Adial Pharmaceuticals(ADIL) - 2025 Q2 - Quarterly Report

Form 10-Q Filing Information This section provides essential filing details for the Quarterly Report on Form 10-Q, including company classification and forward-looking statement disclaimers General Information This section provides the basic filing details for the Quarterly Report on Form 10-Q for the period ended June 30, 2025, identifying Adial Pharmaceuticals, Inc. as a non-accelerated filer and smaller reporting company - The report is a Quarterly Report on Form 10-Q for the period ended June 30, 2025[2] - Adial Pharmaceuticals, Inc. is classified as a non-accelerated filer and a smaller reporting company[3] Forward-Looking Statements and Company References This section includes a cautionary note regarding forward-looking statements, highlighting that actual results may differ materially from projections due to various risks, and defines company references used throughout the report - The report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially and adversely from those expressed[6] - The terms 'Adial,' the 'Company,' 'we,' 'us,' and 'our' refer to Adial Pharmaceuticals, Inc. throughout the report[8] PART I – FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with explanatory notes Item 1. Condensed Consolidated Unaudited Financial Statements This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, and specific financial activities Condensed Consolidated Balance Sheets The balance sheet shows an increase in cash and cash equivalents and total assets, alongside a rise in total liabilities and stockholders' equity, reflecting recent financing activities and ongoing operations Condensed Consolidated Balance Sheet Highlights | Metric | June 30, 2025 | December 31, 2024 | Change | Change (%) | | :-------------------------- | :-------------- | :---------------- | :----- | :--------- | | Cash and cash equivalents | $5,914,980 | $3,750,525 | $2,164,455 | 57.7% | | Total Current Assets | $6,078,627 | $4,058,764 | $2,019,863 | 49.8% | | Total Assets | $6,801,703 | $5,043,942 | $1,757,761 | 34.8% | | Total Current Liabilities | $1,211,027 | $975,858 | $235,169 | 24.1% | | Total Stockholders' Equity | $5,590,676 | $4,068,084 | $1,522,592 | 37.4% | | Accumulated Deficit | $(86,182,680) | $(81,995,323) | $(4,187,357) | 5.1% | Condensed Consolidated Statements of Operations The company reported a reduced net loss for both the three and six months ended June 30, 2025, compared to the prior year, primarily driven by lower operating expenses and a significant decrease in inducement expense Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development expenses | $732,315 | $1,012,522 | $1,479,205 | $1,466,800 | | General and administrative expenses| $1,150,397 | $1,274,708 | $2,670,799 | $2,665,452 | | Total Operating Expenses | $1,882,712 | $2,287,230 | $4,150,004 | $4,132,252 | | Loss From Operations | $(1,882,712) | $(2,287,230) | $(4,150,004) | $(4,132,252) | | Net Loss | $(1,958,556) | $(2,458,298) | $(4,187,357) | $(8,934,858) | | Loss per share, basic and diluted | $(0.18) | $(0.59) | $(0.49) | $(2.50) | - Net Loss for the six months ended June 30, 2025, decreased by approximately $4.7 million (53%) compared to the same period in 2024, largely due to the absence of a $4.46 million inducement expense incurred in 2024[14] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased significantly due to net proceeds from common stock sales and warrant exercises, despite ongoing net losses and equity-based compensation expenses Stockholders' Equity Activity (Six Months Ended June 30, 2025) | Activity | Amount | | :------------------------------------ | :------- | | Balance, January 1, 2025 | $4,068,084 | | Equity-based compensation | $317,830 | | Net proceeds from sale of common stock| $3,127,187 | | Exercise of warrants, net of expenses | $2,221,932 | | Net loss | $(4,187,357) | | Balance, June 30, 2025 | $5,590,676 | - Common stock shares issued and outstanding increased from 6,474,588 at December 31, 2024, to 21,534,695 at June 30, 2025, reflecting significant equity financing activities[13][16] Condensed Consolidated Statements of Cash Flows The company experienced a net increase in cash and cash equivalents, primarily driven by substantial cash inflows from financing activities, which offset cash used in operating activities Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Cash Flow Activity | 2025 | 2024 | Change | Change (%) | | :----------------- | :------------ | :------------ | :------------ | :--------- | | Operating Activities | $(3,334,664) | $(3,774,389) | $439,725 | -11.6% | | Investing