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, 2010





OR





 ̈           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)





Canada
                  (State
      or Other Jurisdiction of
                  Incorporation
      or Organization
                20-0442384
                  (I.R.S.
      Employer
                  Identification
      No.)501
      Eastowne Drive, Suite 140
                  Chapel
      Hill, North Carolina(Address
      of Principal Executive Offices)
                27514
                  (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 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
13, 2010, there were 368,293,451 shares of Adherex Technologies Inc. common
stock outstanding.





TABLE
OF CONTENTS





PagePART
      I: FINANCIAL INFORMATIONItem
      1.  Financial Statements (unaudited)
                3Unaudited
      Condensed Consolidated Balance Sheets – March 31, 2010 and December 31,
      2009
                3Unaudited
      Condensed Consolidated Statements of Operations - Three Months Ended March
      31, 2010 and 2009
                4Unaudited
      Condensed Consolidated Statements of Cash Flows - Three Months Ended March
      31, 2010 and 2009
                5Unaudited
      Condensed Consolidated Statements of Stockholders' Equity– For the Period
      Ended September 3, 1996 to March 31, 2010
                6Notes
      to Unaudited Condensed Consolidated Financial Statements
                9Item
      2.  Management's Discussion and Analysis of Financial Condition
      and Results of Operations
                14Item
      3.  Quantitative and Qualitative Disclosures about Market
      Risk
                20Item
      4.  Controls and Procedures
                20PART
      II: OTHER INFORMATION
                21Item
      1A.  Risk Factors
                21Item
      6.  Exhibits
                22Signatures
                23


2


PART
1:  FINANCIAL INFORMATION


Item
1.  Financial Statements





Adherex
Technologies Inc.


(a
development stage company)


Unaudited
Interim Consolidated Balance Sheets


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





March 31,
                  2010
              
              
              December 31,
                  2009AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              348
              
              
              $
              685Cash
      pledged as collateral
              
              
              -
              
              
              
              -Accounts
      receivable
              
              
              43
              
              
              
              69Prepaid
      expense
              
              
              75
              
              
              
              75Other
      current Assets
              
              
              4
              
              
              
              4Total
      current assets
              
              
              470
              
              
              
              833Capital
      assets
              
              
              -
              
              
              
              -Leasehold
      inducements
              
              
              -
              
              
              
              -Total
      assets
              
              $
              470
              
              
              $
              833Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts
      payable
              
              $
              338
              
              
              $
              318Accrued
      liabilities
              
              $
              53
              
              
              
              70Other
      current liabilities
              
              
              32
              
              
              
              32Total
      current liabilities
              
              
              423
              
              
              
              420Other
      long-term liabilities
              
              
              7
              
              
              
              7Deferred
      lease inducement
              
              
              -
              
              
              
              -Total
      liabilities
              
              
              430
              
              
              
              427Commitments
      and contingenciesStockholders'
      equity:Common
      stock, no par value; unlimited shares authorized; 128,227 shares issued
      and outstanding
              
              
              64,929
              
              
              
              64,929Additional
      paid-in capital
              
              
              35,225
              
              
              
              35,225Deficit
      accumulated during development stage
              
              
              (101,357
              )
              
              
              (100,991
              )Accumulated
      other comprehensive income
              
              
              1,243
              
              
              
              1,243Total
      stockholders’ equity
              
              
              40
              
              
              
              406Total
      liabilities and stockholders’ equity
              
              $
              470
              
              
              $
              833





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


3


Adherex
Technologies Inc.


(a
development stage company)


Unaudited
Condensed Consolidated Statements of Operations


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





Three Months Ended
              
              
              Cumulative
                From
                September 3,
                1996 toMarch 31,
                  2010
              
              
              March 31,
                  2009
              
              
              March 31,
                  2010Revenue
              
              $
              -
              
              
              $
              -
              
              
              $
              -Operating
      expenses:Research
      and development
              
              
              163
              
              
              
              1,279
              
              
              
              65,053Impairment
      of Capital Assets
              
              
              
              
              
              
              
              
              
              
              386Gain
      on Deferred lease inducements
              
              
              
              
              
              
              
              
              
              
              (497
              )Acquired
      in-process research and development
              
              
              -
              
              
              
              -
              
              
              
              13,094General
      and administrative
              
              
              203
              
              
              
              673
              
              
              
              24,913Total
      operating expenses
              
              
              366
              
              
              
              1,952
              
              
              
              102,949Loss
      from operations
              
              
              (366
              )
              
              
              (1,952
              )
              
              
              (102,949
              )Other
      income (expense):Settlement
      of Cadherin Biomedical Inc. litigation
              
              
              -
              
              
              
              -
              
              
              
              (1,283
              )Interest
      expense
              
              
              -
              
              
              
              -
              
              
              
              (19
              )Loss
      on impairment of assets held for sale
              
              
              -
              
              
              
              (340
              )
              
              
              255Interest
      income
              
              
              -
              
              
              
              46
              
              
              
              2,797Total
      other income and expense, net
              
              
              -
              
              
              
              (294
              )
              
              
              1,252Net
      loss and comprehensive loss
              
              $
              (366
              )
              
              $
              (2,246
              )
              
              $
              (101,199
              )Basic
      and diluted net loss per common share
              
              $
              (0.00
              )
              
              $
              (0.02
              )Weighted-average
      common shares used in computing basic and diluted net loss per common
      share
              
              
              128,227
              
              
              
              128,227





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


4


Adherex
Technologies Inc.


