Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis is intended
as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion
should be read in conjunction with our consolidated financial statements and the notes presented herein. In addition to historical information,
the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements
that involve risks and uncertainties. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements”
included elsewhere in this Annual Report on Form 10-K. Our actual results could differ significantly from those expressed, implied or
anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and
to be filed by us with the Securities and Exchange Commission.
On February 5, 2026, we effected
the Reverse Stock Split of our outstanding shares of common stock, trading on Nasdaq under the symbol ADIL, at a ratio of 1-for-25. We
have retrospectively adjusted all references to common stock, stock warrants to purchase common stock, stock options to purchase common
stock, share data, per share data and related information contained in the following discussion to reflect the effect of the reverse stock
split.
Overview
We
are a clinical-stage biopharmaceutical company focused on the development of therapeutics for the treatment or prevention of addiction
and related disorders. Our investigational new drug candidate, AD04, is being developed as a therapeutic agent for the treatment of alcohol
use disorder (“AUD”). AD04 was investigated in a Phase 3 clinical trial, designated the ONWARD trial, for the potential treatment
of AUD in subjects with certain target genotypes, which were identified using our companion diagnostic genetic test. Based on our analysis
of the subgroup data from the ONWARD trial, we are now focused on completing the clinical development program for AD04 in the specified
genetic subgroups to meet regulatory requirements primarily in the US and secondarily in Europe/UK.
We have devoted the vast
majority of our resources to development efforts relating to AD04, including preparation for and conducting clinical trials, providing
general and administrative support for these operations and protecting our intellectual property. We expect these activities to continue
to demand most of our resources for the foreseeable future.
We currently do not have any products approved
for sale and we have not generated any significant revenue since our inception. From our inception through the date of filing this Annual
Report on Form 10-K, we have funded our operations primarily through the private and public placements of debt, equity securities, and
an equity line.
Our current cash and cash equivalents are not
expected to be sufficient for the planned Phase 3 clinical trials or to fund operations for the twelve months from the date of filing
the Annual Report on Form 10-K, based our current projections, and in fact are only expected to be sufficient to fund operations into
the second half of 2026.
We have incurred net losses in each year since
our inception, including net losses of approximately $8 million and $13.2 million for the years ended December 31, 2025 and 2024. We had
accumulated deficits of approximately $90 and $82 million as of December 31, 2025 and 2024, respectively. Our operating losses resulted
from costs incurred in continuing operations, including costs in connection with our continuing research and development programs, from
general and administrative costs associated with our operations, and from financing costs.
We will not generate revenue from product sales
unless and until we successfully complete development and obtain marketing approval for AD04, which we expect will take a number of years
and is subject to significant uncertainty. We do not believe our current cash and equivalents will be sufficient to fund our operations
for the next twelve months from the filing of these financial statements.
Until such time, if ever, as we can generate substantial
revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings,
government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic
alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed
on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative
impact on our financial condition and our ability to continue to develop AD04.
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Clinical Trials — Research and
Development Schedule
AD04 — Clinical Development
Strategy — Conduct two additional Phase 3 clinical trials
The clinical development plan for AD04 is based on
the regulatory feedback received in the meetings that took place in the third quarter of 2025 and our current planning assumptions are
that we will need to conduct two additional Phase 3 trials with AD04, where the first trial will be an adaptive design comparing active
AD04 to placebo and the second trial is a more traditional placebo controlled trial. This is expected to support potential approval in
the shortest time frame possible as well as improve the probability of regulatory authority acceptance and approval in the US and Europe.
The new clinical development plan includes both the US and EU endpoints and will be designed to satisfy both US and EU AD04 submission
requirements. In a recent article, published on February 19, 2026 in The New England Journal of Medicine, the FDA leadership has outlined
a shift in the agency’s default evidentiary posture under which, where scientifically appropriate, approval may be supported by
one adequate and well-controlled clinical trial plus confirmatory evidence, rather than the historic expectation of two independent clinical
trials. Hence, it is possible that we may conduct only one additional Phase 3 clinical trial of AD04. Confirmation of the clinical development
plan and pathway is currently being conducted by Adial’s clinical development and regulatory advisors.
2025 Financing Developments
May 2025 Warrant Inducement Transaction
On May 2, 2025, we entered into a warrant inducement
agreement (the “May 2025 Inducement Agreement”) with an existing healthcare-focused institutional investor of ours (the “Holder”)
for the immediate exercise of existing Series B Warrants to purchase 56,737 shares of our common stock and Series C Warrants, and together
with the Series B Warrants (the “Existing Warrants”) to purchase 92,000 shares of our common stock at a reduced exercise price
of $18.50 per share for net proceeds of approximately $2.2 million. In consideration for the immediate exercise in full of the Existing
Warrants, the Holder received, in a private placement, new unregistered (i) Series B-1 warrants to purchase up to 99,290 shares of common
stock(the “Series B-1 Warrants”), and (ii) Series C-1 Warrants to purchase up to 161,000 shares of common stock (the “Series
C-1 Warrants”), and together with the Series B-1 Warrants the “May 2025 Warrants”). Upon issuance the May 2025 Warrants
had an exercise price of $18.50 per share and were exercisable upon stockholder approval, which approval was obtained on August 1, 2025.
The Series B-1 Warrants expire five years from the date of such approval and the Series C-1 Warrants will expire eighteen months from
the date of such approval. The warrant inducement transaction closed on May 5, 2025.
In addition, we issued to a former placement agent’s
designees tail fee warrants, consisting of Placement Agent Series B-1 Common Stock Purchase Warrants and Placement Agent Series C-1 Common
Stock Purchase Warrants, to purchase up to an aggregate of 8,924 shares of common stock, which tail fee warrants have the same terms as
the May 2025 Warrants, except that they have an exercise price of $23.125 per share.
June 2025 Best Efforts Offering and Warrant
Amendment
On June 17, 2025, we entered into an amendment
agreement (the “Warrant Amendment”) with the Holder, pursuant to which we agreed (i) to amend the May 2025 Warrants to
reduce the exercise price of the May 2025 Warrants to $8.75 per share, (ii) to amend the May 2025 Warrants to modify the termination date
thereof to (x) June 17, 2030 for the Series B-1 Warrants and (y) December 17, 2026 for the Series C-1 Warrants, and (iii) to
amend the May 2025 Inducement Agreement, to provide that we would hold a special meeting of stockholders at the earliest practicable date,
but in no event later than one hundred twenty (120) days after the closing date, of the June 2025 Offering (as defined below) for the
purpose of obtaining Stockholder Approval (as defined in the May 2025 Inducement Agreement).
