FENNEC PHARMACEUTICALS INC. - Quarter Report: 2014 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014

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

For the transition period from____ to ____

Commission File Number: 001-32295

ADHEREX TECHNOLOGIES INC.

(Exact Name of Registrant as Specified in Its Charter)

British Columbia, Canada

(State or Other Jurisdiction of

Incorporation or Organization

20-0442384

(I.R.S. Employer

Identification No.)

PO Box 13628, 68 TW Alexander Drive

Research Triangle Park, North Carolina

(Address of Principal Executive Offices)

27709

(Zip Code)

Registrant's Telephone Number, Including Area Code: (919) 636-4530

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes þ No¨

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

Large Accelerated Filer ¨	Accelerated Filer	¨
Non-Accelerated Filer ¨ (Do not check if smaller reporting company)	Smaller reporting company	x

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

As of May 14, 2014, there were 29,307,618 shares of Adherex Technologies Inc. common stock outstanding.

TABLE OF CONTENTS

		Page

PART I: FINANCIAL INFORMATION		3

Item 1. Financial Statements (Unaudited)		3

Unaudited Interim Condensed Consolidated Balance Sheets –March 31, 2014 and December 31, 2013		3

Unaudited Interim Condensed Consolidated Statements of Operations –For the Three Months Ended March 31, 2014 and 2013		4

Unaudited Interim Condensed Consolidated Statements of Cash Flows –For the Three Months Ended March 31, 2014 and 2013		5

Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity (Deficiency)-For the Period Ended September 3,1996 to March 31, 2014		6

Notes to the Unaudited Interim Condensed Consolidated Financial Statements		10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3. Quantitative and Qualitative Disclosures about Market Risk		21

Item 4. Controls and Procedures		22

PART II: OTHER INFORMATION		23

Item 1. Legal Proceedings		23

Item 1A. Risk Factors		23

Item 2. Unregistered Sales of Equity Securities		25

Item 3. Defaults Upon Senior Securities		25

Item 4. Mine Safety Disclosure		25

Item 5. Other Information		25

Item 6. Exhibits		26

Signatures		27

PART 1: FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Interim Condensed Consolidated Balance Sheets

Adherex Technologies Inc.

(a development stage company)

(U.S. Dollars and shares in thousands)

	March 31, 2014			December 31,
	(Unaudited)			2013

Assets

Current assets:
Cash and cash equivalents	$	1,338		$	1,663
Prepaid expenses		54			81
Other current assets		3			8
Total assets	$	1,395		$	1,752

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable	$	154		$	212
Accrued liabilities		57			132
Derivative instruments (Note 3)		5,518			2,863
Total current liabilities		5,729			3,207

Total liabilities		5,729			3,207

Commitments (see Note 6)

Stockholders' (deficiency) equity:
Common stock, no par value; unlimited shares authorized; 29,308 shares issued and outstanding (2013-29,158)		66,790			66,790
Additional paid-in capital		39,525			39,210
Deficit accumulated during development stage		(111,892	)		(108,698	)
Accumulated other comprehensive income		1,243			1,243
Total stockholders’ (deficiency) equity		(4,334	)		(1,455	)
Total liabilities and stockholders’ (deficiency) equity	$	1,395		$	1,752

(The accompanying notes are an integral part of these unaudited interim condensed financial statements)

Unaudited Interim Condensed Consolidated Statements of Operations

Adherex Technologies Inc.

(a development stage company)

(U.S. Dollars and shares in thousands, except per share amounts)

							Cumulative
							From
							September 3,
	Three Months Ended						1996 to
	March 31,			March 31,			March 31,
	2014			2013			2014

Revenue	$	-		$	-		$	-

Operating expenses:
Research and development		32			178			69,797
Impairment of capital assets		-			-			386
Gain on deferred lease inducements		-			-			(497	)
Acquired in-process research and development		-			-			13,094
General and administrative		505			359			33,933

Loss from operations		(537	)		(537	)		(116,713	)

Other (expense) income :
Settlement of Cadherin litigation		-			-			(1,283	)
Interest expense		-			-			(19	)
Unrealized loss on derivatives		(2,655	)		(3,573	)		4,379
Other income		-			-			256
Interest (expense) income and other		(2	)		2			2,897
Total other (expense) income, net		(2,657	)		(3,571	)		6,230

Net loss	$	(3,194	)	$	(4,108	)	$	(110,483	)

Basic and diluted net loss per common share	$	(0.11	)	$	(0.16	)
Weighted-average number of common shares outstanding, basic		29,308			25,158
Weighted-average number of common shares outstanding, diluted		29,308			25,158

(The accompanying notes are an integral part of these unaudited interim condensed financial statements.)

Unaudited Interim Condensed Consolidated Statements of Cash Flows

Adherex Technologies Inc.

(a development stage company)

(U.S. Dollars and shares in thousands)

							Cumulative From
	Three Months			Three Months			September 3,
	Ended March 31,			Ended March 31,			1996 to
	2014			2013			March 31, 2014
Cash flows (used in) provided by:
Operating activities:
Net loss	$	(3,194	)	$	(4,108	)	$	(110,483	)
Adjustments to reconcile net loss to net cash used in operating activities:
Unrealized loss on derivative		2,655			3,573			(4,379	)
Depreciation and amortization		-			-			1,404
Non-cash settlement of Cadherin litigation		-			-			1,187
Unrealized foreign exchange loss		-			-			36
Loss on impairment of capital assets		-			-			386
Amortization of deferred lease inducements		-			-			(412	)
Non-cash severance		-			-			168
Stock-based compensation - consultants		129			-			1,202
Stock-based compensation - employees		133			-			10,464
Acquired in-process research and development		-			-			13,094
Changes in operating assets and liabilities		(101	)		128			(292	)
Net cash used in operating activities		(378	)		(407	)		(87,625	)

Investing activities:
Purchase of capital assets		-			-			(1,440	)
Disposal of capital assets		-			-			115
Proceeds from sale of assets		-			-			24
Release of restricted cash		-			-			190
Restricted cash		-			-			(209	)
Purchase of short-term investments		-			-			(22,148	)
Redemption of short-term investments		-			-			22,791
Investment in Cadherin Biomedical Inc.		-			-			(166	)
Acquired intellectual property rights		-			-			(640	)
Net cash used in investing activities		-			-			(1,483	)

Financing activities:
Conversion of long-term debt to equity		-			-			68
Long-term debt repayment		-			-			(65	)
Capital lease repayments		-			-			(8	)
Issuance of units, net of issue costs		53			-			88,066
Registration expense		-			-			(465	)
Financing expenses		-			-			(544	)
Proceeds from convertible note		-			-			3,017
Other liability repayments		-			-			(87	)
Security deposits received		-			-			35
Proceeds from exercise of stock options		-			-			51
Net cash provided by financing activities		53			-			90,068

Effect of exchange rate on cash and cash equivalents		-			-			378
(Decrease) increase in cash and cash equivalents		(325	)		(407	)		1,338
Cash and cash equivalents - Beginning of period		1,663			2,303			-
Cash and cash equivalents - End of period	$	1,338		$	1,896		$	1,338

(The accompanying notes are an integral part of these unaudited interim condensed financial statements.)

Adherex Technologies Inc.

