Azora Therapeutics, Inc. (DE) 10-Q for FY2025 Q1
Azora Therapeutics, Inc. (DE) (AZR)
About this 10-Q
Azora Therapeutics, Inc. (DE) filed this 10-Q on May 14, 2025, covering the quarter ended March 31, 2025 (FY2025 Q1).
Headline figures
Quarter ended March 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $2.23M
- compared with a net loss of $6.48M a year earlier
- Diluted EPS
- -$0.34
- compared with -$2.19 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ___________ to ___________
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Indicate by check mark whether
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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No
Number of shares of common stock outstanding as of May 13, 2025 was
ADIAL PHARMACEUTICALS, INC.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, statements contained in this Quarterly Report on Form 10-Q, including but not limited to, statements regarding the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities; our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future acquisitions, are forward looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “seeks,” “goals,” “estimates,” “predicts,” “potential” and “continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item lA. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and those risks identified under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2025 (“2024 Form 10-K”). Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
NOTE REGARDING COMPANY REFERENCES
Throughout this Quarterly Report on Form 10-Q, “Adial,” the “Company,” “we,” “us” and “our” refer to Adial Pharmaceuticals, Inc.
FORM 10-Q
TABLE OF CONTENTS
i
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Unaudited Financial Statements
ADIAL PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| March 31, 2025 | December 31, 2024 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Intangible assets, net | ||||||||
| Equity method investment | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable, related party | ||||||||
| Accrued expenses | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | $ | $ | ||||||
| Commitments and contingencies – see Note 7 | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock, | ||||||||
| Common Stock, | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
ADIAL PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Operating Expenses: | ||||||||
| Research and development expenses | $ | $ | ||||||
| General and administrative expenses | ||||||||
| Total Operating Expenses | ||||||||
| Loss From Operations | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Interest income | ||||||||
| Inducement expense | ( | ) | ||||||
| Losses from equity method investment | ( | ) | ( | ) | ||||
| Other income (expenses) | ( | ) | ||||||
| Total other income (expense) | ( | ) | ||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares, basic and diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
ADIAL PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
| Common Stock | Additional Paid In | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, January 1, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Equity-based compensation - stock option expense | — | |||||||||||||||||||
| Equity-based compensation - stock issuances to a vendor and vesting to employee | ||||||||||||||||||||
| Net proceeds from sale of common stock | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | Additional Paid In | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Equity-based compensation – stock option expense | — | |||||||||||||||||||
| Equity-based compensation – vesting of stock issuances to consultants and employees | — | |||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||
| Inducement expense | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
ADIAL PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Equity-based compensation | ||||||||
| Amortization of intangible assets | ||||||||
| Inducement expense | ||||||||
| Change in value of equity method investment | ||||||||
| Change in fair value contingent consideration | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Prepaid research and development | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Accrued expenses, related party | ( | ) | ||||||
| Accounts payable | ||||||||
| Accounts payable, related party | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash receipt from contingent consideration | ||||||||
| Net cash provided by investing activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net proceeds from sale of common stock | ||||||||
| Proceeds from warrant exercise, net of expenses | ||||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS-END OF PERIOD | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
ADIAL PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 — DESCRIPTION OF BUSINESS
Adial Pharmaceuticals, Inc.
(“Adial” or the “Company”) was converted from a limited liability company formed on November 23, 2010 in the Commonwealth
of Virginia under the name Adial Pharmaceuticals, LLC, to a corporation and reincorporated in Delaware on
Adial’s wholly owned subsidiary, Purnovate, Inc. (“Purnovate”), was formed on January 26, 2021 to acquire Purnovate, LLC, an entity formed in December of 2019. Purnovate was a drug development company with a platform focused on developing drug candidates for non-opioid pain reduction and other diseases and disorders potentially targeted with adenosine analogs that are selective, potent, stable, and soluble. In 2023, Adial sold the Purnovate’s assets and business to Adovate, LLC (“Adovate”), a company formed and majority owned by a then director of the Company and CEO of Purnovate. In January 2025, Adial’s board of directors approved the merger of Purnovate into Adial, this merger is expected to be completed in the near future and there is no effect on the Company’s condensed consolidated financial statements.
2 — GOING CONCERN AND OTHER UNCERTAINTIES
These unaudited condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which contemplate
continuation of the Company as a going concern. The Company is in a development stage and has incurred losses each year since inception.
Based on the current development plans for AD04 in both the U.S. and international markets and other operating requirements, the Company
does not believe that the existing cash and cash equivalents are sufficient to fund operations for the next twelve months following the
filing of these unaudited condensed consolidated financial statements. In May of 2025, the Company received net proceeds of approximately
$
Other Uncertainties
Generally, the industry in which the Company operates subjects the Company to a number of other risks and uncertainties that can affect its operating results and financial condition. Such factors include, but are not limited to: the timing, costs and results of clinical trials and other development activities versus expectations; the ability to obtain regulatory approval to market product candidates; the ability to manufacture products successfully; competition from products sold or being developed by other companies; the price of, reimbursement of, and demand for, Company products once approved; the ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products.