On June 18, 2025, we consummated a best efforts
offering (the “June 2025 Offering”) of (i) 213,648 shares of our common stock (the
“June 2025 Shares”), (ii) pre-funded warrants (the “June 2025 Pre-Funded Warrants”) to purchase up
to an aggregate of 230,352 shares of our common stock (the “the June 2025 Pre-Funded Warrant Shares”), (iii) Series D
warrants (the “Series D Warrants”) to purchase up to an aggregate of 444,000 shares of our common stock (the “Series D
Warrant Shares”), (iv) Series E warrants (the “Series E Warrants” and, together with the Series D Warrants,
the “June 2025 Warrants”) to purchase up to an aggregate of 333,000 shares of common stock (the “Series E
Warrant Shares” and, together with the Series D Warrant Shares, the “June 2025 Warrant Shares”). Each June 2025
Share or June 2025 Pre-Funded Warrant was sold together with one Series D Warrant and one Series E Warrant. The combined public
offering price for each Share and accompanying June 2025 Warrants was $8.1275. The combined public offering price for each Pre-Funded
Warrant and accompanying June 2025 Warrants was $8.1025. The aggregate net proceeds from the June 2025 Offering was approximately $3.0 million.
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Each June
2025 Pre-Funded Warrant was immediately exercisable for one June 2025 Pre-Funded Warrant Share at an exercise price of $0.025 per share
and will remain exercisable until such June 2025 Pre-Funded Warrant is exercised in full. The June 2025 Warrants have an exercise
price of $8.75 per June 2025 Warrant Share and became exercisable beginning on the effective date of stockholder approval of the issuance
of the June 2025 Warrant Shares, which approval was obtained on August 1, 2025. The Series D Warrants will expire on the 5-year anniversary
of the date of such approval and the Series E Warrants will expire on the 18-month anniversary of the date of such approval. As of December
31, 2025, all of the June 2025 Pre-Funded Warrants have been exercised.
A.G.P.
At the Market Offering
On August 1, 2025, we, entered into a sales agreement
(the “ATM”) with A.G.P./Alliance Global Partners ( “AGP”) providing for the sale by us of our shares of common
stock, from time to time, through the ATM, with certain limitations on the amount of common stock that may be offered and sold by us.
The aggregate market value of the shares of Common Stock eligible for sale under the ATM prospectus supplement filed in connection with
the ATM was $4,983,000 which is based on the limitations of such offerings under SEC regulations. The ATM provides that we will pay AGP
commissions for its services in acting as agent in the sale of shares of common stock pursuant to the ATM. AGP is entitled to compensation
at a fixed commission rate of 3.0% of the gross proceeds from the sale of shares of common stock pursuant to the ATM. During the three
and twelve months ended December 31, 2025, we sold 10,619 and 80,839 shares of common stock, respectively under the ATM and received net
proceeds of approximately $104 thousand and $531 thousand, respectively, after fees and expenses. After the year ended December 31, 2025
through March 3, 2026, we sold 100,000 shares of common stock under the ATM and received net proceeds of approximately $229,000.
November 2025 Warrant Inducement Transaction
On November 25, 2025, we entered into a warrant inducement
agreement (the “November Inducement Agreement”) with a certain holder for the immediate exercise of existing Series C-1 Warrants
to purchase 161,000 shares of our common stock and Series E Warrants to purchase 207,627 shares of our common stock
at a reduced exercise price of $7.75 in exchange for warrants to purchase up to 552,940 shares of common stock (the “Series
F Warrants”). The Series F Warrants have an exercise price of $7.75 and will be exercisable upon stockholder approval, which
approval has not yet been obtained. We were unable to hold our planned special meeting of stockholders and vote upon a proposal to allow
for the full exercise of the Series F Warrants due to lack of quorum. The Series F Warrants expire (24) months from the date
of such approval. The aggregate net proceeds from the transactions contemplated by the November Inducement Agreement were approximately
$2.6 million. As of December 31, 2025, the issuance of 216,960 shares of common stock issuable upon exercise of existing warrants
pursuant to the November Inducement Agreement was held in abeyance subject to a beneficial ownership limitation provision in such warrants
2024 Financing Developments
March 2024 Warrant Inducement Transaction
On March 1, 2024, we entered into a warrant inducement
agreement (the “March 2024 Inducement Agreement”) with the Holder of the Company’s warrants to purchase shares of our
common stock, issued in a private placement offering that closed on October 24, 2023 (the “March 2024 Existing Warrants”).
Pursuant to the March 2024 Inducement Agreement, the Holder of the March 2024 Existing Warrants agreed to exercise for cash the March
2024 Existing Warrants to purchase up to approximately 46,000 shares of common stock, at an exercise price of $70.50 per share. The transactions
contemplated by the March 2024 Inducement Agreement closed on March 6, 2024. The Company received aggregate gross proceeds of approximately
$3.5 million, before deducting placement agent fees and other expenses payable by the Company. Net proceeds of this transaction were estimated
to be approximately $3.1 million.
In consideration of the Holder’s immediate exercise
of the March 2024 Existing Warrants and the payment of $3.125 per Series C Warrant in accordance with the Inducement Agreement, we issued
unregistered Series C Warrants to purchase 92,000 shares of common stock (200% of the number of shares of common stock issued upon exercise
of the March 2024 Existing Warrants) to the Holder, recognizing a non-cash inducement expense of approximately $4.5 million.
On March 1, 2024, warrants to purchase 10,737
shares of common stock with an exercise price of $70.50 per share were exercised for gross proceeds of approximately $757 thousand.
63
H.C.