(a development stage company)

Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity (Deficiency)

(U.S. dollars and shares in thousands)

													Deficit
						Non-redeemable					Accumulated		Accumulated			Total
						Preferred Stock		Additional			Other		During			Stockholders'
	Common Stock					of		Paid-in			Comprehensive		Development			Equity
	Number (Note 4)			Amount		Subsidiary		Capital			Income		Stage			(Deficiency)

Balance at September 3, 1996		-		$	-	$	-	$	-		$	-	$	-		$	-
Issuance of common stock		89			-		-		-			-		-			-
Net loss		-			-		-		-			-		(37	)		(37	)
Balance at June 30, 1997, 2005		89			-		-		-			-		(37	)		(37	)
Net loss		-			-		-		-			-		(398	)		(398	)
Balance at June 30, 1998		89			-		-		-			-		(435	)		(435	)
Exchange of Adherex Inc. shares for
Adherex Technologies Inc. shares		(89	)		-		-		-			-		-			-
Issuance of common stock		239			1,615		-		-			-		-			1,615
Cumulative translation adjustment		-			-		-		-			20		-			20
Net loss		-			-		-		-			-		(958	)		(958	)
Balance at June 30, 1999		239			1,615		-		-			20		(1,393	)		242
Issuance of common stock		16			793		-		-			-		-			793
Issuance of equity rights		-			-		-		171			-		-			171
Issuance of special warrants		-			-		-		255			-		-			255
Settlement advances:
Issuance of common stock		16			175		-		-			-		-			175
Cancellation of common stock		(7	)		-		-		-			-		-			-
Cumulative translation adjustment		-			-		-		-			16		-			16
Net loss		-			-		-		-			-		(1,605	)		(1,605	)
Balance at June 30, 2000		264			2,583		-		426			36		(2,998	)		47
Issuance of common stock:
Initial Public Offering ("IPO")		74			5,727		-		-			-		(38	)		5,689
Other		5			341		-		-			-		-			341
Issuance of special warrants		-			-		-		1,722			-		-			1,722
Conversion of special warrants		30			1,977		-		(1,977	)		-		-			-
Issuance of Series A special warrants		-			-		-		4,335			-		-			4,335
Conversion of Series A special warrants		69			4,335		-		(4,335	)		-		-			-
Conversion of equity rights		4			171		-		(171	)		-		-			-
Cumulative translation adjustment		-			-		-		-			182		-			182
Net loss		-			-		-		-			-		(2,524	)		(2,524	)
Balance at June 30, 2001		446			15,134		-		-			218		(5,560	)		9,792
Cumulative translation adjustment		-			-		-		-			11		-			11
Net loss		-			-		-		-			-		(3,732	)		(3,732	)
Balance at June 30, 2002		446			15,134		-		-			229		(9,292	)		6,071

(The accompanying notes are an integral part of these unaudited interim condensed financial statements)

Adherex Technologies Inc.

(a development stage company)

Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity (Deficiency) (Continued)

(U.S. dollars and shares in thousands)

															Deficit
						Non-redeemable						Accumulated			Accumulated			Total
						Preferred Stock			Additional			Other			During			Stockholders'
	Common Stock					of			Paid-in			Comprehensive			Development			Equity
	Number (Note 4)		Amount			Subsidiary			Capital			Income			Stage			(Deficiency)

Balance at June 30, 2002		446		15,134			-			-			229			(9,292	)		6,071
Common stock issued for Oxiquant acquisition		446		11,077			-			543			-			-			11,620
Exercise of stock options		1		4			-			-			-			-			4
Distribution to shareholders		-		-			-			-			-			(158	)		(158	)
Stated capital reduction		-		(9,489	)		-			9,489			-			-			-
Stock options issued to consultants		-		-			-			4			-			-			4
Equity component of June convertible notes		-		-			-			1,058			-			-			1,058
Financing warrants		-		-			-			53			-			-			53
Cumulative translation adjustment		-		-			-			-			(159	)		-			(159	)
Net loss		-		-			-			-			-			(17,795	)		(17,795	)
Balance at June 30, 2003		893		16,726			-			11,147			70			(27,245	)		698
Stock options issued to consultants		-		-			-			148			-			-			148
Repricing of warrants related to financing		-		-			-			18			-			-			18
Equity component of December convertible notes		-		-			-			1,983			-			-			1,983
Financing warrants		-		-			-			54			-			-			54
Conversion of June convertible notes		96		1,216			-			(93	)		-			-			1,123
Conversion of December convertible notes		60		569			-			(398	)		-			-			171
Non-redeemable preferred stock		-		-			1,045			-			-			-			1,045
December private placement		640		8,053			-			5,777			-			-			13,830
May private placement		259		6,356			-			2,118			-			-			8,474
Exercise of stock options		1		23			-			-			-			-			23
Amalgamation of 2037357 Ontario Inc.		44		660			(1,045	)		363			-			-			(22	)
Cumulative translation adjustment		-		-			-			-			(219	)		-			(219	)
Net loss		-		-			-			-			-			(6,872	)		(6,872	)
Balance at June 30, 2004		1,993		33,603			-			21,117			(149	)		(34,117	)		20,454
Stock options issued to consultants		-		-			-			39			-			-			39
Stock options issued to employees		-		-			-			604			-			-			604
Cost related to SEC registration		-		(493	)		-			-			-			-			(493	)
Acquisition of Cadherin Biomedical Inc.		37		1,252			-			-			-			-			1,252
Cumulative translation adjustment		-		-			-			-			1,392			-			1,392
Net loss - six months ended December 31, 2004		-		-			-			-			-			(6,594	)		(6,594	)
Balance at December 31, 2004		2,030		34,362			-			21,760			1,243			(40,711	)		16,654

(The accompanying notes are an integral part of these unaudited interim condensed financial statements)

Adherex Technologies Inc.

(a development stage company)

Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity (Deficiency) (Continued)

(U.S. dollars and shares in thousands)

												Deficit
						Non-redeemable				Accumulated		Accumulated			Total
						Preferred Stock		Additional		Other		During			Stockholders'
	Common Stock					of		Paid-in		Comprehensive		Development			Equity
	Number (Note 4)		Amount			Subsidiary		Capital		Income		Stage			(Deficiency)

Balance at December 31, 2004		2,030		34,362			-		21,760		1,243		(40,711	)		16,654
Financing costs		-		(141	)		-		-		-		-			(141	)
Exercise of stock options		1		25			-		-		-		-			25
Stock options issued to consultants		-		-			-		276		-		-			276
July private placement		337		7,060			-		1,074		-		-			8,134
Net loss		-		-			-		-		-		(13,871	)		(13,871	)
Balance at December 31, 2005		2,368		41,306			-		23,110		1,243		(54,582	)		11,077
Stock options issued to consultants		-		-			-		100		-		-			100
Stock options issued to employees		-		-			-		491		-		-			491
May private placement		431		5,218			-		822		-		-			6,040
Net loss		-		-			-		-		-		(16,440	)		(16,440	)
Balance at December 31, 2006		2,799		46,524			-		24,523		1,243		(71,022	)		1,268
Stock options issued to consultants		-		-			-		59		-		-			59
Stock options issued to employees		-		-			-		2,263		-		-			2,263
February financing		4,209		17,842			-		5,379		-		-			23,221
Exercise of warrants		116		563			-		131		-		-			694
Net income		-		-			-		-		-		(13,357	)		(13,357	)
Balance at December 31, 2007		7,124		64,929			-		32,355		1,243		(84,379	)		14,148
Stock options issued to consultants		-		-			-		88		-		-			88
Stock options issued to employees		-		-			-		2,417		-		-			2,417
Net income		-		-			-		-		-		(13,600	)		(13,600	)
Balance at December 31, 2008		7,124		64,929			-		34,860		1,243		(97,979	)		3,053
Stock options issued to consultants		-		-			-		10		-		-			10
Stock options issued to employees		-		-			-		355		-		-			355
Net income		-		-			-		-		-		(3,012	)		(3,012	)
Balance at December 31, 2009		7,124		64,929			-		35,225		1,243		(100,991	)		406
Stock options issued to consultants		-		-			-		53		-		-			53
Stock options issued to employees		-		-			-		2,439		-		-			2,439
April financing		13,337		-			-		-		-		-			-
Net income		-		-			-		-		-		(7,824	)		(7,824	)
Balance at December 31, 2010		20,461		64,929			-		37,717		1,243		(108,815	)		(4,926	)