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3 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires Company management to make estimates and assumptions that affect the amounts of assets and liabilities at the date of these consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results might differ from these estimates.
Significant items subject to such estimates and assumptions include accruals associated with third party providers supporting clinical trials and income tax asset realization.
Basis of Presentation and Principals of Consolidation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these unaudited interim condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results of operations for the periods presented. The interim operating results are not necessarily indicative of results that may be expected for any subsequent period. These unaudited condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2024, included in the 2024 Form 10-K, filed with the Securities and Exchange Commission on March 4, 2025. The unaudited condensed consolidated financial statements represent the consolidation of the Company and its subsidiary in conformity with GAAP. All intercompany transactions have been eliminated in consolidation.
Basic and Diluted Loss per Share
Basic and diluted loss per share are computed based on the weighted-average outstanding shares of common stock, which are all voting shares. Diluted net loss per share is computed giving effect to all proportional shares of common stock, including stock options, restricted stock, and warrants to the extent dilutive. Basic net loss per share was the same as diluted net loss per share for the three months ended March 31, 2025 and 2024, as the inclusion of all potential common shares outstanding would have an anti-dilutive effect.
The total potentially dilutive common shares that were excluded for the three months periods ended March 31, 2025 and 2024 were as follows:
| Potentially Dilutive Common Shares Outstanding March 31, |
||||||||
| 2025 | 2024 | |||||||
| Warrants to purchase common shares | ||||||||
| Common Shares issuable on exercise of options | ||||||||
| Unvested restricted stock awards | ||||||||
| Total potentially dilutive Common Shares excluded | ||||||||
6
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. At times, the Company’s cash balances may exceed the current insured amounts under
the Federal Deposit Insurance Corporation. At March 31, 2025, the Company did not exceed FDIC insurance limits in its insured bank accounts
but held approximately $
Equity Method Investments
The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial decisions of the investee.
Equity method investments are measured at cost minus impairment, if any, plus or minus the Company’s proportionate share of the equity method investee’s operating income or loss and plus or minus the Company’s proportionate share of dilution to buyers of newly issued equity. The proportionate share of the income or loss from equity method investments is recognized on a one quarter lag.
Currently, the Company is not obligated to make additional capital contributions for its equity method investments and therefore only records losses up to the amount of its total investment, inclusive of any other investments in and loans to the investee, which are not accounted for as equity method investments.
Fair Value Measurements
FASB ASC 820, Fair Value Measurement, (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The methodology establishes consistency and comparability by providing a fair value hierarchy that prioritizes the inputs to valuation techniques into three broad levels, which are described below:
| ● | Level 1 inputs are quoted market prices in active markets for identical assets or liabilities (these are observable market inputs). |
| ● | Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability (includes quoted market prices for similar assets or identical or similar assets in markets in which there are few transactions, prices that are not current or prices that vary substantially). |
| ● | Level 3 inputs are unobservable inputs that reflect the entity’s own assumptions in pricing the asset or liability (used when little or no market data is available). |
The fair value of cash and cash equivalents and accounts payable approximate their carrying value due to their short-term maturities.
Research and Development
Research and development costs are charged to expense as incurred and include supplies and other direct trial expenses such as fees due to contract research organizations, consultants which support the Company’s research and development endeavors, the acquisition of technology rights without an alternative use, and compensation and benefits of clinical research and development personnel. Certain research and development costs, in particular fees to contract research organizations (“CROs”), are structured with milestone payments due on the occurrence of certain key events. Where such milestone payments are greater than those earned through the provision of such services, the Company recognizes a prepaid asset which is recorded as expense; where fees earned are greater than milestone payments, an accrued expense liability is recorded as expense.
7
Stock-Based Compensation
The Company measures the cost of option awards based on the grant date fair value of the awards. That cost is recognized on a straight-line basis over the period during which the awardee was required to provide service in exchange for the entire award. The fair value of options is calculated using the Black-Scholes option pricing model, based on key assumptions such as the expected volatility of the Company’s common stock, the risk-free rate of return, and expected term of the options. The Company’s estimates of these assumptions are primarily based on historical data, peer company data, government data, and the judgment of management regarding future trends.
Common shares issued are valued based on the fair value of the Company’s common shares as determined by the market closing price of a share of the Company’s common stock on the date of the commitment to make the issuance.
Segment Information
The Company operates as
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. This update enhances the transparency and usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The guidance also eliminates certain existing requirements related to uncertain tax positions and unrecognized deferred tax liabilities. The amendments in this update are effective for annual periods beginning after December 15, 2024. Early adoption of the amendments is permitted for annual financial statements that have not yet been issued. The Company is currently evaluating the potential effect the ASU 2023-09 will have on its financial statement disclosures.