(a
development stage company)


Unaudited
Condensed Consolidated Statements of Cash Flows


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





Three
      Months Ended
                    
                    
                    Cumulative
                      From
                      September
      3,
                      1996
      toMarch
      31,
                        2010
                    
                    
                    March
      31,
                        2009
                    
                    
                    March
      31,
                        2010Cash
      flows from (used in):Operating
      activities:Net
      loss
                    
                    $
                    (366
                    )
                    
                    $
                    (2,246
                    )
                    
                    $
                    (101,199
                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,404Non-cash
      Cadherin Biomedical Inc. litigation expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,187Unrealized
      foreign exchange loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    9Amortization
      of deferred lease inducements
                    
                    
                    0
                    
                    
                    
                    (24
                    )
                    
                    
                    (412
                    )Loss
      on impairment of capital assets
                    
                    
                    0
                    
                    
                    
                    340
                    
                    
                    
                    386Non-cash
      severance expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    168Stock
      options issued to consultants
                    
                    
                    -
                    
                    
                    
                    5
                    
                    
                    
                    722Stock
      options issued to employees
                    
                    
                    -
                    
                    
                    
                    296
                    
                    
                    
                    7,703Acquired
      in-process research and development
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    13,094Changes
      in operating assets and liabilities
                    
                    
                    29
                    
                    
                    
                    (673
                    )
                    
                    
                    (114
                    )Net
      cash used in operating activities
                    
                    
                    (337
                    )
                    
                    
                    (2,302
                    )
                    
                    
                    (77,049
                    )Investing
      activities:Purchase
      of capital assets
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,440
                    )Disposal
      of capital assets
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    115Release
      of restricted cash
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    190Restricted
      cash
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (209
                    )Purchase
      of short-term investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (22,148
                    )Redemption
      of short-term investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    22,791Investment
      in Cadherin Biomedical Inc.
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (166
                    )Acquired
      intellectual property rights
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (640
                    )Net
      cash used in investing activities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,507
                    )Financing
      activities:Conversion
      of long-term debt to equity
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    68Long-term
      debt repayments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (65
                    )Capital
      lease repayments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (8
                    )Issuance
      of common stock, net of issue costs
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    76,687Registration
      expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (465
                    )Financing
      expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (544
                    )Proceeds
      from convertible note
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,017Other
      liability repayments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (87
                    )Security
      deposits
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    35Proceeds
      from exercise of stock options
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    51Net
      cash provided in financing activities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    78,713368Effect
      of exchange rate changes on cash and cash equivalents
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Net
      change in cash and cash equivalents
                    
                    
                    (337
                    )
                    
                    
                    (2,302
                    )
                    
                    
                    -Cash
      and cash equivalents - Beginning of period
                    
                    
                    685
                    
                    
                    
                    5,349
                    
                    
                    
                    -Cash
      and cash equivalents - End of period
                    
                    $
                    348
                    
                    
                    $
                    3,047
                    
                    
                    $
                    348





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


5




Adherex
Technologies Inc.
 (a
development stage company)
 Unaudited
Condensed Consolidated Statements of Stockholders' Equity
 (U.S.
dollars and shares in thousands, except per share information)


Common Stock
                  
                  Non-redeemable
                    Preferred Stock
                  
                  Additional
                    Paid-in
                  
                  Accumulated
                    Other
                    Comprehensive
                  
                  Deficit
                    Accumulated
                    During
                    Development
                  
                  Total
                    Shareholders’Number
                  
                  Amount
                  
                  of Subsidiary
                  
                  Capital
                  
                  Income
                  
                  Stage
                  
                  EquityBalance
      at June 30, 1996
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -Issuance
      of common stock
                  
                  
                  1,600
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Net
      loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (37
                  )
                  
                  (37
                  )Balance
      at June 30, 1997
                  
                  
                  1,600
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (37
                  )
                  
                  (37
                  )Net
      loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (398
                  )
                  
                  (398
                  )Balance
      at June 30, 1998
                  
                  
                  1,600
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (435
                  )
                  
                  (435
                  )Exchange
      of Adherex Inc. shares for Adherex Technologies Inc.
shares
                  
                  
                  (1,600
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Issuance
      of common stock
                  
                  
                  4,311
                  
                  
                  1,615
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,615Cumulative
      translation adjustment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  20
                  
                  
                  -
                  
                  
                  20Net
      loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (958
                  )
                  
                  (958
                  )Balance
      at June 30, 1999
                  
                  
                  4,311
                  
                  
                  1,615
                  
                  
                  -
                  
                  
                  -
                  
                  
                  20
                  
                  
                  (1,393
                  )
                  
                  242Issuance
      of common stock
                  
                  
                  283
                  
                  
                  793
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  793Issuance
      of equity rights
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  171
                  
                  
                  -
                  
                  
                  -
                  
                  
                  171Issuance
      of special warrants
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  255
                  
                  
                  -
                  
                  
                  -
                  
                  
                  255Settlement
      of advances:Issuance
      of common stock
                  
                  
                  280
                  
                  
                  175
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  175Cancellation
      of common stock
                  
                  
                  (120
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Cumulative
      translation adjustment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  16
                  
                  
                  -
                  
                  
                  16Net
      loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,605
                  )
                  
                  (1,605
                  )Balance
      at June 30, 2000
                  
                  
                  4,754
                  
                  
                  2,583
                  
                  
                  -
                  
                  
                  426
                  
                  
                  36
                  
                  
                  (2,998
                  )
                  
                  47Issuance
      of common stock:Initial
      Public Offering (“IPO”)
                  
                  
                  1,333
                  
                  
                  5,727
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (38
                  )
                  
                  5,689Other
                  
                  
                  88
                  
                  
                  341
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  341Issuance
      of special warrants
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,722
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,722Conversion
      of special warrants
                  
                  
                  547
                  
                  
                  1,977
                  
                  
                  -
                  
                  
                  (1,977
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -Issuance
      of Series A special warrants
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  4,335
                  
                  
                  -
                  
                  
                  -
                  
                  
                  4,335Conversion
      of Series A special warrants
                  
                  
                  1,248
                  
                  
                  4,335
                  
                  
                  -
                  
                  
                  (4,335
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -Conversion
      of equity rights
                  
                  
                  62
                  
                  
                  171
                  
                  
                  -
                  
                  
                  (171
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -Cumulative
      translation adjustment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  182
                  
                  
                  -
                  
                  
                  182Net
      loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (2,524
                  )
                  
                  (2,524
                  )Balance
      at June 30, 2001
                  
                  
                  8,032
                  
                  
                  15,134
                  
                  
                  -
                  
                  
                  -
                  
                  
                  218
                  
                  
                  (5,560
                  )
                  
                  9,792Cumulative
      translation adjustment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  11
                  