(The accompanying notes are an integral part of these unaudited interim condensed financial statements)

Adherex Technologies Inc.

(a development stage company)

Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity (Deficiency) (Continued)

(U.S. dollars and shares in thousands)

											Deficit
					Non-redeemable				Accumulated		Accumulated			Total
					Preferred Stock		Additional		Other		During			Stockholders'
	Common Stock				of		Paid-in		Comprehensive		Development			Equity
	Number (Note 4)		Amount		Subsidiary		Capital		Income		Stage			(Deficiency)

Balance at December 31, 2010		20,461		64,929		-		37,717		1,243		(108,815	)		(4,926	)
Stock options issued to consultants		-		-		-		20		-		-			20
Stock options issued to employees		-		-		-		129		-		-			129
Rights offering		4,697		1,023		-		199		-		(1,250	)		(28	)
Net income		-		-		-		-		-		4,685			4,685
Balance at December 31, 2011		25,158		65,952		-		38,065		1,243		(105,380	)		(120	)
Stock options issued to consultants		-		-		-		152		-		-			152
Stock options issued to employees		-		-		-		174		-		-			174
Net income		-		-		-		-		-		(5,163	)		(5,163	)
Balance at December 31, 2012		25,158		65,952		-		38,391		1,243		(110,543	)		(4,957	)
Stock options issued to consultants		-		-		-		25		-		-			25
Stock options issued to employees		-		-		-		62		-		-			62
Rights offering		4,000		838		-		732		-		-			1,570
Net income		-		-		-		-		-		1,845			1,845
Balance at December 31, 2013		29,158		66,790		-		39,210		1,243		(108,698	)		(1,455	)
Stock options issued to consultants		-		-		-		129		-		-			129
Stock options issued to employees		-		-		-		133		-		-			133
Exercise of stock options		150		-		-		53		-		-			53
Net income		-		-		-		-		-		(3,194	)		(3,194	)
Balance at March 31, 2014		29,308	$	66,790	$	-	$	39,525	$	1,243	$	(111,892	)	$	(4,334	)

(The accompanying notes are an integral part of these unaudited interim condensed financial statements)

Adherex Technologies Inc.

(a development stage company)

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

Going Concern

Adherex Technologies Inc. (“Adherex”), a British Columbia corporation together with its wholly owned subsidiaries Oxiquant, Inc. (“Oxiquant”) and Adherex Inc., both Delaware corporations, and Cadherin Biomedical Inc. (“CBI”), a Canadian corporation, collectively referred to herein as the “Company,” is a development stage biopharmaceutical company with a portfolio of product candidates under development for use in the treatment of cancer. With the exception of Adherex Inc., all subsidiaries are inactive.

These unaudited interim condensed financial statements have been prepared using generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”) that are applicable to a going concern which contemplates that Adherex will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company is a development stage company and during the three months ended March 31, 2014, incurred a net loss of $3,194 which includes an unrealized non-cash loss of $2,655 on derivative liabilities. At March 31, 2014, it had an accumulated deficit of $111,892, and had experienced negative cash flows from operating activities since inception in the amount of $87,625. In addition, it had a deficiency in working capital at March 31, 2014 and has generated an operating loss since inception.

These circumstances raise substantial doubt as to the ability of the Company to meet its obligations as they come due and, accordingly, the use of accounting principles applicable to a going concern may not be appropriate. The Company will need to obtain additional funding in the future in order to finance its business strategy beyond the current trials through the issuance of equity, debt or collaboration. If the Company fails to arrange for sufficient capital on a timely basis, it may be required to curtail its business activities until it can obtain adequate financing.

These financial statements do not reflect the potentially material adjustments in the carrying values of assets and liabilities, the reported expenses, and the balance sheet classifications used, that would be necessary if the going concern assumption were not appropriate.

Significant Accounting Policies

Basis of presentation

The accompanying unaudited interim condensed financial statements have been prepared in accordance with U.S. GAAP and are the responsibility of the Company’s management. These unaudited interim condensed financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. Accordingly, these unaudited interim condensed financial statements should be read in conjunction with the Company's audited condensed financial statements and notes filed with the Securities and Exchange Commission (“SEC”) in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. The Company's accounting policies are consistent with those presented in the audited condensed financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013. These unaudited interim condensed financial statements have been prepared in U.S. dollars.

On August 10, 2011, the Board of Directors approved a 1-for-18 reverse stock split, or “Share Consolidation”, which became effective on August 25, 2011. The 1-for-18 reverse stock split affected all of the Company’s common shares, stock options and warrants outstanding at the effective date. Consequently, the Company has retroactively adjusted its financial statements for all periods presented to show the shares, stock options and warrants as if they had always been presented on this basis. The number of units and unit prices (including with respect to the units issued in our April 2010 Private Placement and the Rights Offering) have not been adjusted to reflect the Share Consolidation, and the number of warrants outstanding have not been adjusted to reflect the Share Consolidation (in accordance with the terms of the warrants, the number of shares of common stock issuable thereunder were adjusted as a result of the Share Consolidation but not the number of warrants outstanding)

Adherex Technologies Inc.

(a development stage company)

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed financial statements and the reported amounts of revenue and expense during the reporting period. Significant estimates include certain accruals, valuation of derivative warrant liability and the value of stock based compensation. Actual results could differ from those estimates.

In the opinion of management, these unaudited interim condensed financial statements include all normal and recurring adjustments, considered necessary for the fair presentation of the Company’s financial position at March 31, 2014, and to state fairly the results for the periods presented. The most significant estimates included in these financial statements are the derivative instruments described in Note 3. There were significant changes in their valuation during the quarter.

New Accounting Pronouncements Adopted

In July 2013, the FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists," an amendment to FASB Accounting Standards Codification, or "ASC" Topic 740, Income Taxes, or "FASB ASC Topic 740." This update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. This accounting guidance did not have a material impact on our condensed financial statements or financial statement disclosures.