In November 2024, FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This update would require a public entity to disclose information about purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion for each income statement line item that contains those expenses. The amendments in this update are effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption of the amendments is permitted for annual financial statements that have not yet been issued. The Company is in the process of evaluating the impact of this new guidance on its consolidated condensed financial statements.
8
4 — EQUITY METHOD INVESTMENTS
On June 30, 2023, Adovate
issued to the Company a
On July 1, 2023, the Company executed a shared services agreement with
Adovate, for sharing of the efforts of certain Adovate employee time and use of Adovate office space and equipment. For the three months
ended March 31, 2025 and 2024, the Company recognized
On January 30, 2024, the Company
acknowledged that Adovate had raised $
In accordance with ASC 810, the Company determined that Adovate does not qualify as a variable interest entity, nor does the Company have a controlling financial interest in Adovate. The Company has influence over, but does not control Adovate through its equity interest in Adovate. The Company has determined that the equity it owns is in-substance common stock. The Company is not the primary beneficiary as it does not have the power to direct the activities of Adovate that most significantly impact Adovate’s economic performance. Accordingly, the Company does not consolidate the financial statements of Adovate with those of the Company.
The Company recorded the initial
investment in Adovate of $
| December 31, 2024 | September 30, 2024 | |||||||
| Current Assets | $ | $ | ||||||
| Non-current assets | $ | $ | ||||||
| Current liabilities | $ | $ | ||||||
| Non-current liabilities | $ | $ | ||||||
Results for Adovate’s operations in the three months ended December 31, 2024 and 2023 are summarized below:
| 2024 | 2023 | |||||||
| Revenues | $ | $ | ||||||
| Costs and expenses | ( | ) | ( | ) | ||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expenses | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
The Company held a weighted average of
Activity recorded for the Company’s equity method investment in Adovate during the three months ended March 31, 2025 is summarized in the following table:
| Equity investment carrying amount at January 1, 2025 | $ | |||
| Portion of operating losses recognized | ( | ) | ||
| Equity investment carrying amount at March 31, 2025 | $ |
At March 31, 2025, the Company’s maximum exposure to loss through its equity method investment is limited to the value of its equity.
Consideration for the sale of the assets of Purnovate, Inc. to Adovate
also included contingent payments based on the occurrence of certain milestone events and a contingent royalty on future sales. The Company
recognized $
9
5 — ACCRUED EXPENSES
Accrued expenses consist of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Employee compensation | $ | $ | ||||||
| Minimum license royalties | ||||||||
| Legal and consulting services | ||||||||
| Pre-clinical and manufacturing expenses | ||||||||
| Other | ||||||||
| Total accrued expenses | $ | $ | ||||||
6 — STOCKHOLDERS’ EQUITY
Standby Equity Purchase Agreement
On December 13, 2024, the existing Equity Purchase Agreement that we
entered into with Alumni Capital, LLC (“Alumni”) on May 31, 2023 was cancelled by mutual agreement. Simultaneously, the Company
and Alumni Capital entered into a new Equity Purchase Agreement (the “New SEPA”) on substantially the same terms, but with
an initial right to sell Alumni up to $
Other Common Stock Issuances
On January 27, 2025, the Company
issued
2017 Equity Incentive Plan
On October 9, 2017, the Company
adopted the Adial Pharmaceuticals, Inc. 2017 Equity Incentive Plan (the “2017 Equity Incentive Plan”); which became effective
on July 31, 2018. Under the 2017 Equity Incentive Plan, the Company may grant equity-based awards to individuals who are employees, officers,
directors, or consultants of the Company. Options issued under the Plan will generally expire ten years from the date of grant and vest
over a three-year period. At March 31, 2025, the Company had
Stock Options
The following table provides the stock option activity for the three months ended March 31, 2025:
| Total Options Outstanding | Weighted Average Remaining Term (Years) | Weighted Average Exercise Price | ||||||||||
| Outstanding January 1, 2025 | $ | |||||||||||
| Cancelled | ( | ) | ||||||||||
| Granted | ||||||||||||
| Outstanding March 31, 2025 | $ | |||||||||||
| Outstanding March 31, 2025, vested and exercisable | $ | |||||||||||
10
At March 31, 2025, the total
intrinsic value of the outstanding options was
The Company used the Black Scholes valuation model to determine the fair value of the options issued, using the following key assumptions for the three months ended March 31, 2025 and 2024:
| March 31, 2025 | March 31, 2024 | |||||||
| Fair Value per Share | $ | $ | ||||||
| Expected Term | | |||||||
| Expected Dividend | $ | $ | ||||||
| Expected Volatility | % | % | ||||||
| Risk free rate | % | % | ||||||
The weighted-average grant-date
fair value of stock options granted during the three months ended March 31, 2025 and 2024 was $
The components of stock-based compensation expense included in the Company’s Statements of Operations for the three months ended March 31, 2025 and 2024 are as follows:
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Research and development options expense | ||||||||
| General and administrative options expense | ||||||||
| Stock issued to a vendor and vesting to employee | ||||||||
| Total general and administrative expenses | ||||||||
| Total stock-based compensation expense | $ | $ | ||||||
Stock Warrants
The following table provides the activity in warrants for the three and three months ended March 31, 2025.
