Core Insights - Adial Pharmaceuticals has appointed Tony Goodman as Chief Operating Officer to oversee strategic growth initiatives, including clinical development and commercialization planning for AD04, a treatment for alcohol use disorder (AUD) [1][2] - The company is advancing its AD04 clinical program and preparing for potential commercialization, leveraging Goodman's extensive experience in the biopharmaceutical industry, particularly in addiction treatment [2][3] Company Overview - Adial Pharmaceuticals is a clinical-stage biopharmaceutical company focused on developing therapies for addiction and related disorders, with its lead product AD04 being a serotonin-3 receptor antagonist aimed at treating AUD [3] - AD04 has shown promising results in the ONWARD™ Phase 3 clinical trial, particularly in reducing heavy drinking among patients with specific genetic profiles, which represent about one-third of the AUD population [3] Leadership Background - Tony Goodman has over 23 years of experience in the pharmaceutical and biotech industries, previously serving as Chief Business Development Officer at Indivior PLC, where he contributed to significant revenue growth in the addiction market [2][3] - Goodman is also the founder of The Keswick Group LLC, a strategic advisory firm, and has held various leadership roles in commercial development and strategic planning [2]

PART I – FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Condensed Consolidated Unaudited Financial Statements](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Unaudited%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of Adial Pharmaceuticals, Inc., including the balance sheets, statements of operations, statements of shareholders' equity, and statements of cash flows, along with their accompanying notes. These statements provide a snapshot of the company's financial position, performance, and cash movements for the periods ended September 30, 2023, and December 31, 2022, highlighting significant changes and accounting policies. [Condensed Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates | ASSETS / LIABILITIES AND STOCKHOLDERS' EQUITY | September 30, 2023 | December 31, 2022 | | :-------------------------------------------- | :----------------- | :------------------ | | **ASSETS** | | | | Cash and cash equivalents | $315,880 | $4,001,794 | | Total Current Assets | $1,135,486 | $4,779,935 | | Total Assets | $2,867,437 | $5,732,804 | | **LIABILITIES** | | | | Total Current Liabilities | $528,179 | $1,790,866 | | Total Liabilities | $528,179 | $2,456,310 | | **STOCKHOLDERS' EQUITY** | | |\ | Total Stockholders' Equity | $2,339,258 | $3,276,494 | | Total Liabilities and Stockholders' Equity | $2,867,437 | $5,732,804 | - Cash and cash equivalents significantly decreased from **$4,001,794** at December 31, 2022, to **$315,880** at September 30, 2023, indicating substantial cash usage[9](index=9&type=chunk) - Total assets decreased by approximately **50%** from **$5,732,804** to **$2,867,437**, primarily due to the sale of Purnovate assets and reduction in cash[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net income or loss over specific periods | Operating Expenses / Income (Loss) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development expenses | $207,128 | $696,073 | $1,002,640 | $1,418,467 | | General and administrative expenses| $1,150,808 | $1,858,550 | $4,101,466 | $6,843,513 | | Total Operating Expenses | $1,357,936 | $2,554,623 | $5,104,106 | $8,261,980 | | Loss From Operations | $(1,357,936) | $(2,554,623) | $(5,104,106) | $(8,261,980) | | Net Loss | $(1,384,976) | $(3,109,350) | $(3,203,008) | $(9,864,721) | | Net loss per share, basic and diluted | $(1.18) | $(3.02) | $(2.86) | $(9.94) | - Net loss significantly decreased for both the three-month period (from **$(3,109,350)** to **$(1,384,976)**) and the nine-month period (from **$(9,864,721)** to **$(3,203,008)**) year-over-year, primarily driven by reduced operating expenses and a gain from discontinued operations[11](index=11&type=chunk) - Loss per share (basic and diluted) improved from **$(3.02)** to **$(1.18)** for the three months and from **$(9.94)** to **$(2.86)** for the nine months ended September 30, 2023[11](index=11&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) This section outlines changes in the company's equity components, including common stock and accumulated deficit | Equity Component | December 31, 2022 | September 30, 2023 | | :--------------------------- | :---------------- | :----------------- | | Common Stock (Shares) | 1,067,491 | 1,217,981 | | Common Stock (Amount) | $1,067 | $1,218 | | Additional Paid In Capital | $66,949,958 | $69,215,579 | | Accumulated Deficit | $(63,674,531) | $(66,877,539) | | Total Shareholders' Equity | $3,276,494 | $2,339,258 | - Total Shareholders' Equity decreased from **$3,276,494** at December 31, 2022, to **$2,339,258** at September 30, 2023, primarily due to the accumulated net loss[14](index=14&type=chunk) - Common stock shares outstanding increased from **1,067,491** to **1,217,981**, reflecting new issuances and vesting of stock awards, partially offset by a reverse stock split and fractional share redemption[14](index=14&type=chunk)[29](index=29&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash generated and used by the company across operating, investing, and financing activities | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(5,584,254) | $(9,435,114) | | Net cash provided by investing activities | $1,150,000 | $0 | | Net cash provided by financing activities | $748,340 | $9,125,606 | | Net decrease in cash and cash equivalents | $(3,685,914) | $(309,508) | | Cash and cash equivalents - End of Period | $315,880 | $5,752,665 | - Net cash used in operating activities decreased significantly from **$(9,435,114)** in 2022 to **$(5,584,254)** in 2023, reflecting reduced operational burn[16](index=16&type=chunk) - Investing activities provided **$1,150,000** in cash in 2023, primarily from the sale of Purnovate assets, compared to no cash from investing activities in 2022[16](index=16&type=chunk) - Financing activities provided substantially less cash in 2023 (**$748,340**) compared to 2022 (**$9,125,606**), indicating a smaller fundraising round[16](index=16&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements [1 — DESCRIPTION OF BUSINESS](index=9&type=section&id=1%20%E2%80%94%20DESCRIPTION%20OF%20BUSINESS) This note describes the company's primary business activities, drug development focus, and recent strategic changes - Adial Pharmaceuticals, Inc. develops medications for addiction and related disorders, with its lead compound AD04 targeting Alcohol Use Disorder (AUD)[19](index=19&type=chunk)[21](index=21&type=chunk) - The