Activities | $150,000 | $0 | $150,000 | N/A | | Financing Activities | $5,349,119 | $4,235,355 | $1,113,764 | 26.3% | | Net Increase in Cash | $2,164,455 | $460,966 | $1,703,489 | 369.6% | | Cash and Cash Equivalents - End of Period | $5,914,980 | $3,288,048 | $2,626,932 | 79.9% | - Net cash provided by financing activities increased by approximately $1.1 million, primarily from the June 2025 Offering and May 2025 warrant exercises[18][118] Notes to the Unaudited Condensed Consolidated Financial Statements These notes provide essential context and detail for the financial statements, covering the company's business, going concern status, significant accounting policies, equity investments, accrued expenses, stockholders' equity activities, commitments, and subsequent events 1 — DESCRIPTION OF BUSINESS Adial Pharmaceuticals, Inc. is a clinical-stage company focused on developing medications for addiction and related disorders, with its subsidiary Purnovate merging into Adial after selling its assets to Adovate, LLC - Adial Pharmaceuticals, Inc. is engaged in the development of medications for the treatment or prevention of addictions and related disorders[20] - Purnovate, Inc., a wholly-owned subsidiary, sold its assets and business to Adovate, LLC in 2023 and is expected to merge into Adial in the near future[21] 2 — GOING CONCERN AND OTHER UNCERTAINTIES The company's recurring losses and insufficient cash to fund operations for the next twelve months raise substantial doubt about its ability to continue as a going concern, necessitating additional capital - The Company has incurred losses each year since inception and does not believe existing cash and cash equivalents are sufficient to fund operations for the next twelve months[22] - Additional capital is required to continue operations and development of AD04, raising substantial doubt about the Company's ability to continue as a going concern[22] 3 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the accounting principles, estimates, consolidation methods, and specific policies for key financial items like loss per share, cash equivalents, equity method investments, fair value measurements, R&D costs, and stock-based compensation, also noting recent accounting pronouncements - Basic and diluted loss per share were the same for the periods presented due to the anti-dilutive effect of potential common shares[27] Potentially Dilutive Common Shares Excluded | Potentially Dilutive Common Shares Outstanding | June 30, 2025 | June 30, 2024 | | :--------------------------------------------- | :------------ | :------------ | | Warrants to purchase common shares | 26,608,496 | 4,201,568 | | Common Shares issuable on exercise of options | 1,184,182 | 355,905 | | Unvested restricted stock awards | 6,660 | 19,996 | | Total potentially dilutive Common Shares excluded | 27,799,338 | 4,577,469 | - The Company operates as one operating segment focused on drug development for addiction and related disorders[39] 4 — EQUITY METHOD INVESTMENTS The company holds an equity stake in Adovate, LLC, accounted for using the equity method, and recognized losses from this investment, while also receiving a milestone payment from Adovate - The Company holds an 11.2% equity stake in Adovate, LLC as of June 30, 2025, accounted for using the equity method[45] Equity Investment in Adovate, LLC Carrying Amount | Date | Equity Investment Carrying Amount | | :-------------------------- | :-------------------------------- | | January 1, 2025 | $981,830 | | March 31, 2025 | $818,740 | | June 30, 2025 | $720,010 | - The Company recognized an expense of $261,820 for its portion of Adovate's operating loss for the six months ended March 31, 2025, and received a $150,000 milestone payment from Adovate[45][47] 5 — ACCRUED EXPENSES Accrued expenses decreased from $677,456 at December 31, 2024, to $539,909 at June 30, 2025, primarily due to reductions in legal and consulting services and employee compensation Accrued Expenses Breakdown | Accrued Expense Category | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Employee compensation | $372,560 | $405,246 | | Minimum license royalties| $20,000 | $0 | | Legal and consulting services | $48,355 | $190,603 | | Pre-clinical and manufacturing expenses | $53,000 | $81,607 | | Other | $45,994 | $0 | | Total Accrued Expenses | $539,909 | $677,456 | 6 — STOCKHOLDERS' EQUITY This note details significant changes in stockholders' equity, including proceeds from a new Standby Equity Purchase Agreement, common stock issuances, and substantial activity related to stock options and warrants, which