| Total Warrants | Weighted Average Remaining Term (Years) | Weighted Average Exercise Price | Average Intrinsic Value | |||||||||||||
| Outstanding January 1, 2025 | $ | $ | ||||||||||||||
| Issued | ||||||||||||||||
| Exercised | ||||||||||||||||
| Outstanding March 31, 2025 | $ | $ | ||||||||||||||
7 — COMMITMENTS AND CONTINGENCIES
License with University of Virginia Patent Foundation
In January 2011, the Company entered into an exclusive, worldwide license agreement with the University of Virginia Patent Foundation, dba UVA Licensing and Ventures Group (“UVA LVG”) for rights to make, use or sell licensed products in the United States based upon the ten separate patents and patent applications made and held by UVA LVG.
11
As consideration for the rights
granted in the UVA LVG License, the Company is obligated to pay UVA LVG yearly license fees and milestone payments, as well as a royalty
based on net sales of products covered by the patent-related rights.
The license agreement may be terminated by UVA LVG upon sixty (60) days written notice if the Company breaches its obligations thereunder, including failing to make any milestone, failure to make required payments, or the failure to exercise diligence to bring licensed products to market. In the event of a termination, the Company will be obligated to pay all amounts that accrued prior to such termination. The Company is required to use commercially reasonable efforts to achieve the goals of submitting a New Drug Application to the FDA for a licensed product by March 31, 2028 and commencing commercialization of an FDA approved product by March 31, 2029. If the Company were to fail to use commercially reasonable effort and fail to meet either goal, the licensor would have the right to terminate the license.
The term of the license continues until the expiration, abandonment or invalidation of all licensed patents and patent applications, and following any such expiration, abandonment or invalidation will continue in perpetuity on a royalty-free, fully paid basis.
During the three months ended March 31, 2025 and 2024, the Company
recognized a $
Grant Incentive Plan – Former Related Party
On April 1, 2018, the
board of directors approved and then revised, respectively, a grant incentive plan to provide incentive for Bankole A. Johnson, the
Company’s then Chief Medical Officer and a related party, to secure grant funding for the Company. Under the grant incentive
plan, the Company will make a cash payment to Dr. Johnson each year based on the grant funding received by us in the preceding year
in an amount equal to
Consulting Agreement – Former Related Party
On March 24, 2019, the Company entered into a consulting agreement
(the “Consulting Agreement”) with Dr. Bankole A. Johnson, who at the time of the agreement was serving as the Chairman
of the Board of Directors, for his service as Chief Medical Officer of the Company. The Consulting Agreement had a term of three years,
unless terminated by mutual consent or by the Company for cause. Dr. Johnson resigned as Chairman of the Board of Directors at the time
of execution of the Consulting Agreement. Under the terms of the Consulting Agreement, Dr. Johnson’s annual fee of $
Consulting Agreement – Related Party
On March 15, 2023, the Company entered into a Master Services Agreement
(the “Keswick MSA”) with the Keswick Group, LLC for provision of consulting services.
12
Litigation
The Company is subject, from time to time, to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition, and cash flows. As of March 31, 2025, the Company did not have any pending legal actions.
8 — SEGMENT REPORTING
The Company has one reportable operating segment relating to drug development for addiction and related disorders. When evaluating the Company’s financial performance, the CODM reviews total operating expenses for the operating segment excluding discontinued operations and equity method investments. The CODM makes decisions using this information on a company-wide basis.
Significant segment expenses, as provided to the CODM, are presented below:
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Operating Expenses: | ||||||||
| Segment research and development expenses | $ | $ | ||||||
| Segment general and administrative expenses | ||||||||
| Total Operating Expenses | ||||||||
| Loss From Operations | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Interest income | ||||||||
| Inducement expense | ( | ) | ||||||
| Losses from equity method investment | ( | ) | ( | ) | ||||
| Other income (expenses) | ( | ) | ||||||
| Total other income (expense) | ( | ) | ||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
9 — SUBSEQUENT EVENTS
As of May 13, 2025,
On May 2, 2025, the
Company entered into a warrant inducement agreement (the “Inducement Agreement”) with an existing healthcare-focused
institutional investor of the Company for the immediate exercise of existing Series B Warrants to purchase
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited consolidated financial statements and the notes presented herein included in this Form 10-Q and the audited financial statements and the other information set forth in the Annual Report on Form 10-K for the year ended December 31, 2024 that we filed with the SEC on March 4, 2025 (the “2024 Form 10-K”). ln addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties including, but not limited to, those set forth below under “Risk Factors” and elsewhere herein, and those identified under Part I, Item 1A of the 2024 Form 10-K. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission (“SEC”).