company sold its wholly-owned subsidiary, Purnovate, Inc., a drug development company focused on non-opioid pain reduction, to Adovate, LLC, effective June 30, 2023[20](index=20&type=chunk) - AD04, an ondansetron-based serotonin-3 antagonist, has completed its ONWARD™ Phase 3 trial, and the company is pursuing regulatory approval with the FDA and EMA for AUD treatment[21](index=21&type=chunk) [2 — GOING CONCERN AND OTHER UNCERTAINTIES](index=9&type=section&id=2%20%E2%80%94%20GOING%20CONCERN%20AND%20OTHER%20UNCERTAINTIES) This note addresses the company's ability to continue operations, highlighting liquidity challenges and future capital requirements - The company's existing cash and cash equivalents are not sufficient to fund operations for the next twelve months, raising substantial doubt about its ability to continue as a going concern[22](index=22&type=chunk)[23](index=23&type=chunk) - Continued operations depend on raising additional capital through equity/debt financings, grants, strategic relationships, or out-licensing to complete AD04 clinical trial requirements[25](index=25&type=chunk) - The company completed a private placement on October 19, 2023, raising approximately **$3.5 million** net proceeds, which, along with a final **$350,000** payment from Adovate, is expected to fund basic operations for a year, but not additional AD04 development[23](index=23&type=chunk)[109](index=109&type=chunk) [3 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=3%20%E2%80%94%20BASIS%20OF%20PRESENTATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the accounting principles used in preparing the financial statements and key accounting estimates - The financial statements are prepared in accordance with GAAP for interim financial information and reflect all normal recurring adjustments[28](index=28&type=chunk) - A **1-for-25** reverse stock split was effected on August 4, 2023, retrospectively adjusting all share and per-share data[29](index=29&type=chunk) - The company uses the equity method for investments where it has significant influence but not control, such as its **19.9%** stake in Adovate, valuing it at cost minus impairment plus or minus its proportionate share of income/loss[34](index=34&type=chunk)[50](index=50&type=chunk) [4 — SALE OF PURNOVATE](index=12&type=section&id=4%20%E2%80%94%20SALE%20OF%20PURNOVATE) This note details the sale of the Purnovate subsidiary, including the consideration received and the financial impact - Adovate, LLC exercised its option to purchase Purnovate, Inc.'s assets and business effective May 16, 2023, with the transfer formalized on August 17, 2023, effective June 30, 2023[39](index=39&type=chunk) - Consideration for the sale included **$450,000** in exercise fees, **$700,000** in expense reimbursements (with **$350,000** still due by Dec 2, 2023), and a **19.9%** equity stake in Adovate valued at **$1,727,897**[40](index=40&type=chunk) | Item | Amount | | :------------------------ | :---------- | | Total consideration | $3,227,897 | | Total assets sold | $1,361,392 | | Liabilities transferred | $758,293 | | Net assets sold | $603,099 | | Gain on sale | $2,624,798 | [5 — DISCONTINUED OPERATIONS](index=14&type=section&id=5%20%E2%80%94%20DISCONTINUED%20OPERATIONS) This note presents the financial results and classification of Purnovate, Inc. as a discontinued operation - The assets, liabilities, and operating results of Purnovate, Inc. have been classified as discontinued operations following its sale[45](index=45&type=chunk) | Operating Expenses / Income (Loss) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development expenses | $0 | $547,483 | $260,748 | $1,621,557 | | General and administrative expenses| $0 | $85,587 | $455,431 | $193,572 | | Total Operating Expenses | $0 | $633,070 | $716,179 | $1,815,129 | | Gain (loss) from discontinued operations, net of tax | $(37,276) | $(558,199) | $1,894,445 | $(1,618,258) | - Discontinued operations generated a gain of **$1,894,445** for the nine months ended September 30, 2023, primarily due to the **$2,624,798** gain on the sale of Purnovate[47](index=47&type=chunk)[48](index=48&type=chunk)[106](index=106&type=chunk) [6 — EQUITY METHOD INVESTMENTS](index=16&type=section&id=6%20%E2%80%94%20EQUITY%20METHOD%20INVESTMENTS) This note describes the company's investment in Adovate, LLC, and the accounting treatment under the equity method - The company received a **19.9%** equity stake in Adovate, LLC, valued at **$1,727,897**, as part of the Purnovate sale consideration[49](index=49&type=chunk) - The company accounts for this investment using the equity method, recognizing its proportionate share of Adovate's losses on a one-quarter lag basis[51](index=51&type=chunk) - At September 30, 2023, the equity investment carrying amount was **$1,727,897**, with the company's maximum exposure to loss limited to this investment and a **$350,000** reimbursement receivable[52](index=52&type=chunk) [7 — ACCRUED EXPENSES](index=16&type=section&id=7%20%E2%80%94%20ACCURRED%20EXPENSES) This note provides a breakdown of the company's accrued liabilities at specific reporting dates | Accrued Expense Category | September 30, 2023 | December 31, 2022 | | :----------------------------------- | :----------------- | :------------------ | | Clinical research organization services and expenses | $0 | $123,386 | | Employee compensation | $354,107 | $761,509 | | Legal and consulting services | $48,691 | $72,616 | | Pre-clinical and manufacturing expenses | $5,816 | $5,816 | | Total accrued expenses | $408,614 | $963,327 | - Total accrued expenses decreased significantly from **$963,327** at December 31, 2022, to **$408,614** at September 30, 2023, primarily due to reductions in employee compensation and clinical research organization services[53](index=53&type=chunk) [8 — RELATED PARTY TRANSACTIONS](index=17&type=section&id=8%20%E2%80%94%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions and agreements with related parties, including licensing and consulting arrangements - The company has an exclusive, worldwide license agreement with The University of Virginia Patent Foundation (UVA LVG) for AD04 patents, requiring yearly license fees, milestone payments, and royalties[55](index=55&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk) - A percentage of payments to UVA LVG may be distributed to the company's Chief Medical Officer, who is an inventor of the patents[55](index=55&type=chunk)[69](index=69&type=chunk) [9 — SHAREHOLDERS' EQUITY](index=17&type=section&id=9%20%E2%80%94%20SHAREHOLDERS'%20EQUITY) This note details changes in the company's shareholders' equity, including stock issuances and stock-based compensation - The company entered into a Standby