                  
                  -
                  
                  
                  11Net
      loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  
                  
                  
                  (3,732
                  )
                  
                  (3,732
                  )Balance
      at June 30, 2002
                  
                  
                  8,032
                  
                  
                  15,134
                  
                  
                  -
                  
                  
                  -
                  
                  
                  229
                  
                  
                  (9,292
                  )
                  
                  6,071





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


(continued
on next page)


6




Adherex
Technologies Inc.
 (a
development stage company)
 Unaudited
Condensed Consolidated Statements of Stockholders' Equity
(Continued)
 (U.S.
dollars and shares in thousands, except per share
information)


Common Stock
                
                Non-redeemable
                  Preferred Stock
                
                Additional
                  Paid-in
                
                Accumulated
                  Other
                  Comprehensive
                
                Deficit
                  Accumulated
                  During
                  Development
                
                Total
                  Shareholders’Number
                
                Amount
                
                of Subsidiary
                
                Capital
                
                Income
                
                Stage
                
                EquityBalance
      at June 30, 2002
                
                
                8,032
                
                
                15,134
                
                
                -
                
                
                -
                
                
                229
                
                
                (9,292
                )
                
                6,071Common
      stock issued for Oxiquant acquisition
                
                
                8,032
                
                
                11,077
                
                
                -
                
                
                543
                
                
                -
                
                
                -
                
                
                11,620Exercise
      of stock options
                
                
                5
                
                
                4
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                4Distribution
      to shareholders
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (158
                )
                
                (158
                )Stated
      capital reduction
                
                
                -
                
                
                (9,489
                )
                
                -
                
                
                9,489
                
                
                -
                
                
                -
                
                
                -Stock
      options issued to consultants
                
                
                -
                
                
                -
                
                
                -
                
                
                4
                
                
                -
                
                
                -
                
                
                4Equity
      component of June convertible notes
                
                
                -
                
                
                -
                
                
                -
                
                
                1,058
                
                
                -
                
                
                -
                
                
                1,058Financing
      warrants
                
                
                -
                
                
                -
                
                
                -
                
                
                53
                
                
                -
                
                
                -
                
                
                53Cumulative
      translation adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (159
                )
                
                -
                
                
                (159
                )Net
      loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (17,795
                )
                
                (17,795
                )Balance
      at June 30, 2003
                
                
                16,069
                
                
                16,726
                
                
                -
                
                
                11,147
                
                
                70
                
                
                (27,245
                )
                
                698Stock
      options issued to consultants
                
                
                -
                
                
                -
                
                
                -
                
                
                148
                
                
                -
                
                
                -
                
                
                148Repricing
      of warrants related to financing
                
                
                -
                
                
                -
                
                
                -
                
                
                18
                
                
                -
                
                
                -
                
                
                18Equity
      component of December convertible notes
                
                
                -
                
                
                -
                
                
                -
                
                
                1,983
                
                
                -
                
                
                -
                
                
                1,983Financing
      warrants
                
                
                -
                
                
                -
                
                
                -
                
                
                54
                
                
                -
                
                
                -
                
                
                54Conversion
      of June convertible notes
                
                
                1,728
                
                
                1,216
                
                
                -
                
                
                (93
                )
                
                -
                
                
                -
                
                
                1,123Conversion
      of December convertible notes
                
                
                1,085
                
                
                569
                
                
                -
                
                
                (398
                )
                
                -
                
                
                -
                
                
                171Non-redeemable
      preferred stock
                
                
                -
                
                
                -
                
                
                1,045
                
                
                -
                
                
                -
                
                
                -
                
                
                1,045December
      private placement
                
                
                11,522
                
                
                8,053
                
                
                -
                
                
                5,777
                
                
                -
                
                
                -
                
                
                13,830May
      private placement
                
                
                4,669
                
                
                6,356
                
                
                -
                
                
                2,118
                
                
                -
                
                
                -
                
                
                8,474Exercise
      of stock options
                
                
                18
                
                
                23
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                23Amalgamation
      of 2037357 Ontario Inc.
                
                
                800
                
                
                660
                
                
                (1,045
                )
                
                363
                
                
                -
                
                
                -
                
                
                (22
                )Cumulative
      translation adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (219
                )
                
                -
                
                
                (219
                )Net
      loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (6,872
                )
                
                (6,872
                )Balance
      at June 30, 2004
                
                
                35,891
                
                
                33,603
                
                
                -
                
                
                21,117
                
                
                (149
                )
                
                (34,117
                )
                
                20,454Stock
      options issued to consultants
                
                
                -
                
                
                -
                
                
                -
                
                
                39
                
                
                -
                
                
                -
                
                
                39Stock
      options issued to employees
                
                
                -
                
                
                -
                
                
                -
                
                
                604
                
                
                -
                
                
                -
                
                
                604Cost
      related to SEC registration
                
                
                -
                
                
                (493
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (493
                )Acquisition
      of Cadherin Biomedical Inc.
                
                
                644
                
                
                1,252
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,252Cumulative
      translation adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,392
                
                
                -
                
                
                1,392Net
      loss – six months ended December 31, 2004
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (6,594
                )
                
                (6,594
                )Balance
      at December 31, 2004
                
                
                36,535
                
                
                34,362
                
                
                -
                
                
                21,760
                
                
                1,243
                
                
                (40,711
                )
                
                16,654




(The
accompanying notes are part of these interim consolidated financial
statements)


(continued
on next page)


7




Adherex
Technologies Inc.
 (a
development stage company)
 Unaudited
Interim Consolidated Statements of Stockholders' Equity (Continued)
 (U.S.
dollars and shares in thousands, except per share information)


Common Stock
                
                Non-redeemable
                  Preferred Stock
                
                Additional
                  Paid-in
                
                Accumulated
                  Other
                  Comprehensive
                
                Deficit
                  Accumulated
                  During
                  Development
                
                Total
                  Shareholders’Number
                
                Amount
                
                of Subsidiary
                
                Capital
                
                Income
                
                Stage
                
                EquityBalance
      at December 31, 2004
                
                
                36,535
                
                
                34,362
                
                
                -
                
                
                21,760
                
                
                1,243
                
                
                (40,711
                )
                