Overview
We are a clinical-stage biopharmaceutical company focused on the development of therapeutics for the treatment or prevention of addiction and related disorders. Our investigational new drug candidate, AD04, is being developed as a therapeutic agent for the treatment of alcohol use disorder (“AUD”). AD04 was recently investigated in a Phase 3 clinical trial, designated the ONWARD trial, for the potential treatment of AUD in subjects with certain target genotypes, which were identified using our companion diagnostic genetic test. Based on our analysis of the subgroup data from the ONWARD trial, we are now focused on completing the clinical development program for AD04 in the specified genetic subgroups to meet regulatory requirements primarily in the US and secondarily in Europe/UK.
We have devoted the vast majority of our resources to development efforts relating to AD04, including preparation for and conducting clinical trials, providing general and administrative support for these operations and protecting our intellectual property. We expect these activities to continue to demand most of our resources for the foreseeable future.
We currently do not have any products approved for sale and we have not generated any significant revenue since our inception. From our inception through the date of this Quarterly Report on Form 10-Q, we have funded our operations primarily through the private and public placements of debt, equity securities, and an equity line.
Our current cash and cash equivalents, including the cash received from the warrant inducement that closed on May 5, 2025, are not expected to be sufficient to fund operations for the twelve months from the date of filing this Quarterly Report on Form 10-Q, based on our current commitments and development plans. We have incurred recurring losses and need to raise additional funds to sustain our operations. These factors raise substantial doubt about our ability to continue as a going concern.
We have incurred net losses in each year since our inception, including net losses of approximately $2.2 million and $13.2 million for the three months ended March 31, 2025 and year ended December 31, 2024, respectively. We had accumulated deficits of approximately $84.2 million and $82 million as of March 31, 2025 and December 31, 2024, respectively. All of our operating losses in the three months ended March 31, 2025 resulted from costs incurred in continuing operations, including costs in connection with our continuing research and development programs and from general and administrative costs associated with our operations.
We will not generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for AD04, which we expect will take a number of years and is subject to significant uncertainty.
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Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop AD04.
Recent Developments
On Feb 4, 2025, we received a positive response from the U.S. Food and Drug Administration (“FDA”) on it’s proposed in-vitro bridging strategy for AD04. At the April 2023 Type C meeting with the FDA, they reaffirmed the acceptance of the heavy-drinking-day based endpoints as a basis for approval for the treatment of Alcohol Use Disorder rather than the previously required abstinence-based endpoints. As a result, we are preparing for the next FDA interaction to confirm the Phase 3 clinical plan in the United States. In January of 2025, the FDA also released a Qualification Statement accepting another surrogate endpoint for Alcohol Use Disorder (AUD). The newly released Qualification Statement by Center for Drug Evaluation and Research (CDER), states the acceptance of the 2-level reduction of the World Health Organization (WHO) risk drinking levels of alcohol consumption as an efficacy endpoint in pivotal clinical trials with adults diagnosed with (AUD). We have also been issued key patents in the United States, the European Union, and other jurisdictions for which we have exclusive license rights. The active ingredient in AD04 is ondansetron, a serotonin-3 antagonist. Due to its mechanism of action, AD04 has the potential to be used for the treatment of other addictive disorders, such as Opioid Use Disorder, obesity, smoking, and other drug addictions.
On May 1, 2025, we announced patent number 12,274,692 was issued on April 15, 2025 by the United States Patent and Trademark Office covering the administration of AD04, our investigational drug, as a precision medicine approach for patients with specific genetic markers. The patent claims a method of treating addiction by administering a therapeutically effective amount of AD04 to patients with serotonin-related gene variations, including specific genotypes of HTR3A, HTR3B, and SLC6A4, such as the LL genotype of 5-HTTLPR in combination with variations in rs1150226, rs17614942, and rs1176713.
On May 2, 2025, we entered into a warrant inducement agreement (the “Inducement Agreement”) with an existing healthcare-focused institutional investor of ours for the immediate exercise of existing Series B Warrants to purchase 1,418,440 shares of our common stock and Series C Warrants, and together with the Series B Warrants (the "Existing Warrants") to purchase 2,300,000 shares of our common stock at a reduced exercise price of $0.74 for net proceeds of approximately $2.35 million, before deducting legal fees and other transaction expenses. In consideration for the immediate exercise in full of the Existing Warrants, the investor received, in a private placement, new unregistered (i) Series B-1 warrants to purchase up to 2,482,270 shares of common stock(the "Series B-1 Warrants"), and (ii) Series C-1 Warrants to purchase up to 4,025,000 shares of common stock (the "Series C-1 Warrants"), and together with the Series B-1 Warrants the "New Warrants"). The New Warrants have an exercise price of $0.74 and will be exercisable upon stockholder approval. The Series B-1 Warrants expire five years from the date of such approval and the Series C-1 Warrants will expire eighteen months from the date of such approval. The warrant inducement transaction closed on May 5, 2025. We expect to use the net proceeds from these transactions for working capital and other general corporate purposes.