Equity Purchase Agreement (SEPA) with Alumni Capital, LLC, allowing it to sell up to **$3 million** (potentially **$10 million**) of common stock at **95%** of the lowest daily volume-weighted average price[56](index=56&type=chunk) - **7,983** common shares were issued to Alumni Capital as a commitment fee for the SEPA, valued at **$51,901**[57](index=57&type=chunk) - The 2017 Equity Incentive Plan was amended to increase available shares for grant to **500,000**, with **204,059** options outstanding and **38,157** shares available for issue as of September 30, 2023[60](index=60&type=chunk) | Stock-based Compensation Expense | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total stock-based compensation expense | $268,374 | $557,015 | $1,465,531 | $2,640,349 | [10 — COMMITMENTS AND CONTINGENCIES](index=20&type=section&id=10%20%E2%80%94%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's contractual obligations, potential liabilities, and future financial commitments - The UVA LVG license requires annual minimum royalties of **$40,000**, milestone payments up to **$1,450,000** upon regulatory approvals, and royalties of **1-2%** on net sales of licensed products[69](index=69&type=chunk) - The company recognized **$30,000** in minimum license royalty expenses for both the nine months ended September 30, 2023 and 2022[71](index=71&type=chunk) - Consulting agreements with related parties, including Dr. Bankole A. Johnson (CMO) and Keswick Group, LLC (Tony Goodman, director), involve significant compensation and potential stock grants[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk) - The company has approximately **$302,000** in future cash commitments under other consulting, clinical trial support, and testing services agreements[78](index=78&type=chunk) [11 — SUBSEQUENT EVENTS](index=21&type=section&id=11%20%E2%80%94%20SUBSEQUENT%20EVENTS) This note reports significant events that occurred after the reporting period but before the financial statements were issued - On October 19, 2023, the company closed a private placement of pre-funded and series A/B warrants, generating gross proceeds of **$3,998,582** and expected net proceeds of approximately **$3.5 million**[80](index=80&type=chunk) - The proceeds from this private placement, combined with a final **$350,000** payment from Adovate, are anticipated to fund basic operations for one year from the report date, but not additional AD04 development[109](index=109&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results for the periods presented. It covers the company's strategic focus on AD04 for Alcohol Use Disorder, the impact of the Purnovate sale, recent financing activities, and a detailed comparison of operating expenses and net losses for the three and nine months ended September 30, 2023 and 2022. The discussion also addresses liquidity concerns, future capital requirements, and critical accounting estimates. [Overview](index=23&type=section&id=Overview) This section provides a high-level summary of the company's business, strategic focus, and financial performance - Adial Pharmaceuticals is a clinical-stage biopharmaceutical company focused on developing AD04 for Alcohol Use Disorder (AUD) in genetically targeted subjects, with commercialization efforts underway in the U.S. and Europe[83](index=83&type=chunk) - The company sold its Purnovate subsidiary in June 2023, shifting focus to AD04 development and exploring new opportunities in addiction and pain reduction[84](index=84&type=chunk) - The company has incurred significant net losses since inception (**$3.2 million** for nine months ended Sep 30, 2023) and does not expect current cash to fund operations for the next twelve months without additional capital[86](index=86&type=chunk)[87](index=87&type=chunk) [Recent Developments](index=24&type=section&id=Recent%20Developments) This section highlights key corporate actions and events that have occurred recently, impacting the company's operations and finances - A **1-for-25** reverse stock split was effected on August 4, 2023, resulting in **1,217,981** common shares outstanding after fractional share redemption[89](index=89&type=chunk) - The company entered into a Standby Equity Purchase Agreement (SEPA) with Alumni Capital LP on May 31, 2023, allowing the sale of up to **$3 million** (potentially **$10 million**) in common stock, and issued **7,983** commitment shares[90](index=90&type=chunk) - On October 19, 2023, a private placement of pre-funded and series A/B warrants generated gross proceeds of approximately **$4 million**, with expected net proceeds of **$3.5 million**[92](index=92&type=chunk) - Shareholders approved an increase in the 2017 Equity Incentive Plan to **500,000** shares authorized for grant on November 2, 2023[93](index=93&type=chunk) [Results of operations for the three months ended September 30, 2023 and 2022](index=25&type=section&id=Results%20of%20operations%20for%20the%20three%20months%20ended%20September%2030%2C%202023%20and%202022) This section analyzes the company's financial performance for the three-month periods, comparing key revenue and expense items year-over-year | Item | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change (Decrease) | | :---------------------------------- | :-------------------------- | :-------------------------- | :---------------- | | Research and development expenses | $207,000 | $696,000 | $(489,000) | | General and administrative expenses | $1,151,000 | $1,859,000 | $(708,000) | | Total Operating Expenses | $1,358,000 | $2,555,000 | $(1,197,000) | | Loss From Operations | $(1,358,000) | $(2,555,000) | $1,197,000 | | Net loss | $(1,385,000) | $(3,110,000) | $1,725,000 | - R&D expenses decreased by **$489,000** (**70%**) due to reduced AD04 trial activities and lower R&D employee compensation[96](index=96&type=chunk) - G&A expenses decreased by **$708,000** (**38%**) due to lower non-equity and equity compensation, reduced IR/PR, strategic consultant, and corporate legal expenses[97](index=97&type=chunk) - Loss from discontinued operations decreased by **$521,000** (**93%**) as Purnovate's operations ceased after its sale, with only a **$37,000** charge recognized[100](index=100&type=chunk) [Results of operations for the nine months ended September 30, 2023 and 2022](index=26&type=section&id=Results%20of%20operations%20for%20the%20nine%20months%20ended%20September%2030%2C%202023%20and%202022) This section analyzes the company's financial performance for the nine-month periods, comparing key revenue and expense items year-over-year | Item | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (Decrease) | | :---------------------------------- | :-------------------------- | :-------------------------- | :---------------- | | Research