                16,654Financing
      costs
                
                
                -
                
                
                (141
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (141
                )Exercise
      of stock options
                
                
                15
                
                
                25
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                25Stock
      options issued to consultants
                
                
                -
                
                
                -
                
                
                -
                
                
                276
                
                
                -
                
                
                -
                
                
                276July
      private placement
                
                
                6,079
                
                
                7,060
                
                
                -
                
                
                1,074
                
                
                -
                
                
                -
                
                
                8,134Net
      loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (13,871
                )
                
                (13,871
                )Balance
      at December 31, 2005
                
                
                42,629
                
                
                41,306
                
                
                -
                
                
                23,110
                
                
                1,243
                
                
                (54,582
                )
                
                11,077Stock
      options issued to consultants
                
                
                -
                
                
                -
                
                
                -
                
                
                100
                
                
                -
                
                
                -
                
                
                100Stock
      options issued to employees
                
                
                -
                
                
                -
                
                
                -
                
                
                491
                
                
                -
                
                
                -
                
                
                491May
      private placement
                
                
                7,753
                
                
                5,218
                
                
                -
                
                
                822
                
                
                -
                
                
                -
                
                
                6,040Net
      loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (16,440
                )
                
                (16,440
                )Balance
      at December 31, 2006
                
                
                50,382
                
                
                46,524
                
                
                -
                
                
                24,523
                
                
                1,243
                
                
                (71,022
                )
                
                1,268Stock
      options issued to consultants
                
                
                -
                
                
                -
                
                
                -
                
                
                59
                
                
                -
                
                
                -
                
                
                59Stock
      options issued to employees
                
                
                -
                
                
                -
                
                
                -
                
                
                2,263
                
                
                -
                
                
                -
                
                
                2,263February
      financing
                
                
                75,759
                
                
                17,842
                
                
                -
                
                
                5,379
                
                
                -
                
                
                -
                
                
                23,221Exercise
      of warrants
                
                
                2,086
                
                
                563
                
                
                -
                
                
                131
                
                
                -
                
                
                -
                
                
                694Net
      loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (13,357
                )
                
                (13,357
                )Balance
      at December 31, 2007
                
                
                128,227
                
                
                64,929
                
                
                -
                
                
                32,355
                
                
                1,243
                
                
                (84,379
                )
                
                14,148Stock
      options issued to consultants
                
                
                -
                
                
                -
                
                
                -
                
                
                88
                
                
                -
                
                
                -
                
                
                88Stock
      options issued to employees
                
                
                -
                
                
                -
                
                
                -
                
                
                2,417
                
                
                -
                
                
                -
                
                
                2,417Net
      loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (13,600
                )
                
                (13,600
                )Balance
      at December 31, 2008
                
                
                128,227
                
                
                64,929
                
                
                -
                
                
                34,860
                
                
                1,243
                
                
                (97,979
                )
                
                3,053Stock
      options issued to consultants
                
                
                -
                
                
                -
                
                
                -
                
                
                10
                
                
                -
                
                
                -
                
                
                10Stock
      options issued to employees
                
                
                -
                
                
                -
                
                
                -
                
                
                355
                
                
                -
                
                
                -
                
                
                355Net
      loss for quarter
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (3,012
                )
                
                (3,012
                )Balance
      at December 31, 2009
                
                
                128,227
                
                
                64,929
                
                
                -
                
                
                35,225
                
                
                1,243
                
                
                (100,991
                )
                
                407Stock
      options issued to consultants
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Stock
      options issued to employees
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Net
      loss for quarter
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (366
                )
                
                (366
                )Balance
      at March 31, 2010
                
                
                128,227
                
                $
                64,929
                
                $
                -
                
                $
                35,225
                
                $
                1,243
                
                $
                (101,357
                )
                $
                40




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


8


Adherex
Technologies Inc.


(a
development stage company)


Notes
to Unaudited Interim Consolidated Financial Statements (Continued)


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





1.
              Going
      Concern




Adherex
Technologies Inc. (“Adherex”), 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
focused on cancer therapeutics.




These
unaudited interim consolidated financial statements have been prepared using
generally accepted accounting principles (“GAAP”) in the United States (“U.S.”)
of America 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
Company is a development stage company and during the three months ended March
31, 2010, incurred a net loss of $366.  At March 31, 2010, it had an
accumulated deficit of $101,357 and had experienced negative cash flows from
operations since inception in the amount of $77,049.  As further
described in Note 5 Subsequent Events, on April 30, 2010, the Company announced
the first closing of a $7.2 million funding into the Company.




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.




2.
            Significant
      Accounting Policies





Basis
of presentation





The
accompanying unaudited interim consolidated financial statements have been
prepared in accordance with U.S. GAAP and are the responsibility of the
Company’s management.  The Company’s independent auditor has not
performed a review of these financial statements.  These 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 consolidated financial statements should be read in
conjunction with the Company's audited 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, 2009.  Except as set out
below, the Company's accounting policies are consistent with those presented in
the audited financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2009.  These unaudited interim
consolidated financial statements have been prepared in U.S.
dollars.


9


Adherex
Technologies Inc.


(a
development stage company)


Notes
to Unaudited Interim Consolidated Financial Statements (Continued)


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





Use
of estimates





The
preparation of financial statements in conformity with GAAP requires management
to make judgments, assumptions and estimates that affect the amounts reported in
these interim condensed consolidated financial statements.  Actual
results could differ from these estimates.  In the opinion of
management, these unaudited interim consolidated financial statements include
all normal and recurring adjustments, considered necessary for the fair
presentation of the Company’s financial position at March 31, 2010, and to state
fairly the results for the periods presented.





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, 2010, the Company had $3 in money
market investments, which typically have minimal risk, and $345 in
cash.  The financial markets have been volatile resulting in concerns
regarding the recoverability of money market investments.  The Company
did not experience any loss or write down of its money market investments for
the three-month period ended March 31, 2010 and 2009, respectively.