The exercise price and the number of shares of common stock issuable upon exercise of each New Warrant are subject to appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock. In addition, in certain circumstances, upon a fundamental transaction (as defined in the New Warrants), a holder of New Warrants will be entitled to receive, upon exercise of the New Warrants, the kind and amount of securities, cash or other property that such holder would have received had they exercised the New Warrants immediately prior to the fundamental transaction.
We may not effect the exercise of certain New Warrants, and the applicable holder will not be entitled to exercise any portion of any such New Warrant, which, upon giving effect to such exercise, would cause the aggregate number of shares of common stock beneficially owned by the holder of such New Warrant (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of such New Warrants.
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Results of operations for the three months ended March 31, 2025 and 2024 (rounded to nearest thousand)
The following table sets forth the components of our statements of operations in dollars for the periods presented:
| For the Three Months Ended March 31, | Increase | |||||||||||
| 2025 | 2024 | (Decrease) | ||||||||||
| Research and development expenses | $ | 747,000 | $ | 454,000 | $ | 293,000 | ||||||
| General and administrative expenses | 1,520,000 | 1,391,000 | 129,000 | |||||||||
| Total Operating Expenses | 2,267,000 | 1,845,000 | 422,000 | |||||||||
| Loss From Operations | (2,267,000 | ) | (1,845,000 | ) | (422,000 | ) | ||||||
| Inducement expense | — | (4,465,000 | ) | (4,465,000 | ) | |||||||
| Other income (expense) | 166,000 | 166,000 | ||||||||||
| Change in value of equity method investment | (163,000 | ) | (190,000 | ) | (27,000 | ) | ||||||
| Interest income | 36,000 | 23,000 | 13,000 | |||||||||
| Total other income (expenses) | 39,000 | (4,632,000 | ) | (4,671,000 | ) | |||||||
| Net loss | (2,228,000 | ) | (6,477,000 | ) | (4,249,000 | ) | ||||||
Research and development (“R&D”) expenses
Research and development expenses increased by approximately $293,000 (65%) during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The key drivers of the increase were increased chemistry, manufacturing, and controls (CMC) expenses to develop clinical supplies for the upcoming program and consulting expenses as we continue to progress and advance AD04 to a Phase 3 trial.
General and administrative expenses (“G&A”) expenses
General and administrative expenses increased by approximately $129,000 (9%) during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This modest increase was mainly due to higher compensation and consulting.
Change in Value of Equity Method Investment
The expense recognized to the change in the value of our equity method investment in Adovate, LLC decreased by approximately $27,000 in the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This slight decrease is due to variations in the loss recognized related to our equity investment, with changes to the value of our Adovate equity recognized on a three month lag.
Total Other income (expenses)
Total other income, excluding losses from the equity method investment and inducement expense from the March 2024 warrant inducement transaction, increased by approximately $179,000 in the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This increase was mainly due to the recognition of a milestone payment received from Adovate of $150,000 along with an increase in interest income that resulted from a higher cash balance held in the period.
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Liquidity and Capital Resources at March 31, 2025
Our principal liquidity needs have historically been working capital, R&D costs including clinical trials, patent costs and personnel costs. We expect these needs to continue to increase in the near term as we engage in clinical trials and develop and eventually commercialize our compound, if approved by regulatory authorities. Over the next several years, we expect to increase our R&D expenses as we undergo clinical trials to demonstrate the safety and efficacy of our lead product candidate. To date, we have funded our operations primarily with the proceeds from our initial and secondary public offerings, sales pursuant to the At the Market Offering Agreement, dated April 18, 2024, that we entered into with H.C. Wainwright & Co., LLC (the “ ATM Agreement”), private placements, use of our equity line, as well as other equity financings, warrant exercises, and the issuance of debt securities.
During the year ended December 31, 2024, our primary sources of funding were the exercise of previously issued warrants and the use of our ATM Agreement and the March 2024 warrant inducement described below.
On March 1, 2024, warrants to purchase 268,440 shares of common stock at an exercise price of $2.82 per share were exercised for gross proceeds of approximately $757 thousand.
On March 1, 2024, we entered into the Inducement Agreement pursuant to which the Holder of the Existing Warrants exercised for cash the Existing Warrants to purchase up to approximately 1,150,000 shares of common stock, at an exercise price of $2.82 per share. The transactions contemplated by the Inducement Agreement closed on March 6, 2024 and we received aggregate gross proceeds of approximately $3.5 million, before deducting placement agent fees and other expenses payable by us. Net proceeds of this transaction were approximately $3.1 million.
In the year ended December 31, 2024, we sold 2,348,520 shares of common stock through our ATM Agreement, for net proceeds of approximately $4 million after placement fees and expenses.