and development expenses | $1,003,000 | $1,418,000 | $(415,000) | | General and administrative expenses | $4,101,000 | $6,844,000 | $(2,743,000) | | Total Operating Expenses | $5,104,000 | $8,262,000 | $(3,158,000) | | Loss From Operations | $(5,104,000) | $(8,262,000) | $3,158,000 | | Net loss | $(3,203,000) | $(9,864,000) | $6,661,000 | - R&D expenses decreased by **$415,000** (**29%**) due to reduced cash compensation for R&D employees, lower clinical/statistical consultants, and reduced test drug manufacturing costs, partially offset by final CRO fees[103](index=103&type=chunk) - G&A expenses decreased by **$2,743,000** (**40%**) due to significant reductions in equity and non-equity compensation, reduced IR/PR, strategic consultants, IT support, and web development expenses[104](index=104&type=chunk) - Income from discontinued operations increased by **$3,512,000** (**217%**) due to the **$2,625,000** gain on Purnovate's sale and reduced R&D expenses post-transfer[106](index=106&type=chunk) [Liquidity and capital resources at September 30, 2023](index=27&type=section&id=Liquidity%20and%20capital%20resources%20at%20September%2030%2C%202023) This section discusses the company's cash position, funding needs, and ability to meet its short-term and long-term obligations - Cash and cash equivalents were **$316,000** at September 30, 2023, down from **$4.0 million** at December 31, 2022[109](index=109&type=chunk) - The company's current cash is not expected to fund operations for the next twelve months, raising substantial doubt about its going concern ability[109](index=109&type=chunk) - Additional funding of approximately **$25 million** is required for two planned Phase 3 trials for AD04, with active discussions ongoing with potential commercial partners[111](index=111&type=chunk) - Future funding will be sought through equity/debt financings, grants, strategic relationships, or out-licensing, with no assurance of availability on acceptable terms[111](index=111&type=chunk)[112](index=112&type=chunk) [Cash flows](index=28&type=section&id=Cash%20flows) This section provides a detailed analysis of cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $(5,584,000) | $(9,435,000) | | Investing activities | $1,150,000 | $0 | | Financing activities | $748,000 | $9,126,000 | | Net decrease in cash and cash equivalents | $(3,686,000) | $(309,000) | - Net cash used in operating activities decreased by **$3,851,000**, driven by reduced cash used in discontinued operations and lower payments for accrued expenses, partially offset by increased cash used for accounts payable and prepaid expenses[115](index=115&type=chunk) - Net cash provided by investing activities increased by **$1,150,000**, entirely due to cash from the Purnovate sale[116](index=116&type=chunk) - Net cash provided by financing activities decreased by **$8,378,000**, reflecting a smaller fundraising round in 2023 compared to 2022[118](index=118&type=chunk) [Off-balance sheet arrangements](index=29&type=section&id=Off-balance%20sheet%20arrangements) This section discloses any material off-balance sheet transactions or obligations that could impact the company's financial position - The company does not have any off-balance sheet arrangements[118](index=118&type=chunk) [Critical Accounting Estimates and Policies](index=29&type=section&id=Critical%20Accounting%20Estimates%20and%20Policies) This section explains the significant accounting judgments and estimates that are crucial to the financial statements - Critical accounting policies involve significant judgment, including valuation of equity method investments, stock-based compensation, and accruals for clinical trial expenses[119](index=119&type=chunk)[120](index=120&type=chunk) - R&D expense recognition and accrual depend on contractor reporting and judgment regarding event likelihood for fees to CROs, clinical sites, and testing vendors[121](index=121&type=chunk) - Stock-based compensation fair value is estimated using the Black-Scholes-Merton model, requiring subjective assumptions for expected volatility, risk-free interest rate, dividend yield, and expected term[122](index=122&type=chunk)[123](index=123&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Adial Pharmaceuticals, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[128](index=128&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting. It identifies material weaknesses in internal controls, including lack of formal risk assessment, inadequate documentation, insufficient approval/review processes, and deficiencies in IT general controls and segregation of duties. Despite these weaknesses, management concludes that the financial statements fairly present the company's financial condition. - The company has identified material weaknesses in its internal controls over financial reporting, including lack of formal risk assessment, inadequate documentation, insufficient approval/review processes, insufficient GAAP experience for complex transactions, deficiencies in IT general controls, and insufficient segregation of duties[129](index=129&type=chunk) - Due to these material weaknesses, the CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2023[130](index=130&type=chunk) - Despite the material weaknesses, management believes the unaudited condensed consolidated financial statements fairly present the company's financial condition, results of operations, and cash flows[130](index=130&type=chunk) - There have been no material changes in internal control over financial reporting during the quarter ended September 30, 2023[131](index=131&type=chunk) PART II – OTHER INFORMATION This part includes legal proceedings, risk factors, equity sales, defaults, and other miscellaneous disclosures [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) This section states that Adial Pharmaceuticals, Inc. is not currently a party to any legal proceedings that would have a material adverse effect on its business, operating results, financial condition, or cash flows - The company is not currently a party to any legal proceedings that would have a material adverse effect on its business, operating results, financial condition, or cash flows[132](index=132&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This section highlights significant risks associated with investing in Adial Pharmaceuticals, Inc., including its history of losses, the going concern doubt expressed by its auditors, and potential challenges in maintaining Nasdaq listing compliance. It emphasizes the speculative nature of biopharmaceutical development and the company's reliance on future capital raises. - The company has incurred losses from continuing operations every year and quarter since inception