3.      Recent
Accounting Pronouncements




In
January 2010, an update was made to the Fair Value Measurements and Disclosures
topic of the FASB codification that requires new disclosures for fair value
measurements and provides clarification for existing disclosure requirements.
More specifically, this update will require (a) an entity to disclose separately
the amounts of significant transfers into and out of Level 1 and 2 fair value
measurements and to describe the reasons for the transfers; and (b) information
about purchases, sales, issuances, and settlements to be presented separately on
a gross basis in the reconciliation of Level 3 fair value measurements. This
update is effective for fiscal years beginning after December 15, 2009 except
for Level 3 reconciliation disclosures which are effective for fiscal years
beginning after December 15, 2010. The Company does not expect the adoption of
the guidance to have an impact on the Company’s consolidated financial position
and results of operations.


10


Adherex
Technologies Inc.


(a
development stage company)


Notes
to Unaudited Interim Consolidated Financial Statements (Continued)


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





4.      Stockholders'
Equity





Warrants
to purchase common stock





At March
31, 2010, the Company had the following warrants outstanding to purchase common
stock priced in U.S. dollars with a weighted average exercise price of $0.44 and
a weighted average remaining life of 0.7 years:





Warrant Description
                
                Number
                    Outstanding at
                    March 31
                    2010
                
                
                Exercise Price
                    In U.S. Dollars
                
                Expiration DateInvestor
      warrants
                
                
                2,326
                
                
                $
                0.97
                
                May
      7, 20102,326





The 2,326
warrants with an exercise price of $0.97 expired on May 7,
2010.  Please read Note 5 – Subsequent Events for further details of
additional warrants outstanding as of April 30, 2010.





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.





A maximum
of 20,000 options (not including 700 options previously issued to the former
Chief Executive Officer and specifically approved by the stockholders outside
the plan) 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.  The stock option plan,
as amended, allows the issuance of U.S. and Canadian dollar denominated
grants.




During
the three-month periods ended March 31, 2010 and 2009, the Company recognized
total stock-based compensation expense of $0 and $301,
respectively.





Valuation
assumptions





There
were no options granted in the three month period ended March 31, 2010 and the
options granted in the three-month periods ended March 31, 2009 were estimated
using the Black-Scholes option-pricing model, using the following weighted
average assumptions: expected dividend 0%, risk-free interest rate of 3.15%,
expected volatility 85% and a 7 year expected life.


11


Adherex
Technologies Inc.


(a
development stage company)


Notes
to Unaudited Interim Consolidated Financial Statements (Continued)


(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-month period ended March
31, 2010 for stock options denominated in Canadian dollars:





Number of
                    Options
                
                
                Weighted-
                    average
                    Exercise
                    PriceOutstanding
      at December 31, 2009
                
                
                2,623
                
                
                CAD$
                2.19Granted
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Forfeited/cancelled/expired
                
                
                -
                
                
                CAD$
                2.19Outstanding
      at March 31, 2010
                
                
                2,623
                
                
                CAD$
                2.19





The
following is a summary of option activity for the three-month period ended March
31, 2010 for stock options denominated in U.S. dollars:


Number of
                    Options
                
                
                Weighted-
                    average
                    Exercise
                    PriceOutstanding
      at December 31, 2009
                
                
                13,201
                
                
                $
                0.55Granted
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Forfeited/cancelled/expired
                
                
                -
                
                
                
                -Outstanding
      at March 31, 2010
                
                
                13,201
                
                
                $
                0.55





5.
            Subsequent
      Event





On April
30, 2010, Adherex Technologies Inc. (TSX:AHX), announced that it has completed a
first closing of a  non-brokered private placement (“Private
Placement”) of 240,066,664 units, at a price of $0.03 per unit for gross
proceeds of CDN$7,202,000. Adherex intends to raise up to an additional
CDN$1,800,000 by way of a non-brokered private placement which will occur in one
or more closings and up to an additional CDN$12,750,000 by way of a rights
offering.





The
equity financings will consist of:


·
            a
      non-brokered private placement by Adherex of between 240,000,000 and
      300,000,000 units, at a price of $0.03 per unit for gross proceeds of
      between CDN$7,200,000 and CDN$9,000,000;
and


·
            a
      rights offering to its shareholders for the distribution of rights to
      subscribe for 425,000,000 units at a price of $0.03 per unit, for gross
      proceeds of up to $12,750,000.





Purchasers
of units in the private placement that are existing shareholders of Adherex have
agreed not to participate in the rights offering.





Each unit
shall consist of one common share and one common share purchase warrant (a
“Warrant”).  Each Warrant will entitle the holder thereof to purchase
one common share of the Company at a purchase price of CDN$0.08 per share for a
period of five years from the issue date.  The subscription price for
the equity financings represents a 40% discount to the 5 day volume weighted
average price of the Company’s common shares on the TSX at the date of receipt
of the term sheet from Southpoint.


12


Adherex
Technologies Inc.


(a
development stage company)


Notes
to Unaudited Interim Consolidated Financial Statements (Continued)


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





Subject
to receiving the required regulatory approvals and as soon as possible after the
completion of the first closing of the private placement, it is anticipated that
Adherex will file a preliminary short-form prospectus for the rights offering
with the securities regulatory authorities in Canada to qualify the distribution
of the rights in Canada and a Form S-1 registration statement with the
Securities and Exchange Commission to register the transaction in the United
States.  The commencement of the rights offering will occur promptly
following the receipt for the final prospectus in Canada and the effectiveness
of the registration statement in the United States. Adherex intends to complete
the rights offering as soon as possible thereafter. Adherex intends to announce
additional information regarding the rights offering at the time it files the
prospectus and registration statement.





Adherex
plans to use of proceeds of the sale of the Units will be to (i) conduct and
monitor a Phase II Eniluracil study, (ii) satisfy corporate overhead and related
expenses, and (iii) pay financing related expenses.


13


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 unaudited interim consolidated financial
statements, which have been prepared in accordance with generally accepted
accounting principles, or GAAP in the United States (“U.S.”) and have been
prepared by and are the responsibility of the Company’s
management.  The Company’s independent auditor has not performed a
review of these financial statements.  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.