Wainwright At the Market Offering
On April 18, 2024, we entered into an At the Market
Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC ( “Wainwright”) providing for sale
of our shares of common stock, from time to time, through Wainwright, with certain limitations on the number of shares of common stock
that may be offered and sold by us as set forth in the ATM Agreement. The aggregate market value of the shares of Common Stock eligible
for sale under the ATM prospectus supplement filed in connection with the ATM Agreement was $4,283,650, which was based on the limitations
of such offerings under SEC regulations. The ATM Agreement provided that we would pay Wainwright a fixed commission rate of 3.0% of the
gross proceeds from the sale of shares of common stock pursuant to the ATM Agreement. The ATM Agreement provided that the offering of
shares of common stock pursuant to the ATM Agreement would terminate upon the earlier of (i) the sale of all shares of common stock subject
to the ATM Agreement; or (ii) termination of the ATM Agreement by us as permitted therein. The Wainwright ATM Agreement was terminated
on July 24, 2025, effective as of July 31, 2025. During the year ended December 31, 2024, we used this ATM Agreement to sell 93,940 shares
of common stock for net proceeds of approximately $4 million, after fees and expenses. During the year ended December 31, 2025, we did
not sell any shares of common stock under the Wainwright ATM Agreement.
Alumni Equity Line
of Credit
On December 13, 2024,
we entered into a Purchase Agreement (the “ELOC Agreement”) with Alumni Capital LP (“Alumni Capital”). Pursuant
to the ELOC Agreement, we have the right to sell to Alumni Capital up to the lesser of (i) $5,000,000 of newly issued shares, subject
to increase to $10,000,000 at our option (the “Investment Amount”), of the shares (the “Shares”) of the Company’s
common stock, par value $0.001 per share (the “Common Stock”), and (ii) the Exchange Cap (as defined below) (subject to certain
conditions and limitations), from time to time during the term of the ELOC Agreement. Sales of Common Stock pursuant to the ELOC Agreement,
and the timing of any sales, are solely at our option and we are under no obligation to sell securities pursuant to this arrangement.
Shares of Common Stock may be sold by us pursuant to this arrangement over a period ending on the earlier of December 31, 2026 or the
date on which Alumni Capital shall have purchased Shares pursuant to the ELOC Agreement for an aggregate purchase price of the Investment
Amount; provided, however that we can terminate the Agreement at any time upon ten days prior written notice, subject to the satisfaction
of the conditions in the ELOC Agreement.
The purchase price per
Share that may be sold to Alumni Capital under the ELOC Agreement in such fixed purchases equals ninety-seven percent (97%) of the lowest
daily dollar volume-weighted average price for the Common Stock during the period ending on the earlier of (i) three (3) consecutive trading
days period following the date we deliver a purchase notice and (ii) the date on which Alumni Capital notifies us that it is prepared
to proceed with the closing, subject to a Minimum Acceptable Price (as defined in the ELOC Agreement). There is no upper limit on the
price per share that Alumni Capital might be obligated to pay for the Common Stock under the ELOC Agreement; provided, however, that at
no time can the purchase price be below $13.75 per share (subject to adjustment as provided in the ELOC Agreement for any reorganization,
recapitalization, non-cash dividend, stock split, or other similar transaction occurring after the date of the ELOC Agreement).
During the year ended
December 31, 2025, we sold 5,666 shares of common stock under the ELOC Agreement for net proceeds of approximately $93,000, after
fees and expenses.
Clinical and Research Developments
In September 2025, we
announced a summary of feedback received following the FDA EOP2 meeting.
Feedback from the FDA
included:
● FDA recognized AUD as an unmet need.
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We have a high level of confidence that AD04 will
achieve success in clinical development based on our post hoc analysis and the regulatory feedback on the pre-specified primary endpoint
that the FDA has now confirmed, specifically, a reduction of heavy drinking days to zero at months 5 and 6. This is also vital for our
ongoing partnering efforts based on discussions with companies active in the US and Europe. Importantly, the regulators acknowledged the
value of this post hoc work, which showed that patients with the AG+ genetic subtype began treatment averaging more than 17 heavy drinking
days per month (17.23) and improved to fewer than 3 heavy drinking days per month (2.37) by study completion. This resulted in statistical
significance difference for the AG+ group of p=0.031 and p=0.021 respectively in the Phase 2 and Phase 3 trials Importantly, the credible
intervals generated by the independent, third-party statistical consulting group confirmed signals highly consistent with those identified
in the original post hoc analysis.
These clinically meaningful results are important
as evidenced by the US healthcare provider research completed after the ONWARD trial, which suggests AD04 would play an important role
as a medication for physicians currently treating patients with AUD.
Market research conducted subsequent to completion
of the ONWARD trial suggests unit pricing for AD04 could be significantly higher than previous assumptions which we believe confirms AD04
as an attractive commercial opportunity.
We have assessed the impact of the regulatory
guidance on the future business and operating plan requirements to meet the needs of the FDA and EU regulators for submission and approval
of AD04 to treat genetic subtypes of AUD. While the Company is in the process of confirming the impact on the clinical development plans
and timing with its external advisors and ongoing partnership discussions, the following provides a working summary subject to final discussions
with the regulatory agencies.
Efficacy Requirements:
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Safety Requirements:
● A thorough QT study will not be required.
In parallel with the Phase 3 trials, we expect
to conduct any standard Phase 1 studies required by the regulatory agencies. Studies that have been discussed with the FDA as potentially
being required might assess potentiation of the central nervous system effects of alcohol and pharmacodynamic impact of certain cytochrome
P450 enzyme variants.
Results of Operations for the Years Ended December
31, 2025 and 2024 (rounded to nearest thousand)
The following table sets forth the components
of our statements of operations in dollars for the periods presented:
For the Year Ended December 31,
Research and development (“R&D”)
expenses
Research and development expenses decreased by
approximately $609,000 (19%) during the year ended December 31, 2025 compared to the year ended December 31, 2024. The decrease was primarily
driven by decreased clinical activity and lower compensation expense for the year ended December 31, 2025 as compared to the same period
in 2024.
General and administrative expenses (“G&A”)
expenses
General and administrative expenses increased
by approximately $125,000 (2%) during the year ended December 31, 2025 compared to the year ended December 31, 2024. This increase was
mainly due to higher compensation expense for the year ended December 31, 2025 as compared to the same period in 2024.