and anticipates continued losses, with an accumulated deficit of approximately **$66.9 million** as of September 30, 2023[134](index=134&type=chunk)[135](index=135&type=chunk) - The independent registered public accounting firm has expressed doubt about the company's ability to continue as a going concern due to recurring net losses and negative cash flows from operations[137](index=137&type=chunk) - As of September 30, 2023, the company's stockholder's equity of **$2,339,258** is below Nasdaq's minimum requirement of **$2,500,000**, potentially leading to delisting if compliance is not regained[141](index=141&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section confirms that Adial Pharmaceuticals, Inc. did not engage in any unregistered sales of equity securities or issuer purchases of equity securities during the nine months ended September 30, 2023, beyond what has already been disclosed. - The company did not sell any unregistered equity securities during the nine months ended September 30, 2023, other than previously disclosed[143](index=143&type=chunk) - There were no issuer purchases of equity securities during the period[143](index=143&type=chunk) [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities for Adial Pharmaceuticals, Inc. during the reporting period - There were no defaults upon senior securities[143](index=143&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to Adial Pharmaceuticals, Inc. - Mine safety disclosures are not applicable to the company[143](index=143&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report for Adial Pharmaceuticals, Inc. under this item - No other information is applicable[143](index=143&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section provides a list of exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL-related documents - The exhibits include the Certificate of Amendment to Certificate of Incorporation, certifications by principal executive and financial officers (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL documents[144](index=144&type=chunk) SIGNATURES This section contains the required signatures of the company's principal executive and financial officers, certifying the report - The report is signed by Cary J. Claiborne, President and Chief Executive Officer, and Joseph Truluck, Chief Financial Officer, on November 14, 2023[146](index=146&type=chunk)

PART I – FINANCIAL INFORMATION [Item 1. Condensed Consolidated Unaudited Financial Statements](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Unaudited%20Financial%20Statements) Adial's unaudited condensed consolidated financial statements and notes detail business, going concern, accounting policies, and key financial events [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202023%20and%20December%2031%2C%202022) Balance sheets show decreased assets and liabilities from December 2022 to June 2023, driven by the Purnovate sale and reclassification | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $1,218,206 | $4,001,794 | | Total Current Assets | $2,046,851 | $4,779,935 | | Equity method investment | $1,727,897 | — | | Total Assets | $3,778,943 | $5,732,804 | | Total Current Liabilities | $461,752 | $1,790,866 | | Total Liabilities | $461,752 | $2,456,310 | | Total Stockholders' Equity | $3,317,191 | $3,276,494 | - Cash and cash equivalents decreased by approximately **$2.78 million** from December 31, 2022, to June 30, 2023[10](index=10&type=chunk) - Total assets decreased by approximately **$1.95 million**, largely influenced by the reclassification and sale of discontinued operations[10](index=10&type=chunk) [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202023%20and%202022) Q2 2023 net income, driven by discontinued operations gain, contrasts with prior-year loss, reducing the six-month net loss | Metric (3 Months Ended June 30) | 2023 | 2022 | Change | | :------------------------------ | :------------ | :------------ | :------------ | | Total Operating Expenses | $1,477,395 | $3,243,810 | $(1,766,415) | | Loss From Operations | $(1,477,395) | $(3,243,810) | $1,766,415 | | Income (loss) from discontinued operations, net of taxes | $2,597,674 | $(610,652) | $3,208,326 | | Net Income (Loss) | $1,087,804 | $(3,847,532) | $4,935,336 | | Net income (loss) per share | $0.96 | $(3.96) | $4.92 | | Metric (6 Months Ended June 30) | 2023 | 2022 | Change | | :------------------------------ | :------------ | :------------ | :------------ | | Total Operating Expenses | $3,746,170 | $5,707,357 | $(1,961,187) | | Loss From Operations | $(3,746,170) | $(5,707,357) | $1,961,187 | | Income (loss) from discontinued operations, net of taxes | $1,931,721 | $(1,060,059) | $2,991,780 | | Net Income (Loss) | $(1,818,032) | $(6,755,371) | $4,937,339 | | Net income (loss) per share | $(1.66) | $(7.24) | $5.58 | - The significant net income for the three months ended June 30, 2023, was primarily due to a **$2,662,074 gain on the disposal of discontinued operations**[12](index=12&type=chunk) [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202023%20and%202022) Shareholders' equity increased from December 2022 to June 2023, driven by equity compensation, common stock sales, and Q2 net income | Metric (June 30, 2023) | Common Shares | Common Stock Amount | Additional Paid In Capital | Accumulated Deficit | Total Shareholders' Equity | | :------------------------------ | :------------ | :------------------ | :------------------------- | :------------------ | :------------------------- | | Balance, December 31, 2022 | 1,067,491 | $1,067 | $66,949,958 | $(63,674,531) | $3,276,494 | | Equity-based compensation | — | — | $707,705 | — | $707,705 | | Sale of common stock, net | 73,144 | $73 | $609,540 | — | $609,613 | | Issuance of commitment shares | 7,983 | $8 | $51,893 | — | $51,901 | | Warrant Exercise | 432 | $1 | $57 | — | $58 | | Net income (loss) | — | — | — | $(1,818,032) | $(1,818,032) | | Balance, June 30, 2023 | 1,197,630 | $1,198 | $68,808,556 | $(65,492,563) | $3,317,191 | - Total Shareholders' Equity increased by **$40,697** from December 31, 2022, to June 30, 2023[15](index=15&type=chunk) - The company issued **73,144 shares of common stock**, generating net proceeds of **$609,613**[15](index=15&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20six%20months%20ended%20June%2030%2C%202023%20and%202022) H1 2023 saw decreased cash used in operations, cash provided by Purnovate sale, and reduced cash from financing activities | Cash Flow Activity (6 Months Ended June 30) | 2023 | 2022 | Change | | :------------------------------------------ | :------------ | :------------ | :------------ | | Net cash used in operating activities | $(4,193,259) | $(6,031,144) | $1,837,885 | | Net cash used