We
operate in a highly competitive environment that involves significant risks and
uncertainties, some of which are beyond our control.  Our actual
results, performance or achievements may be materially different from any
results, performance or achievements expressed or implied by such
forward-looking statements.  Words such as “may,” “will,” “expect,”
“might”, “believe,” “anticipate,” “intend,” “could,” “estimate,” “project,”
“plan,” and other similar words are one way to identify such forward-looking
statements.  Forward-looking statements in this report include, but
are not limited to, statements with respect to (1) our anticipated sources and
uses of cash and cash equivalents; (2) our anticipated commencement dates,
completion dates and results of clinical trials; (3) our efforts to pursue
collaborations with the government, industry groups or other companies; (4) our
anticipated progress and costs of our clinical and preclinical research and
development programs; (5) our corporate and development strategies; (6) our
expected results of operations; (7) our anticipated levels of expenditures; (8)
our ability to protect our intellectual property; (9) the anticipated
applications and efficacy of our drug candidates; (10) our ability to attract
and retain key employees; and (11) the nature and scope of potential markets for
our drug candidates.  All statements, other than statements of
historical fact, included in this report that address activities, events or
developments that we expect or anticipate will or may occur in the future are
forward-looking statements.  We include forward-looking statements
because we believe it is important to communicate our expectations to our
investors.  However, all forward-looking statements are based on
management’s current expectations of future events and are subject to a number
of risks and uncertainties, including our need to raise money in the very near
term and others as discussed in this report.  Although we believe the
expectations reflected in the forward-looking statements are based upon
reasonable assumptions, we can give no assurance that our expectations will be
attained, and we caution you not to place undue reliance on such
statements.





Overview




On July
7, 2009, we announced that we intended to focus our remaining financial
resources on the development of oral eniluracil.  We will focus our
resources on the development of a redesigned study combining oral eniluracil,
5-fluorouracil, or 5-FU, and leucovorin targeting anti-cancer
indications.   After a careful evaluation of the data from the
prior GlaxoSmithKline, or GSK, studies and data from our own and other studies
using eniluracil, we believe we can begin patient enrollment in a Phase II study
with eniluracil, 5-FU and leucovorin within the next nine
months.  Additionally, throughout the remainder of 2009, we conducted
a strategic review of ADH-1 and STS.  Our evaluation of ADH-1 resulted
in the termination of our license agreement with McGill
University.  We continue to hold various ADH-1 and small molecule
patents that are property of Adherex.  We are also supporting an
investigator led Phase I study that will combine ADH-1 with
gemcitabine.  With regards to STS, we continue patient enrollment of
our Phase III studies for both the International Childhood Liver Tumour Strategy
Group, known as SIOPEL, and the Children's Oncology Group, or COG.




As
discussed in Note 5 - Subsequent Events, we recently completed a funding into
the Company which will allow for our planned clinical development of eniluracil
as well as the support of our remaining programs. We currently have four
employees and members of the Board of Directors have agreed to continue to serve
for the benefit of the shareholders without further cash
compensation.




We are a
biopharmaceutical company focused on cancer therapeutics.  We have the
following products in the clinical stage of
development:    (1) Eniluracil, an oral dihydropyrimidine
dehydrogenase, or DPD, inhibitor, which may improve the tolerability and
effectiveness of 5-fluorouracil (5-FU), one of the most widely used oncology
drugs in the world; and (2) STS, a chemoprotectant being developed to reduce or
prevent hearing loss that may result from treatment with platinum-based
chemotherapy drugs and (3)  ADH-1, a peptide molecule that selectively
targets N-cadherin, a protein present on the blood vessels of solid
tumors.


14


We are evaluating a study design for
a Phase II study in which we will dose patients with eniluracil, 5-FU and
leucovorin.  Our prior eniluracil studies have shown that the dose of
eniluracil was too low and consequently provided inadequate inactivation of
DPD.  We plan to increase the dose of eniluracil and also include
leucovorin in our planned clinical trial.  Leucovorin potentiates the
anticancer activity of 5-FU and has been shown to be well tolerated in patients
treated with both eniluracil and 5FU.  Leucovorin is uniquely
appropriate to eniluracil regimens because it greatly reduces the variability of
5-FU dosing.  We are evaluating cancer disease targets for our planned
Phase II trial and are currently considering colorectal and breast cancer, where
Xeloda is indicated. The combination of eniluracil and 5-FU has been shown to be
active and well tolerated against these diseases.  However, the
previous studies used eniluracil in a ten to one ratio to
5-FU.  Because such high ratios of eniluracil to 5-FU were found to
decrease the antitumor activity in laboratory animals, our planned study will
use a strategy that adequately inactivates DPD and does not have high levels of
eniluracil present when 5-FU is administered.   We expect to
design and commence these studies within the next nine months.  We
will solicit the assistance of certain key opinion leaders for the design of
these studies.




We
continue to enroll patients in our Phase III trials of STS with the
International Childhood Liver Tumour Strategy Group, known as SIOPEL and the
Children's Oncology Group, or COG.  The SIOPEL trial is expected to
enroll approximately 100 pediatric patients with liver (hepatoblastoma) cancer
at participating SIOPEL centers worldwide and the COG study is expected to
enroll up to 120 pediatric patients worldwide in five different disease
indications.




We have
terminated our license agreement with McGill University related to
ADH-1.  However, Adherex continues to hold various ADH-1 and small
molecule patents that are our property.  We are also supporting an
investigator led Phase I study that will combine ADH-1 with
gemcitabine.




Our
current prioritization initiative focuses primarily on our clinical activities
with eniluracil, as well as logistical and product support of ongoing clinical
programs.





In
addition to our current development efforts, we continue to pursue
collaborations with other pharmaceutical and biotechnology companies,
governmental agencies, academic or other corporate collaborators with respect to
these molecules.  Some of these preclinical molecules are currently
being tested under agreements with third parties that may help to advance these
products into future clinical development, either by us or under
investigator-initiated studies.





The
trading of our common stock in the U.S. must now be conducted in the
over-the-counter markets, on the pink sheets.  Our common stock
continues to trade on the Toronto Stock Exchange, or TSX.  The TSX
also has continued 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 April 22, 2010, the TSX issued
an official delisting review of our common stock.  The Company has
been granted 120 days in which to regain compliance with these
requirements.