Cash and cash equivalents

Cash and cash equivalents consist of highly liquid investments with original maturities at the date of purchase of three months or less. The Company places its cash and cash equivalents in investments held by financial institutions in accordance with its investment policy designed to protect the principal investment. At March 31, 2014, the Company had $1,333 in money market investments (December 31, 2013 - $1,635), which typically have minimal risk and $5 in cash of which $2 (as translated to US dollars) was in Canadian dollars. At December 31, 2013, the company held $28 in cash of which $39 (as translated to US dollars) was in Canadian dollars. The Company did not experience any loss or write down of its money market investments for the three-month periods ended March 31, 2014 and 2013, respectively.

Derivative Instruments

Effective January 1, 2009, the Company adopted ASC Topic 815-40, "Derivatives and Hedging" (ASC 815-40). One of the conclusions reached under ASC 815-40 was that an equity-linked financial instrument would not be considered indexed to the entity's own stock if the strike price is denominated in a currency other than the issuer's functional currency. The conclusion reached under ASC 815-40 clarified the accounting treatment for these and certain other financial instruments. ASC 815-40 specifies that a contract would not be treated as a derivative if it met the following conditions: (a) it is indexed to the Company's own stock; and (b) it is classified in stockholders' equity in the Company's statement of financial position. The Company's outstanding warrants denominated in Canadian dollars are not considered to be indexed to its own stock because the exercise price is denominated in Canadian dollars and the Company's functional currency is United States dollars. Therefore, these warrants have been treated as derivative financial instruments and recorded at their fair value as a liability. All other outstanding convertible instruments are considered to be indexed to the Company's stock, because their exercise price is denominated in the same currency as the Company's functional currency, and are included in stockholders' deficiency.

The Company's derivative instruments include warrants to purchase 18,035 shares, the exercise prices for which are denominated in a currency other than the Company's functional currency, as follows:

Warrants to purchase 13,337 shares at CAD$1.44 per whole share that expire on April 30, 2015; and

Warrants to purchase 4,698 shares exercisable at CAD$1.44 per whole share that expire on March 29, 2016.

Adherex Technologies Inc.

(a development stage company)

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

These warrants have been recorded at their fair value as a liability at issuance and will continue to be re-measured at fair value as a liability at each subsequent balance sheet date. Any change in value between reporting periods will be recorded as unrealized gain/(loss) in the Statement of Operations. These warrants will continue to be reported as a liability until such time as they are exercised or expire. The fair value of these warrants is estimated using the Black-Scholes option-pricing model.

As of March 31, 2014, the fair value of the warrants expiring April 30, 2015 and March 29, 2016 was determined to be $3,428 and $1,974, respectively (December 31, 2013 – warrants expiring April 30, 2015, fair value of $2,015 and $794 respectively), and the loss on these warrants for the three months ended March 31, 2014 was $1,414 and $1,179, respectively (For the three months ending March 31, 2013 - warrants expiring April 30, 2015 and March 29, 2016, loss of $2,317 and $1,198). There is no cash flow impact for these derivatives until the warrants are exercised. If these warrants are exercised, the Company will receive the proceeds from the exercise at the current exchange rate at the time of exercise.

Gain/(Loss) on Derivative Instruments	Three months ended March 31, 2014			Three months ended March 31, 2013
Warrant expiring April 30, 2015		(1,414	)		(2,317	)
Warrant expiring March 29, 2016		(1,179	)		(1,198	)
Options to contractors		(62	)		(58	)
Total		(2,655	)		(3,573	)

During the fiscal years ended December 31, 2011 and 2010, the Company issued 108 and 86 (respectively) options to contractors with a Canadian dollar denominated strike price. Consequently, the Company now has derivatives relating to these options since the strike price is denominated in a currency other than the US dollar functional currency of the Company. While there is an exception to this rule for employees in ASU 2010-13 "Compensation-Stock Compensation (Topic 718): Effect of Denominating the exercise price of a share based payment award in the currency of the market in which the underlying equity security trades", no such exception exists for contractors. These options will be marked to market until the earlier of their expiry or exercise. The fair value of these options at March 31, 2014 and December 31, 2013 was $116 and $54 respectively. The loss for the three months ended March 31, 2014 and March 31, 2013 was $62 and $58 respectively.

Stockholders' Equity

Authorized capital stock

The Company’s authorized capital stock consists of an unlimited number of shares of no par common stock.

On August 10, 2011, the Board of Directors approved a 1-for-18 reverse stock split, or “share consolidation”, which became effective on August 25, 2011. The 1-for-18 reverse stock split affected all of the Company’s common shares, stock options and warrants outstanding at the effective date. Consequently, the Company has retroactively adjusted its financial statements for all periods presented to show the share shares, stock options and warrants as if they had always been presented on this basis. The number of units and unit prices (including with respect to the units issued in our 2011 Private Placement and the Rights Offering) have not been adjusted to reflect the share consolidation, and the number of warrants outstanding have not been adjusted to reflect the share consolidation (in accordance with the terms of the warrants, the number of shares of common stock issuable thereunder were adjusted as a result of the share consolidation but not the number of warrants outstanding).

Equity Financing

On November 22, 2013, the Company completed the closing of non-brokered private placement (the “Offering”) of 4,000 units for gross proceeds of US$1,600. Each unit (a “Unit”) was issued at a price of $0.40 per Unit and consisted of one common share of the Company (the “Common Shares”) and one common share purchase warrant (the “Warrants”). Each Warrant entitles the holder thereof to acquire one Common Share at a price of US$0.50 per share for a period of five years from the date of issuance.

Adherex Technologies Inc.

(a development stage company)

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

Warrants to purchase common stock

At March 31, 2014, the Company had the following warrants outstanding to purchase common stock priced in Canadian dollars with a weighted average exercise price of CAD$1.44 and a weighted average remaining life of 1.3 years:

Warrant Description	Common Shares Issuable Upon Exercise of Outstanding Warrants at March 31, 2014		Exercise Price CAD/ UDS		Expiration Date
Investor warrants (1)		13,337	$	1.44 CAD	April 30, 2015
Investor warrants (2)		4,698	$	1.44 CAD	March 29, 2016
Investor warrants (3)		4,000	$	0.50 USD	November 22, 2018
		22,035

(1) On April 30, 2010, the Company announced that it had completed a first closing of a non-brokered private placement (“Private Placement”) of 240,066 units, at a price of CAD$0.03 per unit for net proceeds of CAD$7,200. Each unit consisted of one common share and one common share purchase warrant (a “Warrant”). As a result of the share consolidation, each eighteen (18) Warrants now entitle the holder thereof to purchase one common share of the Company at a purchase price of CAD$1.44 per whole share for a period of five years from the issue date.

(2) On March 29, 2011, the Company announced that it had completed a non-brokered rights offering of 84,559 units, at a price of CAD$0.03 per unit for total net proceeds of $2,547. Each unit consisted of one common share and one common share purchase warrant (a “Warrant”). As a result of the share consolidation, each eighteen (18) Warrants now entitle the holder thereof to purchase one common share of the Company at a purchase price of CAD$1.44 per whole share for a period of five years from the issue date.

(3) On November 22, 2013, the Company announced it had completed the closing of a non-brokered private placement (the “Offering”) of 4,000 units, at a price of $0.40 USD per unit for net proceeds of $1,600 USD. Each unit consisted of one common share of the Company (the “Common Shares”) and one common share purchase warrant (the” Warrants”). Each Warrant entitles the holder thereof to acquire on Common Share at a price of US$0.50 per share for a period of five years from the date of issuance.

