Adial Pharmaceuticals(ADIL) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Condensed Consolidated Unaudited Financial Statements The company reported a net loss of $4.8 million in Q1 2021, with assets growing to $8.6 million, and faces substantial doubt about its going concern ability Consolidated Balance Sheets Total assets increased to $8.6 million as of March 31, 2021, primarily due to cash and the Purnovate acquisition, with liabilities rising to $3.0 million Condensed Consolidated Balance Sheets (Unaudited) | | March 31, 2021 ($) | December 31, 2020 ($) | | :--- | :--- | :--- | | Total Current Assets | 6,172,299 | 5,135,838 | | Total Assets | 8,625,499 | 5,491,444 | | Total Current Liabilities | 2,042,340 | 1,505,378 | | Total Liabilities | 3,007,857 | 1,505,378 | | Total Shareholders' Equity | 5,617,642 | 3,986,066 | | Total Liabilities and Shareholders' Equity | 8,625,499 | 5,491,444 | Consolidated Statements of Operations The company reported a net loss of $4.83 million in Q1 2021, significantly higher than the prior year, primarily due to increased R&D and G&A expenses Condensed Consolidated Statements of Operations (Unaudited) | | Three months ended March 31, 2021 ($) | Three months ended March 31, 2020 ($) | | :--- | :--- | :--- | | Research and development expenses | 2,051,623 | 1,059,578 | | General and administrative expenses | 2,788,711 | 1,240,667 | | Total Operating Expenses | 4,840,334 | 2,300,245 | | Loss From Operations | (4,840,334) | (2,300,245) | | Net Loss | (4,833,764) | (2,276,813) | | Net loss per share, basic and diluted | (0.30) | (0.22) | Consolidated Statements of Shareholders' Equity Shareholders' equity increased to $5.6 million by March 31, 2021, driven by equity financing and the Purnovate acquisition, despite a net loss - Key activities affecting shareholders' equity in Q1 2021 included the sale of common stock ($2.6M), warrant exercises ($1.4M), stock issued for an acquisition ($1.1M), and equity-based compensation ($1.3M), offset by a net loss of $4.8M[14] Consolidated Statements of Cash Flows Cash and cash equivalents increased by $1.24 million in Q1 2021, driven by $4.08 million in financing activities, offsetting $2.84 million used in operations Condensed Consolidated Statements of Cash Flows (Unaudited) | | Three months ended March 31, 2021 ($) | Three months ended March 31, 2020 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (2,843,424) | (1,825,421) | | Net cash provided by (used in) investing activities | (286) | 0 | | Net cash provided by financing activities | 4,080,503 | 0 | | Net Increase (Decrease) in Cash | 1,236,793 | (1,825,421) | | Cash and Cash Equivalents - End of Period | 5,637,907 | 4,951,631 | Notes to the Unaudited Condensed Consolidated Financial Statements The notes detail accounting policies, the Purnovate acquisition, and liquidity risks, highlighting a going concern warning and significant future payment commitments - The company has commenced its first Phase 3 clinical trial for its lead compound AD04 for the treatment of alcohol use disorder[22] - On January 26, 2021, the company acquired its wholly owned subsidiary, Purnovate, Inc., a drug development company focused on non-opioid pain reduction[23] - The financial statements have been prepared on a going concern basis, but the company's recurring losses, negative cash flows, and accumulated deficit of approximately $36.4 million raise substantial doubt about its ability to continue as a going concern. Existing cash is expected to fund operations only into the fourth quarter of 2021[24] - The acquisition of Purnovate was a related-party transaction, as Adial's CEO, William B. Stilley, owned 28.73% of Purnovate's membership interests[56] - The company has an ongoing master services agreement with Crown CRO Oy for its Phase 3 clinical study, with remaining future milestone payments totaling approximately $949,588, plus estimated pass-through costs of around $3.1 million[98][100][103] Management's Discussion and Analysis of Financial Condition and Results of Operations The MD&A details AD04 development and Purnovate acquisition, analyzing increased expenses that drove a higher net loss, and highlights critical liquidity challenges - The company's landmark ONWARD pivotal Phase 3 clinical trial for AD04 is more than 50% enrolled, with completion expected by the first quarter of 2022[123] - The COVID-19 pandemic caused delays in obtaining regulatory approvals and slowed trial enrollment in 2020, pushing the projected completion of the Phase 3 trial to Q1 2022 and increasing costs[148] Results of Operations Comparison (in thousands of dollars) | | For the Three Months Ended March 31, 2021 ($) | For the Three Months Ended March 31, 2020 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Research and development expenses | 2,052,000 | 1,060,000 | 992,000 | | General and administrative expenses | 2,789,000 | 1,241,000 | 1,548,000 | | Net Loss | (4,834,000) | (2,278,000) | (2,556,000) | - Current cash and cash equivalents are not sufficient to fund operations for the next twelve months. The company expects to exhaust funds in Q4 2021 and will require approximately $2.7 million in additional funding to reach the expected database lock for its clinical trial in February 2022[156][157] - The company has an equity purchase agreement with Keystone Capital, LLC, allowing for up to $15 million in equity financing, of which $2.85 million had been raised as of the filing date. Access to the remaining funds is dependent on the stock's market price and other conditions[156] Quantitative and Qualitative Disclosures About Market Risk The company states this item is not applicable, indicating no significant exposure to market risks requiring quantitative and qualitative disclosure - The company has determined that quantitative and qualitative disclosures about market risk are not applicable[181] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2021, due to identified material weaknesses, despite believing financial statements are fairly presented - Management identified material weaknesses in internal control over financial reporting and concluded that disclosure controls and procedures were not effective as of March 31, 2021[181] - Identified weaknesses include: inadequately documented policies, lack of proper approval/review processes, insufficient GAAP experience, and insufficient staff to maintain optimal segregation of duties[181] - Notwithstanding the material weaknesses, management has concluded that the financial statements included in the quarterly report are fairly presented in all material respects[182] PART II - OTHER INFORMATION Legal Proceedings The company is not currently a party to any legal proceedings that would materially adversely affect its business, financial condition, or cash flows - As of the reporting date, the company is not a party to any material legal proceedings[184] Risk Factors This section updates risk factors, emphasizing the company's history of net losses, substantial doubt about its going concern ability, and the need for significant additional financing - The company has a history of net losses, with an accumulated deficit of approximately $36.4 million as of March 31, 2021, and anticipates continued losses[187] - There is substantial doubt about the company's ability to continue as a going concern, as current funds are projected to be exhausted in the fourth quarter of 2021 without additional financing[190] - Significant additional financing is required to complete clinical trials and support operations. Failure to raise capital could negatively impact business strategies and may lead to significant shareholder dilution[192][194] - Officers and directors beneficially own approximately 28% of the company's outstanding common stock, giving them significant influence over corporate matters[198] - The company's stock price has been and may continue to be volatile, which could result in substantial losses for investors[202][203] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the quarter, beyond those previously disclosed in SEC filings, with other sections marked not applicable - No unregistered sales of equity securities occurred during the three months ended March 31, 2021, other than those previously disclosed in SEC filings[207] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[207] Mine Safety Disclosures This item is not applicable to the company - Not applicable[207] Other Information The company reports no other information to disclose for this period - Not applicable[207] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, material agreements, and CEO/CFO certifications - This section lists exhibits filed with the report, including certifications required by the Sarbanes-Oxley Act (Sections 302 and 906) and various corporate and transactional agreements[209][211]