Change in Value of Equity Method Investment
The expense recognized to the change in the value
of our equity method investment in Adovate, LLC decreased by approximately $60,000 in the year ended December 31, 2025 compared to the
year ended December 31, 2024. This decrease is due to variations in the loss recognized related to our equity investment which includes
a lower equity share, with changes to the value of our Adovate equity recognized on a three month lag.
Inducement Expense
The inducement expense of approximately $4,464,000
which was a one time, noncash expense associated with the issuance of new warrants to induce the exercise of outstanding warrants which
occurred during the year ended December 31, 2024.
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Total Other income (expenses)
Total other income, excluding losses from the
equity method investment and inducement expense, increased by approximately $211,000 (203%) in the year ended December 31, 2025 compared
to year ended December 31, 2024. This increase was primarily due to the recognition of a milestone payment received from Adovate of $150,000
during the year ended December 31, 2025.
Liquidity and Capital Resources
Overview
Our principal liquidity needs have historically
been working capital, R&D costs including clinical trials, patent costs and personnel costs. We expect these needs to continue to
increase in the near term as we engage in clinical trials and develop and eventually commercialize our compound, if approved by regulatory
authorities. Over the next several years, we expect to increase our R&D expenses as we undergo clinical trials to demonstrate the
safety and efficacy of our lead product candidate. To date, we have funded our operations primarily with the proceeds from our initial
and secondary public offerings, sales pursuant to out ATM Agreement, private placements, use of our equity line, as well as other equity
financings, warrant exercises, and the issuance of debt securities.
During the year ended December 31, 2025, our primary
sources of funding were the exercise of previously issued warrants, and sales of stock through public offerings, including at-the-market
offerings.
On May 2, 2025, we entered into the May 2025 Inducement
Agreement with the Holder providing for the immediate exercise of existing the Series B Warrants to purchase 56,737 shares of our common
stock and the Series C Warrants, and together with the Series B Warrants to purchase 92,000 shares of our common stock at a reduced exercise
price of $18.50 per share for net proceeds of approximately $2.2 million.
On June 18, 2025, we consummated the June 2025
Offering as describe above in the section titled “2025 Financing Developments.” The aggregate net proceeds from the June 2025
Offering were approximately $3.0 million.
On November 25, 2025, we entered into a warrant
inducement agreement as describe above in the section titled “2025 Financing Developments.” We received aggregate net proceeds
of approximately $2.6 million in connection therewith.
For the year ended December 31 2025, we sold 80,839
shares of common stock through the AGP ATM, for net proceeds of approximately $531 thousand after placement fees and expenses. From January 1, 2026 through March 3, 2026 we sold 100,000 shares of common stock through the AGP ATM, for net
proceeds of approximately $229 thousand after placement fees and expenses.
At December 31, 2025, we had cash and cash equivalents
of $5.9 million. We have completed a Phase 1 pharmacokinetic study of AD04 with a total cost of approximately $1.4 million, which has
been fully paid. In addition, we plan to begin a Phase 3 study of AD04 in 2026, pending availability of adequate funds, to complete production
of sufficient drug product to carry out the study, and to begin the process of clinical validation of our new cheek swab diagnostic genetic
test, which will be conducted with the Phase 3 study. We have signed a contract with a vendor for approximately $2.3 million with approximately
$1.9 million remaining under this contract, which is cancellable by either party, to produce sufficient drug product to carry out the
study, validate the manufacturing process, and manufacture registration batches for commercial usage. Our cash on hand is sufficient to
fund our operations and meet our existing commitments into the second half of 2026, based on our current commitments.
We will require additional financing as we continue
to execute our overall business strategy. Our current planning assumption is to conduct one Phase 3 trial with adaptive trial design,
one subsequent confirmatory Phase 3 trial and one open label extension study. These assumptions may change based on ongoing discussions
with regulatory authorities and final trial designs. Our liquidity may be negatively impacted as a result of research and development
cost increases in addition to general economic and industry factors. Our continued operations will depend on our ability to raise additional
capital through various potential sources, such as equity and/or debt financings, grant funding, strategic relationships, or out-licensing
in order to complete its subsequent clinical trial requirements for AD04. At this time, we have no committed sources of funding, our ability
to sell shares under the AGP ATM is restricted by certain SEC rules, and our ability to sell shares under the ELOC Agreement is restricted
by the terms of such agreement and certain Nasdaq rules. Management is actively pursuing financing and other strategic plans but can provide
no assurances that such financing or other strategic plans will be available on acceptable terms, or at all. Without additional funding,
we will be required to delay, scale back or eliminate some or all of our research and development programs, which would likely have a
material adverse effect on us and our financial statements.
67
If we raise additional funds by issuing equity
securities or convertible debt, our shareholders will experience dilution. Debt financing, if available, would result in increased fixed
payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such
as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration and
licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our products, future revenue streams or
product candidates or to grant licenses on terms that may not be favorable to us. There can be no assurance that grant funding will be
available. We cannot be certain that additional funding will be available on acceptable terms, or at all. Any failure to raise capital
in the future could have a negative impact on our financial condition and our ability to pursue our business strategies.
Cash flows
For the Year Ended December 31,
Provided by (used in)
Net cash used in operating activities
Net cash used in operating activities decreased
by approximately $429,000 during the year ended December 31, 2025 compared to the year ended December 31, 2024. The primary driver was
a decrease in the net loss during the year ended December 31, 2025 as compared to the same period in 2024, excluding the inducement expense.
Net cash provided by investing activities
Net cash provided by investing activities increased
by approximately $150,000 in the year ended December 31, 2025 compared to the year ended December 31, 2024. This increase was due to the
recognition of a milestone payment received from Adovate of $150,000.
Net cash provided by financing activities
Net cash provided by financing activities increased
by approximately $627,000 in the year ended December 31, 2025 compared to the year ended December 31, 2024. During the year ended December
31, 2025, we realized proceeds of approximately $8,473,000 from the June 2025 Offering, ATM sales and from the exercise of warrants in
connection with the May 2025 Inducement Agreement and November 2025 Inducement Agreement, as compared to approximately $7,846,000 for
the same period in 2024, from sales under the Wainwright ATM Agreement and exercise of warrants in connection with the March 2024 Inducement
Agreement.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
See Note 3 to the financial statements for a discussion
of recent accounting pronouncements.