in investing activities | $800,000 | — | $800,000 | | Net cash provided by financing activities | $609,671 | $9,125,606 | $(8,515,935) | | Net increase (decrease) in cash | $(2,783,588) | $3,094,462 | $(5,878,050) | | Cash and cash equivalents - End of Period | $1,218,206 | $9,156,635 | $(7,938,429) | - The sale of Purnovate assets generated **$800,000 in cash** from investing activities in 2023[20](index=20&type=chunk) - Net cash provided by financing activities decreased significantly in 2023 due to a more modest financing round compared to a large fundraising round in 2022[20](index=20&type=chunk) [Notes to the Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes detail Adial's financial statements, covering business, going concern, accounting policies, Purnovate sale, equity investments, and key financial activities [1 — Description of Business](index=9&type=section&id=1%20%E2%80%94%20DESCRIPTION%20OF%20BUSINESS) Adial is a clinical-stage biopharmaceutical company developing AD04 for Alcohol Use Disorder, having sold its Purnovate subsidiary - Adial Pharmaceuticals, Inc. develops medications for addiction and related disorders, with **AD04 for Alcohol Use Disorder** as its lead compound[23](index=23&type=chunk)[25](index=25&type=chunk) - The company sold its wholly-owned subsidiary, Purnovate, Inc., on June 30, 2023, which focused on developing drug candidates for non-opioid pain reduction[24](index=24&type=chunk) - Key patents for AD04 have been issued in the U.S., EU, and other jurisdictions, and the company is pursuing regulatory approval based on ONWARD™ Phase 3 trial data[25](index=25&type=chunk) [2 — Going Concern and Other Uncertainties](index=9&type=section&id=2%20%E2%80%94%20GOING%20CONCERN%20AND%20OTHER%20UNCERTAINTIES) Continuous losses and negative cash flows raise substantial doubt about Adial's going concern ability, with insufficient cash for twelve months - Adial has incurred losses and negative cash flows since inception, raising **substantial doubt about its ability to continue as a going concern**[26](index=26&type=chunk) - Existing cash and cash equivalents are not sufficient to fund operations for the next twelve months, even with the Purnovate sale proceeds[27](index=27&type=chunk) - The company is actively pursuing additional capital through equity/debt financings, grants, strategic relationships, or out-licensing to fund AD04 clinical trials[29](index=29&type=chunk) [3 — Basis of Presentation and Summary of Significant Accounting Policies](index=10&type=section&id=3%20%E2%80%94%20BASIS%20OF%20PRESENTATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the basis of presentation for interim financial statements, detailing a reverse stock split, use of estimates, and policies for loss per share, cash, and equity investments - The company effected a **1-for-25 reverse stock split** on August 4, 2023, retrospectively adjusting all share and per-share data[33](index=33&type=chunk) - The company's cash balances at June 30, 2023, exceeded FDIC insurance limits by approximately **$137,000**, with **$812,000** held in non-FDIC insured cash equivalent accounts[36](index=36&type=chunk) | Potentially Dilutive Shares Excluded | June 30, 2023 | June 30, 2022 | | :----------------------------------- | :------------ | :------------ | | Warrants to purchase common shares | 491,151 | 483,834 | | Common Shares issuable on options | 208,902 | 167,279 | | Unvested restricted stock awards | 33,333 | 8,611 | | Total potentially dilutive shares | 733,386 | 659,724 | [4 — Sale of Purnovate](index=13&type=section&id=4%20%E2%80%94%20SALE%20OF%20PURNOVATE) Adial sold its Purnovate subsidiary to Adovate, LLC on June 30, 2023, for **$3.27 million**, resulting in a **$2.66 million gain** - Adial completed the sale of Purnovate, Inc. to Adovate, LLC on June 30, 2023[44](index=44&type=chunk) | Consideration for Purnovate Sale | Amount | | :------------------------------- | :---------- | | Cash (upfront & prepaid reimbursements) | $800,000 | | Fair value of shares received | $1,727,897 | | Expense reimbursements receivable| $737,276 | | **Total Consideration** | **$3,265,173**| | **Gain on sale** | **$2,662,074**| - Adial received a **19.9% equity stake in Adovate**, valued at **$1,727,897**, as part of the consideration[45](index=45&type=chunk) [5 — Discontinued Operations](index=15&type=section&id=5%20%E2%80%94%20DISCONTINUED%20OPERATIONS) Purnovate's assets, liabilities, and operating results are reclassified as discontinued operations, with significant income recognized in Q2 and H1 2023 - All assets, liabilities, and operating results of Purnovate, Inc. are classified as **discontinued operations** following its sale[49](index=49&type=chunk) | Income (Loss) from Discontinued Operations, Net of Tax | | :----------------------------------------------------- | | **For the Three Months Ended June 30:** | | 2023: $2,597,674 | | 2022: $(610,652) | | **For the Six Months Ended June 30:** | | 2023: $1,931,721 | | 2022: $(1,060,059) | - The gain on sale of Purnovate contributed **$2,662,074** to income from discontinued operations in Q2 2023[51](index=51&type=chunk) [6 — Equity Method Investments](index=17&type=section&id=6%20%E2%80%94%20EQUITY%20METHOD%20INVESTMENTS) Adial holds a **19.9% equity stake in Adovate, LLC**, valued at **$1.73 million**, accounted for using the equity method with a one-quarter lag - Adial received a **19.9% equity stake in Adovate, LLC**, valued at **$1,727,897**, as consideration for the Purnovate sale[53](index=53&type=chunk) - The company accounts for this investment using the **equity method**, recognizing proportionate losses on a one-quarter lag[55](index=55&type=chunk) - Maximum exposure to loss from this investment is limited to the equity investment (**$1,727,897**) and the reimbursement receivable (**$737,276**)[57](index=57&type=chunk) [7 — Accrued Expenses](index=17&type=section&id=7%20%E2%80%94%20ACCRUED%20EXPENSES) Accrued expenses significantly decreased from December 2022 to June 2023, mainly due to reduced employee compensation and clinical research services | Accrued Expense Category | June 30, 2023 | December 31, 2022 | | :------------------------------- | :------------ | :---------------- | | Clinical research organization services and expenses | $— | $123,386 | | Employee compensation | $276,705 | $761,509 | | Legal and consulting services | $41,890 | $72,616 | | Pre-clinical and manufacturing expenses | $5,816 | $5,816 | | **Total accrued expenses** | **$324,411** | **$963,327** | - Total accrued expenses decreased by approximately **$638,916** from December 31, 2022, to June 30, 2023[58](index=58&type=chunk) [8 — Related Party Transactions](index=18&type=section&id=8%20%E2%80%94%20RELATED%20PARTY%20TRANSACTIONS) Adial