On May 2, 2025, we entered into the Inducement Agreement with an existing healthcare-focused institutional investor of ours for the immediate exercise of existing the Series B Warrants to purchase 1,418,440 shares of our common stock and the Series C Warrants, and together with the Series B Warrants to purchase 2,300,000 shares of our common stock at a reduced exercise price of $0.74 for net proceeds of approximately $2.35 million, before deducting legal fees and other transaction expenses.
At March 31, 2025, we had cash and cash equivalents of $2.4 million. As of May 12, 2025, we had cash and cash equivalents of approximately $3.9 million. We have completed a Phase 1 pharmacokinetic study of AD04 with a total cost of approximately $1.4 million, which has been fully paid. In addition, we plan to begin a Phase III study of AD04 in the second half of 2025, to complete production of sufficient drug product to carry out the study, and to begin the process of revalidation for our companion diagnostic to be included in our Phase III study. We have signed a contract with a vendor for approximately $2.3 million, which is cancellable by either party, to produce sufficient drug product to carry out the study, validate the manufacturing process, and manufacture registration batches for commercial usage. Our cash on hand and cash equivalents, including the cash proceeds of the warrant inducement that closed on May 5, 2025 is sufficient to fund our operations and meet our existing commitments into the fourth quarter of 2025, based on our current commitments. We have incurred recurring losses and need to raise additional funds to sustain our operations. These factors raise substantial doubt about our ability to continue as a going concern.
We will require additional financing as we continue to execute our overall business strategy, including two additional Phase 3 trials for AD04 that are currently expected to require $8-12 million each in direct expenses, and up to $5 million in additional other development expenses. These estimates may change based on upcoming discussions with regulatory authorities and final trial designs. Our liquidity may be negatively impacted as a result of research and development cost increases in addition to general economic and industry factors. Our continued operations will depend on our ability to raise additional capital through various potential sources, such as equity and/or debt financings, grant funding, strategic relationships, or out-licensing in order to complete its subsequent clinical trial requirements for AD04. At this time, we have no committed sources of funding and our ability to use our ATM Agreement is restricted by certain SEC rules and our ability to use our equity line is restricted by certain Nasdaq rules. Management is actively pursuing financing and other strategic plans but can provide no assurances that such financing or other strategic plans will be available on acceptable terms, or at all. Without additional funding, we will be required to delay, scale back or eliminate some or all of our research and development programs, which would likely have a material adverse effect on us and our financial statements.
If we raise additional funds by issuing equity securities or convertible debt, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our products, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. We cannot be certain that additional funding will be available on acceptable terms, or at all. Any failure to raise capital in the future could have a negative impact on our financial condition and our ability to pursue our business strategies. These factors raise substantial doubt about our ability to continue as a going concern.
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Cash flows
| For the Three months Ended March 31, | ||||||||
| (rounded to nearest thousand) | 2025 | 2024 | ||||||
| Provided by (used in) | ||||||||
| Operating activities | $ | (1,585,000 | ) | (1,626,000 | ) | |||
| Investing activities | 150,000 | — | ||||||
| Financing activities | 51,000 | 3,824,000 | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | (1,384,000 | ) | 2,198,000 | ||||
Net cash used in operating activities – continuing operations
Net cash used in operating activities decreased by approximately $41,000 in the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The primary drivers of the decrease were higher accounts payable and accrued expenses as compared to the prior period.
Net cash provided by investing activities
Net cash provided by investing activities increased by approximately $150,000 in the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This increase was due to the recognition of a milestone payment received from Adovate of $150,000.
Net cash provided by financing activities
Net cash provided by financing activities decreased by approximately $3,774,000 in the three months ended March 31, 2025 compared to the three months ended March 31, 2024. In the three months ended March 31, 2024, we realized additional funds from the induced and uninduced exercise of warrants for net proceeds of approximately $3,824,000, whereas in the three months ended March 31, 2025, we sold 75,000 shares of common stock through our purchase agreement with Alumni Capital for net proceeds of approximately $51,000.
Off-balance sheet arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
See Note 3 to the unaudited condensed consolidated financial statements for a discussion of recent accounting pronouncements.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results and experiences may differ materially from these estimates. We did not identify any critical accounting estimates. Our significant accounting policies are more fully described in Note 3 to our unaudited condensed consolidated financial statements included with this report.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure.
As previously reported, we have identified material weaknesses in our internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weaknesses identified and as yet unremediated include (i) lack of finalized assessment under COSO framework, (ii) policies and procedures which are not adequately documented, (iii) lack of proper approval processes, review processes and documentation for such reviews, (iv) insufficient GAAP experience regarding complex transactions and ineffective review processes over period end financial disclosure and reporting (v) deficiencies in the risk assessment, design and policies and procedures over information technology (“IT”) general controls. and (vi) insufficient segregation of duties.
Due to the material weaknesses in internal control over financial reporting as described above, our Chief Executive Officer and our Chief Financial Officer concluded that based on their evaluation of our disclosure controls and procedures, as of the end of the period covered by this report, our disclosure controls and procedures were not effective.