Stock option plan

The Compensation Committee of the Board of Directors administers the Company’s stock option plan. The Compensation Committee designates eligible participants to be included under the plan and approves the number of options to be granted from time to time under the plan. On June 24, 2010, at the Company’s annual meeting, shareholders approved an amendment to the Company’s Stock Option Plan (the “Plan Maximum Amendment”). The Plan Maximum Amendment relates to changing the maximum number of shares of common stock issuable under the stock option plan from a fixed number of 20,000 to the number of shares that represent twenty five percent (25%) of the total number of all issued and outstanding shares of common stock from time to time. Based upon the current shares outstanding, a maximum of 7,327 options are authorized for issuance under the plan. The option exercise price for all options issued under the plan is based on the fair value of the underlying shares on the date of grant. All options vest within three years or less and are exercisable for a period of seven years from the date of grant. The stock option plan, as amended, allows the issuance of Canadian and U.S. dollar grants. During the three month periods ended March 31, 2014 and 2013, the Company recognized total stock-based compensation expense of $262 and $0, respectively.

Valuation assumptions

For the three months ended March 31, 2014, the value of options granted were estimated using the Black-Scholes option pricing model using the following assumptions: expected dividend 0%; risk-free interest rate of 2.20%; expected volatility of 137%; and a 7 year expected life. The expected volatility was determined using historical volatility of our stock based on the contractual life of the award. Since no options were issued for the three months ending March 31, 2013, there are no data presented.

Adherex Technologies Inc.

(a development stage company)

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

Stock option activity

The following is a summary of option activity for the three months ended March 31, 2014 for stock options denominated in Canadian dollars:

	Number of Options(thousands)		Weighted-average Exercise Price
Outstanding at December 31, 2013		4,093	CAD$	0.79
Granted		-		-
Exercised		-		-
Expired		-		-

Outstanding at March 31, 2014		4,093	CAD$	0.79

Canadian dollar denominated options issued to contractors vest immediately and are treated as derivative liabilities. They are recorded at fair value estimated using the Black-Scholes model with the gain or loss reported as unrealized gain (loss).

The following is a summary of option activity for the three months ended March 31, 2014 for stock options denominated in U.S. dollars (all exercisable and fully vested at grant date):

	Number of Options(thousands)			Weighted-average Exercise Price
Outstanding at December 31, 2013		1,631		$	0.60
Granted		529			0.53
Exercised		(150	)		(0.35	)
Expired		-			-

Outstanding at March 31, 2014		2,010		$	0.55

Fair Value Measurements

The Company has adopted the Fair Value Measurements and Disclosure Topic of the FASB. This Topic applies to certain assets and liabilities that are being measured and reported on a fair value basis. The Fair Value Measurements Topic defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. This Topic enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The Topic requires that financial assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

Assets/Liabilities Measured at Fair Value on a Recurring Basis

	Fair Value Measurement at March 31, 2014
	Quoted Price in			Significant
	Active Markets			Other		Significant
	for Identical			Observable		Unobservable
	Instruments			Inputs		Inputs
	Level 1			Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	5	(1)	$	1,333	$	-	$	1,338
Liabilities

Derivative liabilities		-			5,517		-		5,517

TOTAL	$	5		$	6,850	$	-	$	6,855

Adherex Technologies Inc.

(a development stage company)

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

The Company's financial instruments include cash equivalents and derivatives. Only cash and cash equivalents and derivatives are carried at their fair value. The derivative liabilities include warrants denominated in a currency other than the Company’s functional currency and options issued to contractors in a currency other than the functional currency of the Company.

(1)

Company held $5 in cash of which $2 (as translated to US dollars) was in Canadian funds.

6. Commitments and contingencies

	Less than		1 - 3
	1 year		years		Total
LifeSci Advisors, LLC	$	25	$	-	$	25
Advantar Laboratories, Inc.		42		-		42

Total	$	67	$	-	$	67

LifeSci Advisors, LLC.

The Company has a service agreement with LifeSci Advisors, LLC under which it is required to make several payments over the course of the agreement. LifeSci Advisors, LLC services include, but are not limited to, an investor meeting program and creating a key message platform.

Advantar Laboratories, Inc.

On March 24, 2014, Advantar Laboratories, Inc. was engaged to develop a stability indicating HPLC test method for the determination of assay and impurities in Adherex’s sodium thiosulfate drug product, and; perform qualifications testing to demonstrate the method’s accuracy, precision, linearity and LOD/LOQ. The agreement calls for various payments associated with defined deliverables over the course of one year from the contract’s initiation date. Total fees associated with development of method and documentation is $42. Agreement will automatically extend for one year without written notification by the project Sponsor and Advantar.

Oregon Health & Science University Agreement

On February 20, 2013, Adherex terminated the previous exclusive license agreement with OHSU and Oxiquant a wholly owned subsidiary of Adherex, dated September 26, 2002 (the "Previous OHSU Agreement"). Pursuant to the Previous OHSU Agreement, OHSU granted Oxiquant an exclusive worldwide license to intellectual property directed to thiol-based compounds including Sodium Thiosulfate (“STS") and their use in oncology. In consideration, OHSU was issued 13,902 shares of common stock of Oxiquant that were subsequently converted upon the acquisition of Oxiquant into 21,250 shares of Adherex common stock, and warrants to purchase shares of Adherex common stock that subsequently expired in 2007.

On February 20, 2013, Adherex entered into a new exclusive license agreement with Oregon Health & Science University (“OHSU”) for exclusive worldwide license rights to intellectual property directed to thiol-based compounds, including STS and their use in oncology (the "New OHSU Agreement"). OHSU will receive certain milestone payments, a 2.5 percent royalty on net sales for licensed products which can be reduced to 1.0 percent upon a $150 buy down and a 5 percent royalty on any consideration received from sublicensing of the licensed technology. Milestone payment fees payable to OHSU include $100 upon first commercial sale for any licensed product.

The term of the New OHSU Agreement expires on the date of the last to expire claim(s) covered in the patents licensed to Adherex, unless earlier terminated as provided in the agreement. STS is currently protected by methods of use patents that the Company exclusively licensed from OHSU that expire in Europe in 2021 and are currently pending in the United States. The New OHSU Agreement is terminable by either Adherex or OHSU in the event of a material breach of the agreement by either party after 45 days prior written notice. Adherex also has the right to terminate the New OHSU Agreement at any time upon 60 days prior written notice and payment of all fees due to OHSU under the New OHSU Agreement.

In the event of his termination with us other than for cause, the Company will pay CEO, Rostislav Raykov, severance compensation equal to 12 months of salary, ($160).

Adherex Technologies Inc.

(a development stage company)

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

7. Subsequent Events

On April 25, 2014, Adherex elected two new members to the board of directors, Adrian Haigh and Dr. Khalid Islam. Both Mr. Haigh and Dr. Islam were granted 400,000 options in accordance with their board service agreements. The new members fill the vacancies left by the departure of Robert Andrade and David Lieberman.

