Adial Pharmaceuticals(ADIL) - 2019 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section covers the company's unaudited financial statements, management's analysis, market risk, and internal controls Item 1. Condensed Unaudited Financial Statements The company reported a net loss of $2.7 million for Q1 2019, with balance sheet strength significantly improved by a $9.2 million equity offering Balance Sheets Condensed Balance Sheet Data (Unaudited) | Account | March 31, 2019 ($) | December 31, 2018 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | $11,394,244 | $3,869,043 | | Total Current Assets | $12,053,336 | $4,692,550 | | Total Assets | $12,059,929 | $4,699,285 | | Total Current Liabilities | $329,192 | $257,974 | | Total Stockholders' Equity | $11,730,737 | $4,441,311 | Statements of Operations Condensed Statements of Operations (Unaudited) | Account | Three Months Ended March 31, 2019 ($) | Three Months Ended March 31, 2018 ($) | | :--- | :--- | :--- | | Research and development expenses | $686,914 | $55,508 | | General and administrative expenses | $1,562,352 | $284,005 | | Loss From Operations | ($2,249,266) | ($339,513) | | Net Loss | ($2,682,651) | ($378,950) | | Net loss per share, basic and diluted | ($0.33) | ($0.12) | Statements of Stockholders' Equity (Deficit) - Stockholders' equity increased from $4.4 million at the end of 2018 to $11.7 million at March 31, 2019[15] - The increase was primarily driven by the sale of Common Stock & Warrants, which raised $9.25 million, and the exercise of warrants, which added another $1.05 million[15] - These inflows were partially offset by a net loss of $2.68 million and offering issuance costs of $1.05 million[15] Statements of Cash Flows Condensed Statements of Cash Flows (Unaudited) | Activity | Three Months Ended March 31, 2019 ($) | Three Months Ended March 31, 2018 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,721,109) | ($214,282) | | Net cash provided by financing activities | $9,246,310 | $250,001 | | Net increase in cash and cash equivalents | $7,525,201 | $35,719 | | Cash and cash equivalents - End of period | $11,394,244 | $53,967 | Notes to the Unaudited Condensed Financial Statements - The company is a clinical-stage biopharmaceutical firm developing AD04 for alcohol use disorder and plans to start a Phase 3 trial[19][20] - In February 2019, the company raised net proceeds of $8.2 million in a follow-on public offering of common stock and warrants, following a $6.3 million IPO in July 2018[21] - Management believes existing cash of $11.4 million as of March 31, 2019, is sufficient to fund operations for at least the next twelve months, but longer-term operations depend on raising additional capital[22][23] - The company has a master services agreement with Crown CRO Oy for its Phase 3 clinical study, with an estimated fee of approximately $3.3 million plus pass-through costs, with $505,960 prepaid as of March 31, 2019[90][93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses increased Q1 2019 expenses and strengthened liquidity from an $8.2 million offering, sufficient for 12 months of operations Overview - Adial is a clinical-stage biopharmaceutical company developing AD04, a selective serotonin-3 antagonist, for the treatment of alcohol use disorder (AUD) in patients with specific genotypes[110] - The company has incurred net losses each year since inception, with a net loss of $2.7 million for Q1 2019 and an accumulated deficit of $14.7 million as of March 31, 2019[116] - Operations have been funded primarily through private placements and public offerings, and the company does not expect to generate revenue until AD04 is successfully developed and approved[115][117] Results of Operations Comparison of Operations for the Three Months Ended March 31 | Expense Category | 2019 ($) | 2018 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $687,000 | $56,000 | $631,000 | 1127% | | General and administrative | $1,562,000 | $284,000 | $1,278,000 | 450% | | Net Loss | ($2,683,000) | ($379,000) | ($2,304,000) | 608% | - The increase in R&D expenses was driven by higher compensation costs from increased headcount (including a CMO signing bonus) and the initiation of clinical trial activities[124] - The increase in G&A expenses was primarily due to higher employee headcount and compensation post-IPO, including one-time cash bonuses and increased use of financial consultants[125] Liquidity and Capital Resources - As of March 31, 2019, the company had approximately $11.4 million in cash and cash equivalents and $11.7 million in working capital[129] - In February 2019, a follow-on offering generated net proceeds of $8.2 million[128] - Current cash is expected to be sufficient for at least the next twelve months, with an estimated cash use of $7.9 million, though additional financing will be required for subsequent clinical trials and to execute the full business strategy[131] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this item is not applicable for the reporting period - Not applicable[136] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective as of March 31, 2019, due to identified material weaknesses in policies and staffing - Management concluded that as of March 31, 2019, the company's disclosure controls and procedures were not effective[137] - Identified material weaknesses include inadequately documented policies, lack of proper approval/review processes, insufficient GAAP experience, and insufficient staff for segregation of duties[136] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[141] PART II - OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, and other required disclosures Item 1. Legal Proceedings The company is not currently a party to any legal proceedings that would have a material adverse effect on its business, financial condition, or cash flows - As of the report date, the company is not involved in any material legal proceedings[142] Item 1A. Risk Factors Key risks include continued net losses, the critical need for additional financing, significant shareholder concentration, and potential future dilution - The company has a history of net losses since inception and anticipates continued losses, with an accumulated deficit of approximately $14.7 million as of March 31, 2019[144][145] - Additional financing is required to support operations and fund clinical trials, including the completion of a second Phase 3 trial for AD04, as failure to raise capital could force delays or discontinuation of product development[147][149][151] - Officers and directors beneficially own approximately 41% of outstanding common stock, giving them significant influence over management and corporate transactions[157] - Future sales of common stock to raise capital, or the exercise of outstanding warrants and options, could result in significant dilution to existing stockholders and cause the stock price to fall[158][161][163] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued unregistered shares to consultants and through warrant exercises, with no material change in IPO proceeds use - In Q1 2019, the company issued unregistered shares of common stock on multiple occasions to consultants and through warrant exercises[165][166][167][168][169][170] - There has been no material change in the planned use of proceeds from the July 2018 IPO, with funds primarily used for the Phase 3 clinical trial of AD04, personnel, and working capital[172] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[173] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[173] Item 5. Other Information The company reported no other information for this item - Not applicable[173] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Underwriting Agreement for the February 2019 offering and various officer certifications