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 experienced net losses of approximately$366 for the three months
ended March 31, 2010 and $2.2million forthe three months ended March
31, 2009.As of March 31,
2010, our deficit accumulated during development stage was approximately $101.4
million.




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 with our facilities in
Chapel Hill, North Carolina in support of our drug development
programs.


15


Results
of Operations




Three
months ended March 31, 2010 versus three months ended March 31,
2009:




InthousandsofU.S.Dollars
                
                Three Months
                    Ended
                    March 31,
                    2010
                
                
                %
                
                
                Three Months
                    Ended
                    March 31,
                    2009
                
                
                %
                
                
                ChangeRevenue
                
                $
                -
                
                
                
                
                
                $
                -
                
                
                
                
                
                $
                -Operating
      expenses:Research
      and development
                
                
                163
                
                
                
                45
                %
                
                
                1,279
                
                
                
                86
                %
                
                
                (1,116
                )General
      and administration
                
                
                203
                
                
                
                55
                %
                
                
                673
                
                
                
                14
                %
                
                
                (470
                )Total
      operating expenses
                
                
                366
                
                
                
                100
                %
                
                
                1,952
                
                
                
                100
                %
                
                
                (1,586
                )Loss
      from operations
                
                
                366
                
                
                
                
                
                
                
                (1,952
                )
                
                
                
                
                
                
                (1,586
                )Loss
      on impairment of assets held forsale
      and leasehold inducements
                
                
                -
                
                
                
                
                
                
                
                (340
                )
                
                
                
                
                
                
                (340
                )Other
      income
                
                
                -
                
                
                
                
                
                
                
                -
                
                
                
                
                
                
                
                -Interest
      income
                
                
                -
                
                
                
                
                
                
                
                46
                
                
                
                
                
                
                
                46Net
      loss and total comprehensive loss
                
                $
                (366
                )
                
                
                
                
                
                $
                (2,246
                )
                
                
                
                
                
                $
                (3,295
                )





·
            Total
      operating expense decreased significantly in the three months ended March
      31, 2010, as compared to the same period in 2009 primarily due to a
      significant decrease in our overall clinical development studies and
      reduction in our employee headcount effective April 2009 and continuing
      through March 31, 2010.


·
            The
      Company recorded a loss on impairment of assets related to the write-down
      of certain assets value held for sale and leasehold improvements during
      the three months ended March 31,
2010.




·
            The
      decrease in interest income in the three months ended March 31, 2010, as
      compared to the same period in 2009, is due to less cash on hand due to
      funding our operations during the three months ended March 31, 2010, as
      compared to the same period in
2009.




Quarterly
Information




The
following table presents selected consolidated financial data for each of the
last eight quarters through March 31, 2010, as prepared under U.S. GAAP (U.S.
dollars in thousands, except per share information):




Period
                
                Net Loss for
                    the Period
                
                
                Basic and Diluted
                    Net Loss per
                    Common ShareSeptember
      30, 2007
                
                $
                (3,202
                )
                
                $
                (0.02
                )December
      31, 2007
                
                $
                (3,008
                )
                
                $
                (0.02
                )March
      31, 2008
                
                $
                (4,304
                )
                
                $
                (0.03
                )June
      30, 2008
                
                $
                (3,442
                )
                
                $
                (0.03
                )September
      30, 2008
                
                $
                (3,244
                )
                
                $
                (0.03
                )December
      31, 2008
                
                $
                (2,610
                )
                
                $
                (0.02
                )March
      31, 2009
                
                $
                (2,246
                )
                
                $
                (0.02
                )June
      30, 2009
                
                $
                (761
                )
                
                $
                (0.01
                )September
      30, 2009
                
                $
                (35
                )
                
                $
                (0.00
                )December
      31, 2009
                
                $
                30
                
                
                $
                0.00March
      31, 2010
                
                $
                (366
                )
                
                $
                (0.00
                )


16


Liquidity
and Capital Resources




March
      31,
                          
                          
                          December
      31,In
      thousands of U.S. dollars
                          
                          2010
                          
                          
                          2009Selected
      Asset and Liability Data:Cash
      and cash equivalents
                          
                          $
                          348
                          
                          
                          $
                          685Working
      capital
                          
                          
                          47
                          
                          
                          
                          412Selected
      Stockholders’ Equity Data:Common
      stock
                          
                          $
                          64,929
                          
                          
                          $
                          64,929Deficit
      accumulated during the development stage
                          
                          
                          (101,357
                          )
                          
                          
                          (100,991
                          )Total
      stockholders’ equity
                          
                          
                          40
                          
                          
                          
                          406





We have
financed our operations since inception on September 3, 1996 through the sale of
equity and debt securities and have raised gross proceeds totaling approximately
$93.0 million through April 30, 2010.  We have incurred net losses and
negative cash flow from operations each year, and we had an accumulated deficit
of approximately $101.4 million at March 31, 2010.  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.




The net
cash flow used in operating activities for the three months ended March 31, 2010
was approximately $337, as compared to $2.3 million during the same period in
2009.  This decrease is due to a decrease in our overall clinical
activities and lower headcount during the three months ended March 31, 2010, as
compared to the same period in 2009.




At March
31, 2010, our working capital decreased by approximately $366 from December
31, 2009 primarily due to funding research and development activities and
general corporate operations.




Our projections of further capital
requirements are subject to substantial uncertainty.  Our working
capital requirements may fluctuate in future periods depending upon numerous
factors, including: our ability to obtain additional financial resources; our
ability to enter into collaborations that provide us with up-front payments,
milestones or other payments; results of our research and development
activities; progress or lack of progress in our preclinical studies or clinical
trials; unfavorable toxicology in our clinical programs, our drug substance
requirements to support clinical programs; change in the focus, direction, or
costs of our research and development programs; headcount expense; the costs
involved in preparing, filing, prosecuting, maintaining, defending and enforcing
our patent claims; competitive and technological advances; the potential need to
develop, acquire or license new technologies and products; our business
development activities; new regulatory requirements implemented by regulatory
authorities; the timing and outcome of any regulatory review process; and
commercialization activities, if any.