generated significant capital but also led to dilution - The Company entered into a new Standby Equity Purchase Agreement (New SEPA) with Alumni Capital, LLC, with an initial right to sell up to $5,000,000 in newly issued shares[50] - During the six months ended June 30, 2025, 141,667 shares were sold under the New SEPA for total proceeds of $93,044[50] Stock Option Activity (June 30, 2025) | Metric | Total Options Outstanding | Weighted Average Remaining Term (Years) | Weighted Average Exercise Price | | :-------------------------------- | :------------------------ | :-------------------------------------- | :------------------------------ | | Outstanding January 1, 2025 | 733,971 | 9.01 | $9.76 | | Granted (six months ended June 30, 2025) | 478,000 | N/A | $0.70 (approx) | | Outstanding June 30, 2025 | 1,184,182 | 9.07 | $6.20 | Stock Warrant Activity (June 30, 2025) | Metric | Total Warrants Outstanding | Weighted Average Remaining Term (Years) | Weighted Average Exercise Price | | :-------------------------------- | :------------------------- | :-------------------------------------- | :------------------------------ | | Outstanding January 1, 2025 | 4,201,568 | 2.07 | $8.45 | | Issued (six months ended June 30, 2025) | 32,020,286 | N/A | $0.29 | | Exercised (six months ended June 30, 2025) | (9,477,240) | N/A | $0.29 | | Outstanding June 30, 2025 | 26,608,496 | 3.4 | $0.87 | - The May 2025 warrant inducement agreement generated approximately $2.2 million in net proceeds, and the June 2025 best efforts offering generated approximately $3.0 million in net proceeds[60][62] 7 — COMMITMENTS AND CONTINGENCIES This note outlines the company's contractual obligations, including a license agreement with UVA LVG for AD04 development, and details past and present consulting agreements with related parties, while confirming no material pending litigation - The Company has an exclusive, worldwide license agreement with UVA LVG for AD04, requiring annual minimum royalties of $40,000 and milestone payments, including $1,000,000 upon FDA approval of AD04[65][66] - The Company recognized $20,000 in minimum license royalty expense for the six months ended June 30, 2025[69] - A consulting agreement with a related party (Keswick Group, LLC) for COO services was terminated on April 1, 2025[73] - As of June 30, 2025, the Company did not have any pending legal actions that would have a material adverse effect[74] 8 — SEGMENT REPORTING The company operates as a single reportable segment focused on drug development for addiction and related disorders, with the Chief Operating Decision Maker (CODM) managing resources on a consolidated basis - The Company operates as one reportable operating segment relating to drug development for addiction and related disorders[39][75] 9 — SUBSEQUENT EVENTS Subsequent to the reporting period, the company entered into an At-the-Market (ATM) sales agreement for common stock and increased its authorized common stock shares - On August 1, 2025, the Company entered into an At-the-Market (ATM) sales agreement for up to $4,983,000 in common stock[76] - On August 1, 2025, stockholders approved an amendment to increase authorized common stock from 50,000,000 to 100,000,000 shares[77] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources, highlighting recent clinical and financing developments, and discussing the ongoing need for additional funding due to recurring losses Overview Adial Pharmaceuticals is a clinical-stage biopharmaceutical company focused on AD04 for Alcohol Use Disorder, currently without approved products or significant revenue, and faces a going concern risk due to recurring losses and insufficient cash for the next 12 months - The Company is a clinical-stage biopharmaceutical company focused on developing AD04 for Alcohol Use Disorder (AUD) in specific genetic subgroups[79] - The Company has not generated significant revenue since inception and has incurred net losses, with an accumulated deficit of approximately $86.2 million as of June 30, 2025[81][82] - Current cash and cash equivalents are not expected to fund operations for the next twelve months, raising substantial doubt about the Company's ability to continue as a going concern[82] Recent Developments Recent developments include positive FDA feedback on AD04's clinical strategy, new patent issuances, and significant financing activities through warrant inducements and a best efforts offering, alongside stockholder approvals for increased authorized shares and a potential reverse stock split - The FDA provided a positive response on AD04's proposed in-vitro bridging strategy