily due to an increase in public company fees
including legal expenses, audit fees and fees paid for director and officer
insurance.

Other Expense

                                                          Six Months Ended
                                              June 30,       June 30,       Increase/
(in thousands)                                  2022           2021         (Decrease)
Interest expense                             $     (672 )   $     (491 )   $        181
Gain on extinguishment of debt                      215              -             (215 )
Initial and change in derivative liability        1,679            (87 )         (1,766 )
Amortization of debt discount                      (488 )         (125 )            363
Total other income (expense)                 $      734     $     (703 )   $      1,437

Interest expense for the six months ended June 30, 2022 increased by $181,000 compared to the six months ended June 30, 2021 primarily due to an increase in our outstanding convertible notes. The derivative liability for the quarter ended June 30, 2022 decreased by $1,766,000 as a result of a decrease in the fair value of our convertible notes and warrants that were classified as a derivative on our consolidated balance sheet as of June 30, 2022 offset by an increase in the initial valuation of a derivative liability expense from the issuance of notes and warrants for the period. The gain on extinguishment of debt was due to the payment and conversion of principal and interest on our outstanding convertible notes. The increase of $363,000 for the amortization of debt discounts was due an increase in our convertible notes outstanding.

Liquidity & Capital Resources



Working Capital

                          June 30,       December 31,
(in thousands)              2022             2021
Current assets            $     976     $          196

Current liabilities (20,971 ) (25,302 ) Working capital deficit $ (19,995 ) $ (25,106 )

Negative working capital as of June 30, 2022, was approximately $20.0 million as compared to negative working capital of approximately $25.1 million as of December 31, 2021. The increase in working capital is primarily related to an decrease in current liabilities of approximately $4.3 million including approximately $5.0 million in accrued dividends as a result of the conversion Series E and Series F Preferred Stock during the period, offset by an increase of $587,000 of accrued expenses including accrued interest, an increase in our promissory notes payable of $630,000 net of discounts and a decrease of $599,000 for a derivative liability related to our outstanding convertible notes and warrants.



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Cash Flows and Liquidity

Net cash used in Operating Activities

Net cash used in operating activities was approximately $690,000 during the six months ended June 30, 2022. This was primarily due to our net operating income of approximately $25,000, partially offset by a $1,679,000 gain related to a decrease in the fair value of our outstanding derivative liability for our convertible notes and warrants, non-cash interest expense related to term loan and outstanding convertible notes of $672,000, non-cash amortization of debt discount of $488,000 and other changes in operating assets and liabilities of approximately $19,000.

Net cash used in operating activities was approximately $118,000 during the six months ended June 30, 2021. This was primarily due to our net operating loss of approximately $942,000, partially offset by non-cash interest expense related to our term loans of $487,000, non-cash amortization of debt discount and fees of $129,000 and other changes in operating assets and liabilities including an increase in accounts payable and accrued expenses of approximately $121,000.

Net cash used in Investing Activities

There was no cash used in or provided by investing activities for the six months ended June 30, 2022, or June 30, 2021.

Net cash provided by Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2022, and 2021 was approximately $1,463,000 and $159,000, respectively. Net cash provided by financing activities for the six-months ended June 30, 2022 included $1,872,000 from the sale of promissory notes and warrants, net of issuance costs to certain accredited investors, offset by the repayment of principal and interest on outstanding convertible notes of $407,000 and $2,000 for the repurchase of common stock outstanding. Net cash provided by financing activities for the six-months ended June 30, 2021 included $159,000 from the sale of promissory notes, net of issuance costs to certain accredited investors

While we recently raised $1.7 million, net of issuance costs as described in the next paragraph, we will need to raise additional operating capital in the near future to maintain our operations and to realize our business plan. Without additional sources of cash and/or the deferral, reduction, or elimination of significant planned expenditures, we will not have the cash resources to continue as a going concern thereafter.

Financing

In May 2022, we closed a private placement offering of $2,222,222 of notes and 22,222,218 warrants and received approximately $1.7 million in net proceeds. The notes come due upon the earliest to occur of (i) the 12 month anniversary of the original issuance date of the notes, or May 11, 2023, (ii) a financing transaction which results in the Company's common stock being listed on a national securities exchange, and (iii) an event of default, in which case the amount payable could be increased to 125% of the outstanding balance if our common stock is not listed on a national securities exchange at the time of such event of default. If an event of default occurs before the Company's common stock is listed on a national securities exchange, the event of default would require a 125% of the outstanding principal, accrued interest and other amounts owing thereon. The notes bear interest at 8% per annum, subject to an increase to 15% in case of an event of default as provided for therein. In addition, at any time before the 12 month anniversary of the date of issuance of the Notes, the Company may, upon five days' prior written notice to the Purchaser, prepay all of the then outstanding principal amount of the notes for cash in an amount equal to the sum of 105% of all amounts due and owing hereunder, including all accrued and unpaid interest. The Company's obligations under the Notes are secured by a first priority lien on all of the assets of the Company and its wholly-owned subsidiaries.

We do not have sufficient funds to meet our working capital needs for the next 12 months. We will require additional funds in the near future 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, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available 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 June 30, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in the notes to our consolidated financial statements included herein for the period ended June 30, 2022, and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.



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New and Recently Adopted Accounting Pronouncements

Any new and recently adopted accounting pronouncements are more fully described in Note 1 to our consolidated financial statements included herein for the period ended June 30, 2022.

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