In addition to the options issued to the new board members, on April 25, 2014, the Company granted options to other board members. The following table describes the details of the options granted:

	Grant	Strike		Number of
	Date	Price		Options Granted
Chris Rallis	April 25, 2014		0.77		12,987
Steven Skolsky	April 25, 2014		0.77		12,987
Adrian Haigh	April 25, 2014		0.77		400,000	⁽¹⁾
Dr. Khalid Islam	April 25, 2014		0.77		400,000	⁽¹⁾

Total options granted					825,974

(1) Such options shall vest: (i) as to 200,000 Common Shares, on the date of grant; and (ii) as to 200,000 Common Shares, upon and subject to orphan drug approval of STS in the EU, provided that they then remain on the Board at the time of such approval and that they have played a vital or precipitating part in obtaining such EU orphan drug designation, as reasonably determined by non-interested Board members. If the vesting conditions referred to in (ii) above have not occurred by May 31, 2016, the option to acquire the 200,000 common shares referred to in (ii) above shall be terminated and of no further force or effect.

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

CAUTIONARY STATEMENT

The discussion below contains forward-looking statements regarding our financial condition and our results of operations that are based upon our annual condensed financial statements, which have been prepared in accordance with generally accepted accounting principles within the United States, or U.S. GAAP, and applicable U.S. Securities and Exchange Commission, or SEC, regulations for financial information. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable.

Overview

In December 2008 we received notice from the American Stock Exchange that we were not in compliance with Section 1003(a)(ii) of its Company Guide, because our stockholders’ equity was below $6 million and we incurred losses from continued operation and net losses in the five most recent fiscal years. On January 29, 2009, we voluntarily filed to delist our common stock from the American Stock Exchange and effective January 29, 2009 our common stock was no longer traded on the American Stock Exchange. As a result, any trading of our common stock in the U.S. must now be conducted in the over-the-counter markets. Our common stock continues to trade on the Toronto Stock Exchange. The Toronto Stock Exchange also has continuing listing standards, including minimum market capitalization and other requirements, that we might not meet in the future, particularly if the price of our common stock does not increase or we are unable to raise capital to continue our operations. On September 18, 2012, the Toronto Stock Exchange issued an official delisting review of our common stock. On January 7, 2013, the Toronto Stock Exchange announced that it had completed its review of the common shares of the Company and had determined that the Company meets TSX's continuing listing requirements.

Patient enrollment has been completed in the Phase III trial of STS conducted by the Children's Oncology Group. The final results of the study are expected to be presented in the second quarter of 2014. The International Childhood Liver Tumour Strategy Group, known as SIOPEL study is continuing to enroll patients. Interim safety data are expected to be presented in the second quarter of 2014. Each of these trials is managed by SIOPEL and the Children’s Oncology Group, respectively, and each group is responsible for the costs of the trial. We continue to hold STS patents and our responsibility in the testing is limited to providing the drug, drug distribution and pharmacovigilance, or safety monitoring, for the study. The SIOPEL trial is expected to enroll approximately 100 pediatric patients with liver (hepatoblastoma) cancer at participating SIOPEL centers worldwide. The Company's Children Oncology Group study completed enrollment of 135 patients during the first quarter of 2012. The SIOPEL trial has enrolled 103 patients as of March 14, 2014.

Eniluracil was previously under development by GlaxoSmithKline (“GSK”). GSK advanced Eniluracil into a comprehensive Phase III clinical development program that did not produce positive results and GSK terminated further development. We developed a hypothesis as to why the GSK Phase III trials were not successful and licensed the compound from GSK in July 2005. We believe that Eniluracil might enhance and expand the therapeutic spectrum of activity of 5-FU, reduce the occurrence of a disabling side effect known as hand foot syndrome and allow 5-FU to be given orally. Adherex completed the enrollment of a Phase II trial comparing Eniluracil/5-FU/leucovorin vs. capecitabine in metastatic breast cancer patients at the end of 2012 after having enrolled 153 patients. After the completion of enrollment and with preliminary results of the trial, Adherex had an End-of-Phase 2 meeting with the FDA on May 22, 2013 to discuss the potential further development of Eniluracil. During the meeting, Adherex reviewed the opportunity that Eniluracil offers to Metastatic Breast Cancer (MBC) patients who had rapid disease progression on capecitabine. Adherex proposed a small pivotal single arm clinical study addressing the special ability of Eniluracil/5-FU/leucovorin to meet the medical needs of these patients. However, the FDA strongly recommended that Adherex consider other larger clinical trial design alternatives for the future development of Eniluracil in MBC. We believe that it would be in the best interests of our shareholders and the cancer community to focus on seeking a partnership for Eniluracil, which may include the Company evaluating viable indications for Eniluracil other than MBC. Data from the Phase 2 trial was published in a scientific journal.

We have not received and do not expect to have significant revenues from our product candidates until we are either able to sell our product candidates after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties or other revenue. We generated a net loss of approximately $3.2 million for the three months ended March 31, 2014 and generated net losses of $4.1 million for the three months ended March 31, 2013 (as a result of a non-cash loss on derivatives of $2.7 million and $3.6 million for the three months ending March 31, 2014 and 2013, respectively). As of March 31, 2014, our deficit accumulated during development stage was approximately $111.9 million.

As a result of our limited financial resources we have postponed or terminated many of our previously planned or ongoing clinical development programs, including our Eniluracil program. We continue to pursue various strategic alternatives, including collaborations with other pharmaceutical and biotechnology companies. As a result, there is uncertainty of our ability to continue as a going concern. Our projections of our capital requirements are subject to substantial uncertainty. More capital than we anticipated may be required thereafter. To finance our continuing operations we will need to raise substantial additional funds through either the sale of additional equity, the issuance of debt, the establishment of collaborations that provide us with funding, the out-license or sale of certain aspects of our intellectual property portfolio or from other sources. Given current economic conditions, we might not be able to raise the necessary capital or such funding may not be available on financially acceptable terms if at all. If we cannot obtain adequate funding in the future, we might be required to further delay, scale back or eliminate certain research and development studies, consider business combinations or even shut down some, or all, of our operations.

Our operating expenses will depend on many factors, including the progress of our drug development efforts and the implementation of further cost reduction measures. Our research and development expenses, which include expenses associated with our clinical trials, drug manufacturing to support clinical programs, salaries for research and development personnel, stock-based compensation, consulting fees, sponsored research costs, toxicology studies, license fees, milestone payments, and other fees and costs related to the development of product candidates, will depend on the availability of financial resources, the results of our clinical trials and any directives from regulatory agencies, which are difficult to predict. Our general and administration expenses include expenses associated with the compensation of employees, stock-based compensation, professional fees, consulting fees, insurance and other administrative matters associated in support of our drug development programs.

On November 22, 2013, we announced that we had completed a $1.6 million equity financing. Further development of STS or Eniluracil will require additional capital.

Results of Operations

Three months ended March 31, 2014 versus three months ended March 31, 2013:

	Three Months						Three Months
	Ended						Ended
In thousands of U.S. Dollars	March 31, 2014			%			March 31, 2013			%			Change

Revenue	$	-					$	-					$	-
Operating expenses:
Research and development		32			6	%		178			33	%		(146	)
General and administration		505			94	%		359			67	%		146
Total operating expenses		537			100	%		537			100	%		-

Loss from operations		(537	)					(537	)					-

Unrealized gain/(loss) on derivatives		(2,655	)					(3,573	)					918
Interest and other (loss) / income		(2	)					2						(4	)
Net gain/(loss) and total comprehensive gain/(loss)	$	(3,194	)				$	(4,108	)				$	914

There was a significant decrease in research and development expenses for the three months ended March 31, 2014 as compared to the same period in 2013 due to the winding down of the Phase II Eniluracil trial. Research and development costs are impacted by the clinical support costs associated with the amount of patients enrolled and participating in the trial during the financial period.