and reaffirmed acceptance of heavy-drinking-day based endpoints for AUD treatment[85] - A new patent (number 12,274,692) was issued covering AD04's administration as a precision medicine for patients with specific serotonin-related genetic markers[86] - The May 2025 warrant inducement transaction generated approximately $2.2 million in net proceeds, and the June 2025 best efforts offering generated approximately $3.0 million in net proceeds[87][90] - Stockholders approved increasing authorized common stock to 100,000,000 shares, increasing the 2017 Equity Incentive Plan shares to 5,000,000, and a potential reverse stock split (1-for-2 to 1-for-25)[94] Results of operations for the three months ended June 30, 2025 and 2024 For the three months ended June 30, 2025, the company reported a reduced net loss compared to the prior year, driven by decreases in R&D and G&A expenses, and a lower loss from equity method investment Operating Results (Three Months Ended June 30) | Expense Category | 2025 | 2024 | Change | Change (%) | | :--------------- | :---------- | :------------ | :---------- | :--------- | | R&D expenses | $732,000 | $1,013,000 | $(281,000) | -27.7% | | G&A expenses | $1,150,000 | $1,275,000 | $(125,000) | -9.8% | | Loss From Operations | $(1,882,000) | $(2,288,000) | $(406,000) | -17.7% | | Net Loss | $(1,958,000) | $(2,458,000) | $(500,000) | -20.3% | - Research and development expenses decreased by approximately $281,000 (28%) due to decreased contract labor and clinical activity[96] - General and administrative expenses decreased by approximately $125,000 (10%) due to lower equity compensation, legal and consulting costs, and franchise taxes[97] Results of operations for the six months ended June 30, 2025 and 2024 For the six months ended June 30, 2025, the company significantly reduced its net loss compared to the prior year, primarily due to the absence of a large inducement expense from 2024 and an increase in other income from a milestone payment Operating Results (Six Months Ended June 30) | Expense Category | 2025 | 2024 | Change | Change (%) | | :--------------- | :------------ | :------------ | :------------ | :--------- | | R&D expenses | $1,479,000 | $1,467,000 | $12,000 | 0.8% | | G&A expenses | $2,671,000 | $2,665,000 | $6,000 | 0.2% | | Loss From Operations | $(4,150,000) | $(4,132,000) | $(18,000) | 0.4% | | Inducement expense | $0 | $(4,464,000) | $4,464,000 | -100.0% | | Net Loss | $(4,187,000) | $(8,935,000) | $(4,748,000) | -53.1% | - Research and development expenses slightly increased by $12,000 (1%) due to higher chemistry, manufacturing, and controls (CMC) expenses, offset by lower clinical activity[101] - Total other income (excluding equity method losses and inducement expense) increased by $151,000 (203%) due to a $150,000 milestone payment received from Adovate[105] Liquidity and Capital Resources at June 30, 2025 The company's cash and cash equivalents stood at $5.9 million, sufficient to fund operations into Q2 2026, but significant additional financing is required for planned Phase 3 trials, raising substantial doubt about its ability to continue as a going concern - As of June 30, 2025, the Company had cash and cash equivalents of $5.9 million[112] - Cash on hand is expected to fund operations and existing commitments into the second quarter of 2026[112] - Additional financing of $8-12 million each for two Phase 3 trials and up to $5 million for other development expenses is required, leading to substantial doubt about the Company's ability to continue as a going concern[113][114] Cash flows For the six months ended June 30, 2025, net cash used in operating activities decreased, while net cash provided by investing and financing activities increased significantly, resulting in a substantial net increase in cash and cash equivalents Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2025 | 2024 | Change | Change (%) | | :----------------- | :------------ | :------------ | :------------ | :--------- | | Operating activities | $(3,335,000) | $(3,774,000) | $439,000 | -11.6% | | Investing activities | $150,000 | $0 | $150,000 | N/A | | Financing activities | $5,349,000 | $4,235,000 | $1,114,000 | 26.3% | | Net increase in cash and cash equivalents | $2,164,000 | $461,000 | $1,703,000 | 369.4% | - Net cash used in operating activities decreased by approximately $439,000, primarily due to a decrease in net loss (excluding inducement expense)[116] - Net cash provided by investing activities increased by $150,000 due to a milestone payment received from Adovate[117] - Net cash provided by financing activities increased