has ongoing related party transactions, including a UVA LVG license agreement where payments may be distributed to its Chief Medical Officer - Adial has an exclusive, worldwide license agreement with UVA LVG for patents related to its licensed products[60](index=60&type=chunk) - A portion of payments made to UVA LVG may be distributed to the company's Chief Medical Officer, who is an inventor of the licensed patents[60](index=60&type=chunk) [9 — Shareholders' Equity](index=18&type=section&id=9%20%E2%80%94%20SHAREHOLDERS%27%20EQUITY) This section details changes in shareholders' equity, including a SEPA with Alumni Capital, common stock issuances, and 2017 Equity Incentive Plan activity - The company entered into a Standby Equity Purchase Agreement (SEPA) with Alumni Capital, LLC, allowing it to sell up to **$3,000,000** of newly issued shares[61](index=61&type=chunk) - **7,983 shares of common stock** were issued to Alumni Capital as consideration for its commitment, valued at **$51,901**[62](index=62&type=chunk) | Stock Option Activity (6 Months Ended June 30, 2023) | Total Options | Weighted Average Exercise Price | | :--------------------------------------------------- | :------------ | :------------------------------ | | Outstanding December 31, 2022 | 172,676 | $62.00 | | Issued | 39,800 | $7.50 | | Cancelled | (3,577) | $49.50 | | Outstanding June 30, 2023 | 208,899 | $52.00 | [10 — Commitments and Contingencies](index=20&type=section&id=10%20%E2%80%94%20COMMITMENTS%20AND%20CONTINGENCIES) Adial has various commitments, including a UVA LVG license agreement for fees, milestones, and royalties, and consulting agreements, committing **$412 thousand** in future cash - The company is obligated to pay UVA LVG annual minimum royalties of **$40,000**, milestone payments up to **$1,450,000**, and royalties on net sales of licensed products[74](index=74&type=chunk) - During the six months ended June 30, 2023, the company recognized **$20,000** in minimum license royalty expenses[76](index=76&type=chunk) - The company has entered into various consulting and vendor agreements committing approximately **$412 thousand** in future cash[83](index=83&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Adial's financial condition and operations, focusing on AD04, Purnovate sale, funding needs, operating expenses, liquidity, and critical accounting estimates - Adial is a clinical-stage biopharmaceutical company focused on developing **AD04 for Alcohol Use Disorder**[87](index=87&type=chunk) - The company has incurred net losses since inception, with accumulated deficits of approximately **$65.4 million** as of June 30, 2023[90](index=90&type=chunk) - Current cash and cash equivalents are not expected to fund operations for the next twelve months, necessitating additional financing[89](index=89&type=chunk)[91](index=91&type=chunk) [Overview](index=23&type=section&id=Overview) Adial, a clinical-stage biopharmaceutical company, develops AD04 for Alcohol Use Disorder, sold Purnovate, and faces significant funding needs due to ongoing losses - Adial is focused on commercializing **AD04 for Alcohol Use Disorder** in the U.S. and Europe, based on Phase 3 trial data[87](index=87&type=chunk) - The company completed the sale of its Purnovate subsidiary on June 30, 2023[88](index=88&type=chunk) - Adial has incurred net losses of approximately **$1.8 million** and **$6.8 million** for the six months ended June 30, 2023 and 2022, respectively, and had an accumulated deficit of **$65.4 million** as of June 30, 2023[90](index=90&type=chunk) [Recent Developments](index=25&type=section&id=Recent%20Developments) Recent developments include a **1-for-25 reverse stock split** for Nasdaq compliance and a SEPA with Alumni Capital LP to sell up to **$3 million** in new shares - A **1-for-25 reverse stock split** was effected on August 4, 2023, resulting in **1,217,981 shares outstanding**[93](index=93&type=chunk) - The company entered into a SEPA with Alumni Capital LP, granting the right to sell up to **$3,000,000** of newly issued shares[94](index=94&type=chunk) - **7,983 commitment shares** were issued to Alumni Capital under the SEPA[94](index=94&type=chunk) [Results of Operations (Three Months Ended June 30)](index=25&type=section&id=Results%20of%20operations%20for%20the%20three%20months%20ended%20June%2030%2C%202023%20and%202022) Q2 2023 net income of **$1.087 million**, driven by a **$2.662 million Purnovate sale gain**, significantly improved from prior-year loss with reduced operating expenses | Metric | June 30, 2023 | June 30, 2022 | Change (Decrease) | | :-------------------------------- | :------------ | :------------ | :---------------- | | Research and development expenses | $430,000 | $680,000 | $(250,000) | | General and administrative expenses | $1,047,000 | $2,564,000 | $(1,517,000) | | Total Operating Expenses | $1,477,000 | $3,244,000 | $(1,767,000) | | Loss from continuing operations | $(1,510,000) | $(3,237,000) | $1,727,000 | | Loss from discontinued operations, net of tax | $2,597,000 | $(611,000) | $3,208,000 | | Net loss | $1,087,000 | $(3,848,000) | $4,935,000 | - R&D expenses decreased by **$250,000 (37%)** due to winding down AD04 trial activities and a one-time royalty accrual in 2022[96](index=96&type=chunk) - G&A expenses decreased by **$1,517,000 (59%)** due to lower non-equity and equity compensation, reduced IR/PR, and strategic consultant expenses[97](index=97&type=chunk) [Results of Operations (Six Months Ended June 30)](index=27&type=section&id=Results%20of%20operations%20for%20the%20six%20months%20ended%20June%2030%2C%202023%20and%202022) H1 2023 net loss decreased to **$1.819 million** from **$6.755 million**, driven by a **$2.662 million Purnovate sale gain** and reduced operating expenses | Metric | June 30, 2023 | June 30, 2022 | Change (Decrease) | | :-------------------------------- | :------------ | :------------ | :---------------- | | Research and development expenses | $796,000 | $722,000 | $74,000 | | General and administrative expenses | $2,951,000 | $4,985,000 | $(2,034,000) | | Total Operating Expenses | $3,747,000 | $5,707,000 | $(1,960,000) | | Income (loss) from continuing operations | $(3,751,000) | $(5,695,000) | $1,944,000 | | Loss from discontinued operations, net of tax | $1,932,000 | $(1,060,000) | $2,992,000 | | Net income (loss) | $1,819,000 | $(6,755,000) | $4,936,000 | - R&D expenses increased by **$74,000 (10%)** due to increased use of regulatory consultants and final CRO fees, partially offset by reduced cash compensation[105](index=105&type=chunk) - G&A expenses decreased by **$2,034,000 (41%)** due to significant reductions in equity and non-equity compensation, IR/PR, and strategic consultant