17


Outstanding
Share Information




The
outstanding share data for our company as of March 31, 2010 (in
thousands):




March 31,
                    2010Common
      shares
                
                
                128,227Warrants
                
                
                2,326Stock
      options
                
                
                15,823Total
                
                
                146,376





As described in Note 5 - Subsequent
Events, the Company closed a $7.2 million funding on April 30, 2010 which
consists of 240,066,664 units. Each unit represents one common shares and one
warrants.




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, 2010, we had $0.3
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, 2010
and 2009, 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.


18


Contractual
Obligations and Commitments




Since our
inception, inflation has not had a material impact on our
operations.  We had no material commitments for capital expenses as of
March 31, 2010.




The
following table represents our contractual obligations and commitments at March
31, 2010 (in thousands of U.S. dollars):




Less than 1 year
              
              
              1-3
                  years
              
              
              3-5
                  years
              
              
              More than 5
                  years
              
              
              TotalEnglert
      Lease (1)
              
              $
              50
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              50Eastowne
      Lease (2)
              
              
              18
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              18Drug
      purchase commitments (3)
              
              
              -
              
              
              
              25
              
              
              
              -
              
              
              
              -
              
              
              
              25Total
              
              $
              68
              
              
              $
              25
              
              
              $
              -
              
              
              $
              -
              
              
              $
              93




(1)
            In
      April 2004, we entered into a lease for facilities in Durham, North
      Carolina.  Amounts shown assume the maximum amounts due under
      the lease.  In July 2008, we entered into an agreement with
      another company to sublease this facility until September 2010; however,
      in the event of their default, we would become responsible for the
      obligation.  We are contractually obligated under the lease
      until September 2010.




(2)
            In
      December 2009, we entered into a lease for new office facilities in Chapel
      Hill, North Carolina.  Amounts shown assume the maximum amounts
      due under the lease.




(3)
            Commitments
      to our third party manufacturing vendors that supply drug substance
      primarily for our clinical studies.




Research
and Development




Our
research and development efforts have been focused on the development of cancer
and currently include eniluracil, STS, ADH-1 and various cadherin-based
preclinical programs.




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 and major development issues are presented to the members of our
Scientific and Clinical Advisory Board for discussion and review.




Research
and development expenses totaled $163 and $1.3 million for the three months
ended March 31, 2010 and 2009, 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.


19


Our
accounting policies are consistent with those presented in our annual
consolidated financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2009.




Item
3.  Quantitative and Qualitative Disclosures about Market
Risk




Money
Market Investments





We are
subject to increased risk associated with our cash and cash equivalents due to
the recent bank and financial institution failures in the U.S.  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, 2010, we had $3 in money
market investments which typically have minimal risk.  The financial
markets have been volatile resulting in concerns regarding the recoverability of
money market investments.  We have not experienced any loss or write
down of our money market investments for the three months ended March 31, 2010
and 2009.





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 and the Pacific
Rim.  To date, we have not employed the use of derivative instruments;
however, we do hold Canadian dollars which we use to pay certain clinical
development activities conducted in Canada and research, and other corporate
obligations.  At March 31, 2010 we held approximately $0.1 million in
Canadian dollars.





Item 4. Controls and
Procedures




Our
management, with the participation of our principal executive officer and
principal financial officer, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or
the Exchange Act) as of March 31, 2010.  Based on this evaluation, our
principal executive officer and principal financial officer concluded that these
disclosure controls and procedures are effective and designed to ensure that the
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the
requisite time periods.




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 three month period covered by this Quarterly Report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.


20


PART II: OTHER
INFORMATION





Item 1A.Risk
Factors.





The risk
factors set forth in our Form 10-K for the fiscal year December 31, 2009 (the
“2009 10-K) include risk relating to the Company’s ability raise substantial
additional funds in the very near future to continue our operations. As
described in Note 5 - Subsequent Events, the Company closed on April 30, 2010 a
$7.2 million financing.  The Company’s disclosure of the need to raise
additional capital to continue operations beyond the second quarter of 2010 is
no longer applicable.





We
may be unable to effectively deploy the proceeds from the April 30, 2010
financing for the development of eniluracil.




In
April 2010, we announced the closing of a $7.2 million
financing.  This financing requires effective management and
deployment of our current employees and consultants.  Any inability on
our part to manage effectively the deployment of this capital could limit our
ability to successfully develop eniluracil.


21


Item 6.  Exhibits




Registrant’s
                          
                          
                          
                          Exhibit
                          
                          FiledExhibit No.
                          
                          Description of Exhibit
                          
                          Form
                          
                          Dated
                          
                          Number
                          
                          Herewith31.1
                          
                          Certification
      of Chief Executive Officer of the Company in accordance with Section 302
      of the Sarbanes-Oxley Act of 2002
                          
                          
                          
                          
                          
                          
                          
                          X31.2
                          
                          Certification
      of Chief Financial Officer of the Company in accordance with Section 302
      of the Sarbanes-Oxley Act of 2002
                          
                          
                          
                          
                          
                          
                          
                          X32.1
                          
                          Certification
      of Chief Executive Officer and Chief Financial Officer of the Company in
      accordance with Section 906 of the Sarbanes-Oxley Act of
    2002
                          
                          
                          
                          
                          
                          
                          
                          X10.27
                          
                          Eastowne
      Lease Agreement
                          
                          
                          
                          
                          
                          
                          
                          X10.28
                          
                          Employment
      Agreement – Rostislav Raykov
                          
                          
                          
                          
                          
                          
                          
                          X10.29
                          
                          Employment
      Agreement – Robert Andrade
                          
                          
                          
                          
                          
                          
                          
                          X10.30
                          
                          Employment
      Agreement – Dr. Thomas Spector
                          
                          
                          
                          
                          
                          
                          
                          X10.31
                          
                          Independent
      Board Member Agreement – Breen, Bussandri, Porter
                          
                          
                          
                          
                          
                          
                          
                          X


22


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 13, 2010
              By:
              /s/ Rostislav RaykovRostislav
      RaykovChief
      Executive Officer(principal
      executive officer)Date:
      May 13, 2010
              By:
              /s/ Robert AndradeRobert
      AndradeChief
      Financial Officer(principal
      financial and chief accounting
officer)


23