The Company recorded an unrealized loss on derivatives of $2,655 in the three months ended March 31, 2014 compared to an unrealized loss of $3,573 in the three months ended March 31, 2013. These derivatives have been recorded at their fair value as a liability at issuance and will continue to be re-measured at fair value as a liability at each subsequent balance sheet date. Any change in value between reporting periods will be recorded as an unrealized gain/(loss). These warrants will continue to be reported as a liability until such time as they are exercised or expire. The fair value of these warrants is estimated using the Black-Scholes option-pricing model.

Quarterly Information

The following table presents selected condensed financial data for each of the last eight quarters through March 31, 2014, as prepared under U.S. GAAP (U.S. dollars in thousands, except per share information):

				Basic & Diluted
	Net (Loss)/Income			Net (Loss)/Income
Period	for the Period			per Common Share
June 30, 2012	$	(602	)	$	(0.02	)
September 30, 2012	$	(764	)	$	(0.03	)
December 31, 2012	$	(6,511	)	$	(0.26	)
March 31, 2013	$	(4,108	)	$	(0.16	)
June 30, 2013	$	6,607		$	0.26
September 30, 2013	$	(1,766	)	$	(0.07	)
December 31, 2013	$	1,112		$	(0.04	)
March 31, 2014	$	(3,194	)	$	(0.11	)

Liquidity and Capital Resources

Dollars in thousands	March 31, 2014			December 31, 2013
Selected Asset and Liability Data:
Cash and cash equivalents		1,338			1,663
Other current assets		56			89
Capital assets		-			-
Current liabilities excluding derivative warrant liabilities		211			344
Derivative warrant liability		5,517			2,863
Long term liabilities		-			-
Working capital⁽¹⁾		1,183			1,408

Selected Equity:
Common Stock		66,790			66,790
Accumulated deficit		(111,892	)		(108,698	)
Stockholders' (deficit)		(4,334	)		(1,455	)

⁽¹⁾

[Current Assets - Current Liabilities excluding derivative liability]

Cash and cash equivalents were $1,663 at December 31, 2013 and $1,338 at March 31, 2014. The decrease of approximately $325 is attributable to the Company's operating expenses.

Since our inception on September 3, 1996, we have financed our operations through the sale of equity and debt securities and have raised gross proceeds totaling approximately $90.1 million through March 31, 2014. We have incurred net losses and negative cash flow from operations each year, and we had an accumulated deficit of $111,892 at March 31, 2014. We have not generated any revenues to date through the sale of products. We do not expect to have significant revenues or income, other than interest income, until we are able to sell our product candidates after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties or other payments.

Net cash used in operating activities for the three months ended March 31, 2014 was $378, as compared to $407 during the same period in 2013. This decrease is due to decreased research and development expenses incurred from the Phase II Eniluracil trial. Net cash provided by financing activities for the three months ended March 31, 2014 was $53 compared to $0 for the three months ended March 31, 2013. The $53 of net financing cash represented the aggregate exercise price paid in connection with 150 options being exercised to purchase common shares on March 5, 2014.

Outstanding Share Information

The outstanding share data for our company as of March 31, 2014 (in thousands):

	March 31, 2014
Common shares		29,308
Warrants		22,035
Stock options		6,103

Total		57,446

Financial Instruments

We invest excess cash and cash equivalents in high credit quality investments held by financial institutions in accordance with our investment policy designed to protect the principal investment. At March 31, 2014, we had approximately $1.33 million in cash accounts. We have not experienced any loss or write down of our money market investments for the three months ended March 31, 2014 and 2013, respectively.

Our investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Investments may be made in U.S. or Canadian obligations and bank securities, commercial paper of U.S. or Canadian industrial companies, utilities, financial institutions and consumer loan companies, and securities of foreign banks provided the obligations are guaranteed or carry ratings appropriate to the policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted average time to maturity of twelve months. This policy applies to all of our financial resources.

The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. As our main purpose is research and development, we have chosen to avoid investments of a trading or speculative nature.

Off-Balance Sheet Arrangements

Since our inception, we have not had any material off-balance sheet arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such activities.

Research and Development

Our research and development efforts have been focused on the development of Eniluracil and STS.

We have established relationships with contract research organizations, universities and other institutions, which we utilize to perform many of the day-to-day activities associated with our drug development. Where possible, we have sought to include leading scientific investigators and advisors to enhance our internal capabilities. Research and development issues are reviewed internally by our executive management and supporting scientific staff.

Research and development expenses totaled $0.03 million and $0.2 million for the three months ended March 31, 2014 and 2013, respectively.

Our product candidates are in various stages of development and still require significant, time-consuming and costly research and development, testing and regulatory clearances. In developing our product candidates, we are subject to risks of failure that are inherent in the development of products based on innovative technologies. For example, it is possible that any or all of these products will be ineffective or toxic, or will otherwise fail to receive the necessary regulatory clearances. There is a risk that our product candidates will be uneconomical to manufacture or market or will not achieve market acceptance. There is also a risk that third parties may hold proprietary rights that preclude us from marketing our product candidates or that others will market a superior or equivalent product. As a result of these factors, we are unable to accurately estimate the nature, timing and future costs necessary to complete the development of these product candidates. In addition, we are unable to reasonably estimate the period when material net cash inflows could commence from the sale, licensing or commercialization of such product candidates, if ever.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. These estimates are based on assumptions and judgments that may be affected by commercial, economic and other factors. Actual results could differ from these estimates.

Our accounting policies are consistent with those presented in our annual condensed financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Money Market Investments

We maintain an investment portfolio consisting of U.S. or Canadian obligations and bank securities and money market investments in compliance with our investment policy. We do not hold any mortgaged-backed investments in our investment portfolio. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted average time to maturity of twelve months. This policy applies to all of our financial resources.

At March 31, 2014, we had approximately $1,333 in money market investments which typically have minimal market risk. We have not experienced any loss or write down of our money market investments for the three months ended March 31, 2014 and 2013.

Our investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Our risk associated with fluctuating interest rates on our investments is minimal and not significant to the results of operations. We currently do not use interest rate derivative instruments to manage exposure to interest rate changes. As the main purpose is research and development, we have chosen to avoid investments of a trade or speculative nature.

Foreign Currency Exposure

We are subject to foreign currency risks as we conduct certain clinical development activities in Canada, the United Kingdom, Europe, Russia and the Pacific Rim. To date, we have not employed the use of derivative instruments to hedge our exposure to changes in currency exchange rates; however, we do hold Canadian dollars which we use to pay certain research and other corporate obligations conducted in Canada. At March 31, 2014, we held approximately $2 Canadian dollars.

Item 4. Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures.

In connection with the preparation of this report, an evaluation was carried out by the Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of March 31, 2014. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, the Company’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were not effective as a result of having identified one material weaknesses in our internal control over financial reporting, as described in further detail below.