Critical Accounting Estimates
Our discussion and analysis of our financial condition
and results of operations is based on our consolidated financial statements. These consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. We evaluate
these estimates and judgments on an ongoing basis. We base our estimates on our historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results and experiences may differ
materially from these estimates. We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make
assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that
are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period,
would have a material impact on our financial condition or results of operations. There are items within our financial statements that
require estimation but are not deemed critical, as defined above. Our significant accounting policies are more fully described in Note
3 to our financial statements included in this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.
We are a smaller reporting company as defined
by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item
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Item 8. Financial Statements and Supplemental Data.
ADIAL PHARMACEUTICALS, INC.
FINANCIAL STATEMENTS
Contents
Page
Report of Independent Registered Public Accounting Firm (PCAOB Firm ID: 199) F-2
Report of Independent Registered Public Accounting Firm (PCAOB Firm ID: 688) F-3
Consolidated Balance Sheets as of December 31, 2025 and 2024 F-4
Notes to Consolidated Financial Statements F-8
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Adial Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Adial Pharmaceuticals, Inc. (the “Company”) as of December 31, 2025, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year ended on December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant accumulated deficit, incurred recurring losses and needs to raise additional funds to sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ CBIZ CPAs P.C.
CBIZ CPAs P.C.
We have served as the Company’s auditor since 2017 (such date takes into account the acquisition of the attest business of Marcum llp by CBIZ CPAs P.C. effective November 1, 2024).
Marlton, New Jersey
March 5, 2026
F-2
Report
of Independent Registered Public Accounting Firm
To
the Stockholders and Board of Directors of
Adial
Pharmaceuticals, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheet of Adial Pharmaceuticals, Inc. (the “Company”) as of December 31,
2024, the related consolidated statements of operations, accumulated deficit and cash flows for the year ended Decmeber 31, 2024, and
the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 2024, and the results of its operations and its
cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of
America.
Explanatory
Paragraph – Going Concern
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more
fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise
additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides
a reasonable basis for our opinion.
/s/
Marcum LLP.
Marcum
LLP
We
have served as the Company’s auditor from 2017 to 2025.
Marlton,
NJ
March 4, 2025, except for the effect of the reverse stock split described in Note 3 to the financial statements, as to which the date
is March 5, 2026
F-3
ADIAL PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, related party — 48,272
Commitments and contingencies – see Note 8
Stockholders’ Equity
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
ADIAL PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
Operating Expenses:
Other Income (Expense)
Loss per share, basic and diluted $ (11.93 ) $ (68.01 )
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
ADIAL PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024
Common Stock Additional Paid In Accumulated Total Stockholders’
Shares Amount Capital Deficit Equity
Issuance of inducement warrants, net of payment — — 4,464,427 4,464,427
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
ADIAL PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets 565 565
Cost of commitment shares issued — 74,999
Change in fair value contingent consideration (150,000 )
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 8,572 63,358
Accrued expenses, related party — (47,942 )
Accounts payable and other current liabilities 405,077 146,805
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash receipt from contingent consideration 150,000 —
Net cash provided by investing activities 150,000 —
CASH FLOWS FROM FINANCING ACTIVITIES:
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Issuance of common stock to settle bonus accrual $ 36,050 $ —
The accompanying notes are an integral part of
these consolidated financial statements.
F-7
ADIAL PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 — DESCRIPTION OF BUSINESS
Adial Pharmaceuticals, Inc. (“Adial” or the “Company”) was converted from a limited liability company formed on November 23, 2010 in the Commonwealth of Virginia under the name Adial Pharmaceuticals, LLC, to a corporation and reincorporated in Delaware on October 5, 2017. Adial is presently engaged in the development of medications for the treatment or prevention of addictions and related disorders.
Adial’s wholly owned subsidiary, Purnovate, Inc. (“Purnovate”), was formed on January 26, 2021 to acquire Purnovate, LLC, an entity formed in December of 2019. Purnovate was a drug development company with a platform focused on developing drug candidates for non-opioid pain reduction and other diseases and disorders potentially targeted with adenosine analogs that are selective, potent, stable, and soluble. In 2023, Adial sold the Purnovate assets and business to Adovate, LLC (“Adovate”), a company formed and majority owned by a then director of the Company and CEO of Purnovate. In January 2025, Adial’s board of directors approved the merger of Purnovate into Adial. This merger was completed during the third quarter of 2025 and there is no effect on the Company’s consolidated financial statements.
2 — GOING CONCERN AND OTHER UNCERTAINTIES
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern. The Company is in a development stage and has incurred losses each year since inception. Based on the current development plans for AD04 in both the U.S. and international markets and other operating requirements, the Company does not believe that the existing cash and cash equivalents are sufficient to fund operations for the next twelve months following the filing of these consolidated financial statements. The Company has incurred recurring losses and needs to raise additional funds to sustain its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Based on the announced results of its ONWARD Phase 3 trial, the Company has completed and publicly reported meetings with the FDA and various European national authorities to discuss the appropriate next steps towards the future development of AD04. The Company has sold its Purnovate programs to a company formed for that purpose, reducing the Company’s operating expenses. During 2025, the Company received net proceeds of approximately $8.5 million from the exercise of warrants and equity issuances. The Company will nonetheless require additional capital to continue operating and development of AD04. There is no certainty that the Company will be able to access additional capital on acceptable terms, if at all, to continue operations after whatever funds are received from the buyer are expended. If unable to access sufficient capital, the Company would be required to delay, scale back or eliminate some or all of its research and development programs or delay its approach to commercialization of AD04, which would likely have a material adverse effect on the Company and its financial statements.
F-8
The Company’s continued operations will depend on its ability to raise additional capital through various potential sources, such as equity and/or debt financings, grant funding, strategic relationships, or out-licensing, in order to complete its subsequent clinical trial requirements for AD04. Management is actively pursuing financing and other strategic plans but can provide no assurances that such financing or other strategic plans will be available on acceptable terms, if at all. Without additional funding, the Company would be required to delay, scale back or eliminate some or all of its research and development programs, which would likely have a material adverse effect on the Company and its financial statements.
Other Uncertainties
Generally, the industry in which the Company operates subjects the Company to a number of other risks and uncertainties that can affect its operating results and financial condition. Such factors include, but are not limited to: the timing, costs and results of clinical trials and other development activities versus expectations; the ability to obtain regulatory approval to market product candidates; the ability to manufacture products successfully; competition from products sold or being developed by other companies; the price of, and demand for, Company products once approved; the ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products.