by approximately $1.1 million, driven by proceeds from the June 2025 Offering and May 2025 warrant exercises[118] Off-balance sheet arrangements The company does not have any off-balance sheet arrangements - The Company does not have any off-balance sheet arrangements[119] Recent Accounting Pronouncements The company refers to Note 3 for a discussion of recent accounting pronouncements, indicating ongoing evaluation of their potential impact - The Company is evaluating the potential effect of ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures) on its financial statements[40][41][120] Critical Accounting Estimates Management did not identify any critical accounting estimates for the reported period, relying on historical experience and reasonable assumptions for financial statement preparation - Management did not identify any critical accounting estimates for the period[121] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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[122] Item 4. Controls and Procedures The company's disclosure controls and procedures were deemed ineffective due to identified material weaknesses in internal control over financial reporting, though management asserts the financial statements fairly present the company's condition. Remediation efforts are ongoing, including improved documentation, approval processes, and GAAP expertise - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to identified material weaknesses[125] - Material weaknesses include lack of finalized COSO assessment, inadequate documentation, insufficient approval/review processes, insufficient GAAP experience for complex transactions, deficiencies in IT general controls, and insufficient segregation of duties[124] - Management is actively implementing a remediation plan, including documenting financial policies, improving approval processes, building GAAP expertise, and enhancing segregation of duties[127][128] PART II – OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, defaults, and other disclosures relevant to the company's operations and financial standing 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, operating results, financial condition, or cash flows - As of June 30, 2025, the Company is not a party to any legal proceedings that would have a material adverse effect on its business[130] Item 1A. Risk Factors Key risks include the company's recurring losses and going concern doubt, potential delisting from Nasdaq due to non-compliance with listing requirements, and significant future dilution from equity issuances and outstanding warrants/options - The Company has incurred losses since inception, has an accumulated deficit of $86.2 million, and its cash is only sufficient into Q2 2026, raising substantial doubt about its ability to continue as a going concern[132][134] - The Company received a Nasdaq notice for non-compliance with the minimum bid price requirement ($1.00) and, while it regained compliance with the stockholders' equity requirement ($5.6 million vs. $2.5 million minimum), faces ongoing delisting risks[137][138][140] - Future sales of common stock, convertible securities, and the exercise of 26,608,496 outstanding warrants and 1,184,182 options could result in significant dilution for existing stockholders[143][144] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in any unregistered sales of equity securities during the three months ended June 30, 2025, beyond those already disclosed in its SEC filings - No unregistered sales of equity securities occurred during the three months ended June 30, 2025, other than those previously disclosed[146] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities during the period[149] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the Company[150] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended June 30, 2025[151] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including agreements, certificates of incorporation, warrants, and certifications - The exhibit index includes various agreements, certificates of incorporation, warrant forms, and certifications[153][154] SIGNATURES This section contains the official signatures of the company's executive officers, certifying the accuracy and submission of the Form 10-Q Signatures The report is duly signed by the Chief Financial Officer and the President and Chief Executive Officer, certifying its submission in accordance with the Securities Exchange Act of 1934 - The report is signed by Vinay Shah, Chief Financial Officer, and Cary J. Claiborne, President and Chief Executive Officer, on August 13, 2025[157][158]