Our management has identified a control deficiency because we lack sufficient staff to segregate accounting duties. We believe the control deficiency results primarily because we have one full time individual performing all accounting and financial reporting duties. As a result, we do not maintain adequate segregation of duties within our critical financial reporting applications, the related modules and financial reporting processes. This control deficiency could result in a misstatement of balance sheet and income statement accounts in our interim or annual condensed financial statements that would not be detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

After the Company filed its Current Report on Form 8-K under Item 4.02 on November 2, 2010, the Company took remedial actions for our previously reported internal control weakness of not maintaining sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of U.S. GAAP commensurate with our complexity and our financial accounting and reporting requirements. In 2012, the Company contracted additional personnel with experience in the application of U.S. GAAP financial accounting and reporting requirements in order to assist management in its financial accounting and reporting functions. As a result, the Company believes that this added experience and knowledge has remediated the previously disclosed material internal control weakness.

To finance our continuing operations, we will need to raise additional funds beyond those from our private placement in November 2013 and, as disclosed elsewhere in this report, there remains substantial uncertainty of our ability to continue as a going concern and the failure to obtain such funds might require us to further delay, scale back or eliminate certain research and development studies, consider business combinations, or even shut down some, or all, of our operations. Once we are able to secure such additional financing, we anticipate hiring additional personnel with appropriate technical accounting knowledge, experience, and training in the application of U.S. GAAP to supplement our current accounting staff.

(b)

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors.

Additional Risks Related to our Business

We do not presently have the financial or human resources to complete Phase III trials for our lead product candidates.

We do not presently have the financial or human resources internally to complete Phase III trials for any of our lead product candidates. If these trials are successful, and if we decide to continue to develop Eniluracil, we will need additional funding, or we will need to enlist a partner to conduct future trials.

We are currently developing STS in Phase III trials in collaboration with the International Childhood Liver Tumour Strategy Group, known as SIOPEL and the Children's Oncology Group. It is possible SIOPEL and the Children's Oncology Group may not conduct or complete the clinical trials with STS as currently planned. Such collaborators might not commit sufficient resources to the development of our product candidates, which may lead to significant delays. We have already experienced significant delays in the activation of the Children's Oncology Group trial and subsequent accrual of patients into the Children's Oncology Group and SIOPEL clinical trials. We may not be able to independently develop or conduct such trials ourselves.

We continue to seek a licensing or funding partner for the further development of one or all of our product candidates. If a partner for one or all of these technologies is not found, we may not be able to further advance these products. If a partner is found, the financial terms that they propose may not be acceptable to us.

There is no assurance that we will successfully develop a commercially viable product.

Since our formation in September 1996, we have engaged in research and development programs. We have generated no revenue from product sales, we do not have any products currently available for sale, and none are expected to be commercially available for sale until we have completed additional clinical trials, if at all. There can be no assurance that the research we fund and manage will lead to commercially viable products. Our intention is to commence a Phase II study for Eniluracil and STS is currently in a Phase III study. Our products must still undergo substantial additional regulatory review prior to commercialization.

We anticipate the need for additional capital in the future and if we cannot raise additional capital, we will not be able to fulfill our business plan.

We need to obtain additional funding in the future in order to finance our business strategy, operations and growth. We may not be able to obtain additional financing in sufficient amounts or on acceptable terms when needed. If we fail to arrange for sufficient capital on a timely basis, we may be required to curtail our business activities until we can obtain adequate financing. Debt financing must be repaid regardless of whether or not we generate profits or cash flows from our business activities. Equity financing may result in dilution to existing stockholders and may involve securities that have rights, preferences, or privileges that are senior to our common stock or other securities. If we cannot raise sufficient capital when necessary, we will likely have to curtail operations and you may lose part or all of your investment.

We may be unable to effectively deploy the proceeds from our recent financings for the development of STS.

In November 2013, we announced the closing of a private placement for proceeds of $1.6 million. Any inability on our part to manage effectively the deployment of this capital could limit our ability to successfully develop STS.

Additional Risks Related to our Common Stock

We may be unable to maintain the listing of our common stock on the TSX and that would make it more difficult for stockholders to dispose of their common stock.

Our common stock is currently listed on the TSX. The TSX has rules for continued listing, including minimum market capitalization and other requirements, that we might not meet in the future, particularly if the price of our common stock does not increase or we are unable to raise additional capital to continue operations. On September 8, 2012, the Toronto Stock Exchange issued an official delisting review of our common stock. The remedial delisting review was initiated because the value of the shares of our common stock that are held by “public shareholders” had been below the CAD $2.0 million threshold required under the TSX continuing listing standards for a period of 30 consecutive trading days. On January 7, 2013, the Toronto Stock Exchange completed its review of the Company and determined that the Company met TSX's continued listing requirements.

Delisting from the TSX would make it more difficult for stockholders to dispose of their common stock and more difficult to obtain accurate quotations on our common stock. This could have an adverse effect on the price of our common stock. There can be no assurances that a market maker will make a market in our common stock on the OTCQB or any other stock quotation system after delisting. Furthermore, securities quoted on the Pink Sheets generally have significantly less liquidity than securities traded on a national securities exchange, not only in the number of shares that can be bought and sold, but also through delays in the timing of transactions and lower market prices than might otherwise be obtained. As a result, stockholders might find it difficult to resell shares at prices quoted in the market or at all. Furthermore, because of the limited market and generally low volume of trading in our common stock, our common stock is more likely to be affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in the market’s perception of our business, and announcements made by us, our competitors or parties with whom we have business relationships. Our ability to issue additional securities for financing or other purposes, or to otherwise arrange for any financing we may need in the future, may also be materially and adversely affected by the fact that our securities are not traded on a national securities exchange.

Our common stock is deemed to be a “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.

Our common stock is subject to Rule 15g-1 through 15g-9 under the Exchange Act, which imposes certain sales practice requirements on broker-dealers which sell our common stock to persons other than established customers and “accredited investors” who are generally individuals with a net worth in excess of $1,000,000 (excluding the value of their primary residence) or annual incomes exceeding $200,000 or $300,000 together with their spouses. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and the ability of our stockholders to sell their shares of common stock.

Additionally, our common stock is subject to the SEC regulations for “penny stock.” Penny stock includes any equity security that is not listed on a national exchange and has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule set forth by the SEC relating to the penny stock market must be delivered to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for the common stock. The regulations also require that monthly statements be sent to holders of penny stock that disclose recent price information for the penny stock and information on the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On April 3, 2013, May 14, 2013, August 13, 2013 and August 23, 2013, the Company issued 25,000, 10,204, 31,250 and 250,000 stock options, respectively, to certain consultants and officers of the Company. The options were issued in a private placement exempt under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). The options were issued in USD dollar denominated grants at an exercise price of $0.80, $0.98, $0.32 and $0.24 per share, respectively, and are exercisable for a period of 7 years from the grant date.

Item 3. Default Upon Senior Securities

None.

Item 4.Mine Safety Disclosure

None. Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.		Description

31.1		Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification of Chief Executive Officer and Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

99.1		Press Release for Quarter Ended March 31, 2014 (filed herewith).

101.1		Interactive Data File

SIGNATURES

Pursuant to 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.

	Adherex Technologies Inc.

Date: May 15, 2014	By:	/s/ Rostislav Raykov
		Rostislav Raykov
		Chief Executive Officer
		(principal executive officer)

Date: May 15, 2014	By:	/s/ Krysia Lynes
		Krysia Lynes
		Chief Financial Officer
		(principal financial and chief accounting officer)