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of these consolidated financial statements in conformity with GAAP requires Company management to make estimates and assumptions the affect the amounts of assets and liabilities at the date of these consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results might differ from these estimates.
Significant items subject to such estimates and assumptions include accruals associated with third party providers supporting clinical trials, income tax asset realization, and the valuation of equity method investments.
Basis of Presentation and Principals of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with GAAP. The financial statements represent the consolidation of the Company and its subsidiary in conformity with GAAP. All intercompany transactions have been eliminated in consolidation.
Reverse Stock Split
On February 5, 2026, the Company effected a reverse stock split of the outstanding shares of common stock, trading on Nasdaq under the symbol ADIL, at a ratio of 1-for-25. As a result of the reverse split, the Company had 1,111,010 shares of common stock outstanding immediately after effecting the reverse split. The shares authorized for issue under the Company’s charter remained 100,000,000 common stock. The Company has retrospectively adjusted all references to common stock, stock warrants to purchase common stock, stock options to purchase common stock, share data, per share data and related information contained in the consolidated financial statements.
Basic and Diluted Loss per Share
Basic and diluted loss per share are computed based on the weighted-average outstanding shares of common stock, which are all voting shares. Diluted net loss per share is computed giving effect to all proportional shares of common stock, including stock options, restricted stock, and warrants to the extent dilutive. Basic net loss per share was the same as diluted net loss per share for the years ended December 31, 2025 and 2024 as the inclusion of all potential common shares outstanding would have an anti-dilutive effect.
F-9
The total potentially dilutive common shares that were excluded for the years ended December 31, 2025 and 2024 were as follows:
Potentially Dilutive Common Shares Outstanding December 31,
Common shares issuable on exercise of options 47,220 29,342
Unvested restricted stock awards 1,449 533
Total potentially dilutive common shares excluded 1,289,149 197,907
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. At times, the Company’s cash balances may exceed the current insured amounts under the Federal Deposit Insurance Corporation. At December 31, 2025, the Company did exceed FDIC insurance limits in its insured bank accounts by approximately $17,000 and held approximately $5.6 million in non-FDIC insured cash equivalent accounts. Included in cash equivalents are money market investments with original maturity dates when purchased less than ninety days and are carried at fair value. Unrealized gain or loss are included in the interest income and are immaterial to the financial statements. At December 31, 2024, the Company did exceed FDIC insurance limits by approximately $927,000 and held approximately $1.6 million in non-FDIC insured cash equivalent investments.
Equity Method Investments
The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial decisions of the investee.
Equity method investments are measured at cost minus impairment, if any, plus or minus the Company’s proportionate share of the equity method investee’s income or loss. The proportionate share of the income or loss from equity method investments is recognized on a lag.
Currently, the Company is not obligated to make additional capital contributions for its equity method investments, and therefore only records losses up to the amount of its total investment, inclusive of other investments in and loans to the investee, which are not accounted for as equity method investments.
Fair Value Measurements
FASB ASC 820, Fair Value Measurement, (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The methodology establishes consistency and comparability by providing a fair value hierarchy that prioritizes the inputs to valuation techniques into three broad levels, which are described below:
F-10
The fair value of cash and cash equivalents and accounts payable approximate their carrying value due to their short-term maturities.
Research and Development
Research and development costs are charged to expense as incurred and include supplies and other direct trial expenses such as fees due to contract research organizations, consultants which support the Company’s research and development endeavors, the acquisition of technology rights without an alternative use, and compensation and benefits of clinical research and development personnel. Certain research and development costs, in particular fees to contract research organizations (“CROs”), are structured with milestone payments due on the occurrence of certain key events. Where such milestone payments are greater than those earned through the provision of such services, the Company recognizes a prepaid asset which is recorded as expense; where fees earned are greater than milestone payments, an accrued expense liability is recorded as expense.
Stock-Based Compensation
The Company measures the cost of option awards based on the grant date fair value of the awards. That cost is recognized on a straight-line basis over the period during which the awardee was required to provide service in exchange for the entire award. The fair value of options is calculated using the Black-Scholes option pricing model, based on key assumptions such as the expected volatility of the Company’s common stock, the risk-free rate of return, and expected term of the options. The Company’s estimates of these assumptions are primarily based on historical data, peer company data, government data, and the judgment of management regarding future trends.
Common shares issued are valued based on the fair value of the Company’s common shares as determined by the market closing price of a share of our common stock on the date of the commitment to make the issuance.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Changes in recognition and measurement are reflected in the period in which the change in judgment occurs. Interest and penalties related to unrecognized tax benefits are included in income tax expense. The Company has generally recorded a full valuation allowance for its tax carryforwards, reflecting the judgment of Company management that they are more likely than not to expire unused.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. This update enhances the transparency and usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The guidance also eliminates certain existing requirements related to uncertain tax positions and unrecognized deferred tax liabilities. The amendments in this update are effective for annual periods beginning after December 15, 2024. Early adoption of the amendments is permitted for annual financial statements that have not yet been issued. The Company has adopted ASU 2023-09 during the fiscal year ended December 31, 2025 on a prospective basis and the adoption had no material impact on the Companies financial statement disclosures.
F-11
Segment Information
The Company operates as one operating segment with a focus on drug development for addiction and related disorders. The Company’s Chief Executive Officer, as its chief operating decision maker (CODM), manages and allocates resources to the operations of the Company’s on a consolidated basis. The CODM assesses performance and allocates resources based on the Company’s consolidated statements of operations and key components and processes of the Company’s operations are managed centrally. Segment asset information is not used by the CODM to allocate resources. This enables our Chief Executive Officer to assess our overall level of available resources and determine how best to deploy these resources across research and development projects in line with our long-term company-wide strategic goals.
Recent Accounting Pronouncements
In November 2024, FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This update would require a public entity to disclose information about purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion for each income statement line item that contains those expenses. The amendments in this update are effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption of the amendments is permitted for annual financial statements that have not yet been issued. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.
