UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





AMENDMENT
NO. 2




FORM
10-Q/A







(Mark
One)


þ
            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





o
            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 140Chapel
      Hill, North Carolina
            27514(Address
      of Principal Executive Offices)
            (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. Yessþ  No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes o No þ.





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 þ





Indicated
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈ No þ





As of May
13, 2010, there were 368,293,451 shares of Adherex Technologies Inc. common
stock outstanding.








Explanatory
Note





Adherex
Technologies, Inc. (the “Company”) is filing this Amendment No. 2 to its
Quarterly Report on Form 10-Q (the “Amendment No. 2”) to further amend its
Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, which was
filed with the Securities and Exchange Commission (“SEC”) on May 14, 2010 (the
“First Quarter 10-Q”), and subsequently amended on November 2,
2010.  This Amendment No. 2 further amends the First Quarter 10-Q by:
(i) removing the explanatory note containing in the First Quarter 10-Q in its
entirety and replacing it with this explanatory note; (ii) conforming our
disclosures in Part I (Financial Information) under Item 1 (Financial
Statements) in Note 2 to the interim financial statements and under Item 2.
(Management’s Discussion and Analysis of Financial Condition) to eliminate
references to the absence of a review of the interim financial statements by the
Company’s independent auditor; (iii) revising our disclosure in Part I, Item 4
(Controls and Procedures) of management’s conclusions regarding the
effectiveness of the Company’s disclosure controls and procedures as of March
31, 2010; and (iv) revising our certifications in Exhibits 31.1 and 31.2 to be
worded exactly as required by Item 601(b)(31) of Regulation
S-K.  Except as described above, no other changes have been made to
the First Quarter 10-Q, and this Amendment No. 2 does not otherwise amend,
update or change the financial statements or disclosures in the First Quarter
10-Q.










PART
I – 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)


1


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)


2





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)


3





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)


4





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)


5





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 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)


6




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.  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.


7





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.


8


Adherex
Technologies Inc.


(a
development stage company)


Notes
to Unaudited Condensed 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.


9





Adherex
Technologies Inc.


(a
development stage company)


Notes
to Unaudited Condensed 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.


10





Adherex
Technologies Inc.


(a
development stage company)


Notes
to Unaudited Condensed 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.




11




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 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.


12





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.




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.


13





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 $2.2 million for the 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.




Results
of Operations




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




In thousands of U.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 for sale 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, 2009.


14





·
            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
                  )




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.


15


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.




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 share and one warrant.




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.




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.


16


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.




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.


17




Item 4. Controls and
Procedures




(a) Evaluation of Disclosure Controls
and Procedures. In connection with the preparation of this quarterly
report on Form 10-Q/A, an evaluation was carried out by the Company’s
management, with the participation of the Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (“Exchange Act”)) as of March 31,
2010.  Disclosure controls and procedures are designed to ensure that
information required to be disclosed in reports filed or submitted under the
Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in Securities and Exchange Commission rules and forms and that
such information is accumulated and communicated to management, including the
Chief Executive Officer and the Chief Financial Officer, to allow timely
decisions regarding required disclosures.  In designing and evaluating
our disclosure controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives.  Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded, as of the end of the period covered by
this report, that the Company’s disclosure controls and procedures were not
effective as a result of having identified two material weaknesses in our
internal control over financial reporting, as described in further detail
below.




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




Our
management has also identified another control deficiency that it believes
constitutes a material weakness in our control over financial
reporting.  We did not maintain sufficient personnel with an
appropriate level of technical accounting knowledge, experience, and training in
the application of U.S. GAAP commensurate with our complexity and our financial
accounting and reporting requirements.  This control deficiency could
result in a misstatement of the financial statements including disclosure that
would not be prevented or detected on a timely basis.  We have not,
therefore, timely prepared our consolidated financial statements and filed our
periodic reports with the SEC. While we strive to ensure we have appropriate
accounting personnel as well as an appropriate segregation of duties as much as
practicable, we currently have insufficient financial resources to justify
additional staff.   The Company continues to seek solutions to
improve internal control over financial reporting. As a result, these
significant internal control deficiencies are not expected to be remediated
until we secure additional financial resources.




(b) Changes in Internal Controls.
There were no changes in our internal control over financial reporting that
occurred during the fiscal quarter ended March 31, 2010 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.


18





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:
      February 4, 2011
            By:
            /s/
      Rostislav
      RaykovRostislav
      RaykovChief
      Executive Officer(principal
      executive officer)Date:
      February 4, 2011
            By:
            /s/
      Robert
      AndradeRobert
      AndradeChief
      Financial Officer(principal
      financial and chief accounting
officer)


19