expenses[106](index=106&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20capital%20resources%20at%20June%2030%2C%202023) Adial's liquidity is constrained, with **$1.2 million** cash as of June 30, 2023, insufficient for twelve months, raising going concern doubts, and **$25 million** needed for AD04 trials - Cash and cash equivalents were **$1.2 million** as of June 30, 2023, compared to **$4.0 million** as of December 31, 2022[112](index=112&type=chunk) - Current cash is not expected to fund operations for the next twelve months, raising **substantial doubt about the company's going concern ability**[112](index=112&type=chunk) - The company anticipates needing approximately **$25 million** to complete two Phase 3 trials for AD04 and is actively seeking commercial partners and additional financing[114](index=114&type=chunk) [Cash Flows](index=30&type=section&id=Cash%20flows) H1 2023 saw decreased cash used in operations by **$1.84 million**, **$800,000** from Purnovate sale, and financing cash decreased by **$8.52 million** | Cash Flow Activity (6 Months Ended June 30) | 2023 | 2022 | | :------------------------------------------ | :------------ | :------------ | | Operating activities | $(4,193,000) | $(6,031,000) | | Investing activities | $800,000 | — | | Financing activities | $610,000 | $9,126,000 | | Net increase (decrease) in cash | $(2,783,000) | $3,095,000 | - Net cash used in operating activities decreased by approximately **$1,838,000** in the six months ended June 30, 2023, compared to the same period in 2022[117](index=117&type=chunk) - Net cash provided by financing activities decreased by approximately **$8,516,000** in the six months ended June 30, 2023, compared to 2022, reflecting a more modest financing strategy[119](index=119&type=chunk) [Off-Balance Sheet Arrangements](index=31&type=section&id=Off-balance%20sheet%20arrangements) The company does not have any off-balance sheet arrangements - Adial Pharmaceuticals, Inc. does not have any off-balance sheet arrangements[120](index=120&type=chunk) [Critical Accounting Estimates](index=31&type=section&id=Critical%20Accounting%20Estimates) Financial statements involve significant management judgments and estimates for R&D, stock-based compensation, commitments, and equity method investments, materially affecting results - Significant estimates include valuation of equity method investments, stock-based compensation, accruals for clinical trials, and income tax asset realization[34](index=34&type=chunk) - R&D expense recognition and accrual depend on contractor reporting and judgment regarding event-tied fees[123](index=123&type=chunk) - Stock-based compensation fair value is estimated using the Black-Scholes-Merton model, requiring subjective assumptions for volatility, risk-free interest rate, dividend yield, and expected term[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Adial Pharmaceuticals, Inc. is not required to provide quantitative and qualitative disclosures about market risk - Adial Pharmaceuticals, Inc. is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[133](index=133&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were ineffective as of June 30, 2023, due to material weaknesses in internal control over financial reporting, including risk assessment, documentation, and IT controls - Disclosure controls and procedures were **not effective** as of June 30, 2023, due to **material weaknesses in internal control over financial reporting**[134](index=134&type=chunk)[135](index=135&type=chunk) - Identified material weaknesses include lack of formal risk assessment, inadequate documentation, insufficient approval/review processes, insufficient GAAP experience for complex transactions, deficiencies in IT general controls, and insufficient segregation of duties[134](index=134&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023[136](index=136&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) Adial is not currently a party to any legal proceedings that would materially adversely affect its business or financial condition - The company is not currently involved in any legal proceedings that would materially adversely affect its business[137](index=137&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) Investing in Adial's securities involves high risk due to continuous losses, limited operating history, speculative product development, going concern doubts, and Nasdaq listing risks - Adial has incurred losses from continuing operations every year and quarter since inception and anticipates future losses[139](index=139&type=chunk) - The company's independent registered public accounting firm has expressed **doubt about its ability to continue as a going concern**[142](index=142&type=chunk) - Failure to meet Nasdaq Capital Market listing requirements, such as minimum bid price and stockholders' equity, could result in de-listing[145](index=145&type=chunk)[147](index=147&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not engage in any unregistered sales of equity securities during the six months ended June 30, 2023, other than those previously disclosed in SEC filings - No unregistered sales of equity securities occurred during the six months ended June 30, 2023, beyond those already disclosed[152](index=152&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - There were no defaults upon senior securities[152](index=152&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable to Adial Pharmaceuticals, Inc.[152](index=152&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - No other information is reported under this item[152](index=152&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including Certificate of Incorporation, Bylaws, Option Exercise Agreement, Purchase Agreement, and officer certifications - Exhibits include the Certificate of Incorporation, Amended and Restated Bylaws, Option Exercise Agreement, and Purchase Agreement[154](index=154&type=chunk) - Certifications by the principal executive officer and principal financial officer are filed herewith[154](index=154&type=chunk) SIGNATURES [SIGNATURES](index=38&type=section&id=SIGNATURES) The report is duly signed by Adial Pharmaceuticals, Inc.'s President and CEO, Cary J. Claiborne, and CFO, Joseph Truluck, on August 21, 2023 - The report was signed by Cary J. Claiborne, President and CEO, and Joseph Truluck, CFO, on August 21, 2023[156](index=156&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number: 001-38323 ADIAL PHARMACEUTICALS, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 82-3074668 State ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-38323 ADIAL PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) Delaware 82-3074668 (State or Other Jurisdiction of (I.R ...