4 — EQUITY METHOD INVESTMENTS
On June 30, 2023, Adovate issued to the Company a 19.9% equity stake in Adovate as part of consideration owed upon the exercise of Adovate’s option to purchase the business and assets of the Company’s wholly owned subsidiary, Purnovate, Inc. Under the terms of the final asset purchase agreement, Adovate was obligated to protect the Company against dilution by issuing additional equity to the Company in Adovate as Adovate equity was sold to maintain the Company’s 15% equity stake until such time as Adovate had raised $4 million through equity sales, at which time the Company’s equity stake would be adjusted to equal to 15%. The Company determined the fair value of this equity to be $1,727,897 at time of issue, based on the price of cash sales by Adovate of the same class of equity to third parties around the same time as the date of issue.
On January 30, 2024, the Company acknowledged that Adovate had raised $4 million and the Company’s equity in Adovate was reduced to equal 15% of Adovate’s equity then outstanding. As a result, the Company recorded a reduction on the value of its equity stake of $283,268.
In accordance with ASC 810, the Company determined that Adovate does not qualify as a variable interest entity, nor does the Company have a controlling financial interest in Adovate. The Company has influence over, but does not control, Adovate through its equity interest in Adovate. The Company has determined that the equity it owns is in-substance common stock. The Company is not the primary beneficiary as it does not have the power to direct the activities of Adovate that most significantly impact Adovate’s economic performance. Accordingly, the Company does not consolidate the financial statements of Adovate with those of the Company.
F-12
The Company recorded the initial investment in Adovate of $1,727,897 in “Equity method investments” on its consolidated balance sheet. Due to the timing and availability of Adovate’s financial information, the Company is recording its proportionate share of losses from Adovate on a one quarter lag basis. Adovate’s summary balance sheet information as of September 30, 2025 and 2025 is below:
Results for Adovate’s operations in the twelve months ended September 30, 2025 and 2024 are summarized below:
Revenues $ — $ —
The Company held a weighted average of 11.2% of Adovate’s equity during the year ended September 30, 2025. The Company recognized an expense of $492,130, classified as other income (expense), against the carrying amount of the equity method investment, representing the Company’s portion of Adovate operating loss for the year ended September 30, 2025. At December 31, 2025, the Company held 10.3% of Adovate’s outstanding equity.
Activity recorded for the Company’s equity method investment in Adovate in the year ended December 31, 2025 is summarized in the following table:
Equity investment carrying amount at January 1, 2024 $ 1,534,013
Portion of operating losses recognized (479,636 )
Share of dilution to new investors 210,721
Equity investment carrying amount at December 31, 2024 $ 981,830
Portion of operating losses recognized (492,130 )
Equity investment carrying amount at December 31, 2025 489,700
At December 31, 2025, the Company’s maximum exposure to loss through its equity method investment is limited to the value of its equity.
Consideration for the sale of the assets of Purnovate, Inc. to Adovate also included contingent payments based on the occurrence of certain milestone events and a contingent royalty on future sales. The Company recognized $150,000 in other income for a milestone achieved and payment received during the year ended December 31, 2025.
The Company had shared service agreements with Adovate during the years ended December 31, 2025 and 2024. Under the terms of these agreements, certain employees of the Company provided services to Adovate. The Company is reimbursed for the allocable portion of the salaries, benefits and bonuses when paid based upon each individual agreement. The Company’s policy is to record these reimbursements as a reduction of General and Administrative expenses in the accompanying Consolidated Statement of Operations. During the years ended December 31, 2025 and 2024, the Company recognized reimbursements of approximately $138,000 and $163,000, respectively, under these agreements. At December 31, 2025 and 2024 accounts receivable balances of $41,758 and $56,020 were recorded in Prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets.
F-13
5 — ACCRUED EXPENSES
Accrued expenses consist of the following:
Legal and consulting services — 190,603
Pre-clinical and manufacturing expenses 3,900 81,607
6 — STOCKHOLDERS’ EQUITY
On August 1, 2025, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation to increase the authorized number of shares of the Company’s common stock, from 50,000,000 to 100,000,000.
At-the-market Offering Agreement 2025
On August 1, 2025, the Company, entered into a sales agreement (the “ATM”) with A.G.P./Alliance Global Partners (“AGP”) providing for the sale by the Company of its shares of common stock, from time to time, through the ATM, with certain limitations on the amount of common stock that may be offered and sold by the Company. The aggregate market value of the shares of common stock eligible for sale under the ATM prospectus supplement filed in connection with the ATM was $4,983,000 which is based on the limitations of such offerings under SEC regulations. The ATM provides that the Company will pay AGP commissions for its services in acting as agent in the sale of shares of common stock pursuant to the ATM. AGP will be entitled to compensation at a fixed commission rate of 3.0% of the gross proceeds from the sale of shares of common stock pursuant to the ATM.
During the year ended December 31, 2025 the Company sold 80,839 shares of common stock under the ATM and received net proceeds of approximately $531,000.
F-14
At the Market Offering Agreement 2024
On April 18, 2024, the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (the “Sales Agent” or “Wainwright”) providing for the sale by the Company of its shares of common stock, from time to time, through the Sales Agent, with certain limitations on the amount of Common Stock that may be offered and sold by the Company as set forth in the ATM Agreement. The aggregate market value of the shares of Common Stock eligible for sale under the ATM Prospectus Supplement was $4,283,650 which was based on the limitations of such offerings under SEC regulations. The Company recognized $77,600 in expenses associated with the conclusion the ATM Agreement, which expenses were classified as cost of capital.
The ATM Agreement provides that the Company will pay the Sales Agent commissions for its services in acting as agent in the sale of shares of Common Stock pursuant to the ATM Agreement. The Sales Agent will be entitled to compensation at a fixed commission rate of 3.0% of the gross proceeds from the sale of shares of Common Stock pursuant to the ATM Agreement. The Offering of shares of Common Stock pursuant to the ATM Agreement will terminate upon the earlier of (i) the sale of all shares of Common Stock subject to the ATM Agreement; or (ii) termination of the ATM Agreement by the Company as permitted therein.
During the year ended December 31, 2024, the Company sold 93,940 shares of common stock through the ATM Agreement, for net proceeds of $4,021,485 after placement fees and expenses.
Standby Equity Purchase Agreements
On May 31, 2023, the Company entered into an Equity Purchase Agreement with Alumni Capital, LLC (“Alumni”). This agreement constituted a standby equity purchase agreement (a “SEPA”). Pursuant to the SEPA, the Company has the right, but not the obligation, to sell to Alumni up to $3,000,000 of newly issued shares, subject to increase to $10,000,000 at the option of the Company, at the Company’s request at any time during the commitment period, which commenced on May 31, 2023 and was to end on the earlier of (i) December 31, 2024, or (ii) the date on which Alumni shall have made payment of advances requested by the Company totaling up to the commitment amount of $3,000,000. Each sale the Company requests under the SEPA (a “Purchase Notice”) may be for a number of shares of common stock with an aggregate value of up to $500,000, and up to $2,000,000 provided certain conditions concerning the average daily trading value are met. The SEPA provides for shares to be sold to Alumni at 95% of the lowest daily volume weighted average price during the three days after a Purchase Notice is issued to Alumni. The Company determined that the SEPA contains put option elements and forward share issuance elements that fail to meet equity classification under ASC 815-40, Contracts in an Entity’s Own Equity; the put option is recorded at fair value at inception and each reporting date thereafter. Forward contracts to issue shares created on the occurrence of a Purchase Notice will be measured at fair value, with changes in fair value recognized in net loss upon closing of the Purchase Notice and sale of the Company’s stock.
On December 13, 2024, the existing SEPA was cancelled by mutual agreement. Simultaneously, the Company and Alumni Capital entered into a new Equity Purchase Agreement (the “New SEPA”) on substantially the same terms, but with an initial right to sell Alumni up to $5,000,000 in newly issued shares and an end date of the commitment period of December 31, 2026. Upon the Company’s entry into and subject to the terms and conditions set forth in the New SEPA, 2,752 shares of common stock were issued to Alumni as consideration for its irrevocable commitment to purchase shares of common stock, pursuant to the New SEPA, as shown in the consolidated statement of shareholders’ equity. The fair value of these shares of $74,999 was recorded under other expenses for the year ended December 31, 2024. During the year ended December 31, 2025, 5,666 shares had been sold under the terms of the New SEPA for total proceeds of $93,044 leaving a remaining $4.9 million to be sold under the New SEPA.
F-15
Other Common Stock Issuances
On January 27, 2025, the Company issued 4,000 shares of common stock to a vendor and cash of $4,970 in consideration for services rendered valued at $100,000. On July 30, 2025, the Company issued 3,196 shares of common stock to our former CFO to satisfy the final payout for the earned 2024 bonus valued at $36,050. On August 14, 2025, the Company issued 8,695 shares of common stock to a vendor in consideration for services to be rendered valued at $100,000, these shares are restricted from trading for a six-month period. On October 24, 2025, the Company held in escrow 10,000 restricted shares to be issued to a vendor for services to be rendered. These restricted shares will be released and issued after the six-month period has expired.
On August 19, 2024, the Company issued 96 shares of common stock under the 2017 Equity Incentive Plan to Bankole Johnson, the former CMO and a continuing consultant.
2017 Equity Incentive Plan
On October 9, 2017, the Company adopted the Adial Pharmaceuticals, Inc. 2017 Equity Incentive Plan (the “2017 Equity Incentive Plan”); which became effective on July 31, 2018. Under the 2017 Equity Incentive Plan, the Company may grant equity-based awards to individuals who are employees, officers, directors, or consultants of the Company. Options issued under the Plan will generally expire ten years from the date of grant and vest over a three-year period. At December 31, 2025, the Company had 144,075 shares issuable under the 2017 Equity Incentive Plan.
On August 1, 2025, the Company’s stockholders approved an amendment to the Company’s 2017 Equity Incentive Plan to increase the number of shares of common stock authorized for grant under the plan from 80,000 to 200,000.
F-16
Stock Options
The following table provides the stock option activity for the years ended December, 2025 and 2024:
At December 31, 2025, the total intrinsic value of the outstanding options was zero dollars.
The Company used the Black Scholes valuation model to determine the fair value of the options issued, using the following key assumptions for the years ended December 31, 2025 and 2024:
Expected Term 5.75 years 5.75 years
Expected Dividend $ — $ —
The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2025 and 2024 was $16.70 and $25.91, respectively. As of December 31, 2025, $575,700 in unrecognized compensation expense will be recognized over weighted average period of 1.9 years.
The components of stock-based compensation expense included in the Company’s Statements of Operations for the years ended December 31, 2025 and 2024 are as follows:
Year ended December 31,
Research and development options expense $ 14,200 54,303
Total research and development expenses 14,200 54,303
F-17
Stock Warrants
The following table provides the activity in warrants for the respective periods.
2024 Warrant Transactions
On March 1, 2024, warrants for the purchase of 10,737 shares of common stock with an exercise price of $2.82 per share were exercised for total gross proceeds of $756,732.
On March 1, 2024, the Company entered into a warrant inducement agreement with a certain holder of the Company’s warrants to purchase shares of the Company’s common stock (the “Existing Warrants”) issued in a private placement offering that closed on October 24, 2023. Pursuant to the inducement agreement, the holder of the Existing Warrants agreed to exercise for cash the Existing Warrants to purchase up to approximately 46,000 shares of common stock, at an exercise price of $70.5 per share. The transactions contemplated by the inducement agreement closed on March 6, 2024. The Company received aggregate gross proceeds of approximately $3.5 million, before deducting placement agent fees and other expenses payable by the Company. Net proceeds of this transaction were estimated to be approximately $3.1 million.
In consideration of the holder’s immediate exercise of the Existing Warrants and the payment of $3.125 per warrant in accordance with the inducement agreement, the Company issued unregistered Series C warrants (the “Series C Warrants”) to purchase 92,000 shares of common stock (200% of the number of shares of common stock issued upon exercise of the Existing Warrants) to the holder of Existing Warrants. The shares underlying the Series C Warrants were registered for sale on April 12, 2024 and the registrations statement registering the shares underlying the Series C Warrants was declared effective on April 19, 2024. The fair value per warrant was determined to be $51.65 per warrant, resulting in an expense of issuance of $48.50 per warrant as excess fair value over the $3.125 paid, or $4,464,427 in total inducement expense, classified under other income (expenses).