Notwithstanding the material weaknesses described above, our management, including the Chief Executive Officer and Chief Financial Officer, has concluded that unaudited condensed consolidated financial statements, and other financial information included in this quarterly report, fairly present in all material respects our financial condition, results of operations, and cash flows as of and for the periods presented in this Quarterly Report on Form 10-Q.
Remediation Plan for Existing Material Weakness
Management continues to take steps to remediate the weaknesses described above. Management has engaged consulting services to ameliorate those material weaknesses stemming from its small number of personnel, in particular consultants with significant GAAP experience and IT security experts. The Company recently completed a risk assessment of its controls, and management is committed to additional remediation steps, improved documentation the Company’s controls, and redesign of inadequate approval processes, as resources permit.
Changes in Internal Control
There has been no change in our internal control procedures over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended March 31, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
Investing in our securities involves a high degree of risk. You should consider carefully the following risks, together with all the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and notes thereto. If any of the following risks actually materializes, our operating results, financial condition and liquidity could be materially adversely affected. As a result, the trading price of our common stock could decline and you could lose part or all of your investment. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item 1A, “Risk Factors,” contained in our 2024 Form 10-K. Except as disclosed below, there have been no material changes from the risk factors disclosed in our 2024 Form 10-K.
We have incurred losses from our continuing operations every year and quarter since our inception and anticipate that we will continue to incur losses from our continuing operations in the future.
We are a clinical stage biotechnology pharmaceutical company that is focused on the discovery and development of medications for the treatment of addictions and related disorders of AUD in patients with certain targeted genotypes. We have a limited operating history. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. To date, we have not generated positive cash flow from operations, revenues, or profitable operations, nor do we expect to in the foreseeable future. As of March 31, 2025, we had an accumulated deficit of approximately $84.2 million and as of December 31, 2024, we had an accumulated deficit of approximately $82 million. Our current cash and cash equivalents, including the cash proceeds of the warrant inducement that closed on May 5, 2025 are not expected to be sufficient to fund operations for the twelve months from the date of filing this Quarterly Report on Form 10-Q and are only anticipated to be sufficient to fund our needs into the fourth quarter of 2025, based our current projections and current commitments. Implementation of our full development plans would exhaust our cash on hand more quickly. Therefore, despite the funding we have recently received, we will need to engage in additional fundraising in the near term as we carry out our development plans. We do not have any fixed commitments of financing and there can be no assurance that we will be able to meet the conditions for continued sales pursuant to the ATM Agreement. In addition, there is no assurance that funds could be raised before we have expended our current cash on hand on acceptable terms to continue our operations and AD04 development projects.
Even if we succeed in commercializing our product candidate or any future product candidates, we expect that the commercialization of our product will not begin until 2027 or later, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates and will continue to incur substantial losses and negative operating cash flow. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern as do our notes to financial statements included in this Quarterly Report on Form 10-Q.
The report of our independent registered public accounting firm included in the 10-K filing contains a note stating that the accompanying financial statements have been prepared assuming we will continue as a going concern. During the three months ended March 31, 2025, we incurred a net loss of $2.2 million and used $1.4 million of cash in operations. During the year ended December 31, 2024, we incurred a net loss of $13.2 million and used cash in operations of $6.9 million. Losses have principally occurred as a result of the research and development efforts coupled with no operating revenue. The notes to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q state that we do not believe that the existing cash and cash equivalents are sufficient to fund operations for the next twelve months following the filing of this Quarterly Report on Form 10-Q and our significant accumulated deficit, recurring losses, and needs to raise additional funds to sustain its operations raise substantial doubt about our ability to continue as a going concern. In May 2025, the Company received net proceeds of approximately $2.35 million from the exercise of warrants. However, the Company will require additional capital to continue operations and development of AD04.
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Even if we succeed in commercializing our product candidate or any future product candidates, we expect that the commercialization of our product will not begin until 2027 or later, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates and will continue to incur substantial losses and negative operating cash flow.
Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a de-listing of our common stock.
Our shares of common stock are listed for trading on The Nasdaq Capital Market (“Nasdaq”) under the symbol “ADIL.” If we fail to satisfy the continued listing requirements of The Nasdaq Capital Market such as the corporate governance requirements, the stockholder’s equity requirement or the minimum closing bid price requirement, The Nasdaq Capital Market may take steps to de-list our common stock or warrants.
On August 31, 2022, we received written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC (the “Staff”) notifying us that for the preceding 30 consecutive business days (July 20, 2022 through August 30, 2022), our common stock did not maintain a minimum closing bid price of $1.00 per share (“Minimum Bid Price Requirement”) as required by Nasdaq Listing Rule 5550(a)(2). On August 4, 2023, we effected a reverse stock split for the purpose of regaining compliance with Nasdaq’s listing requirements. On August 21, 2023, we, received a notice from the Staff notifying us that the Staff has determined that for 10 consecutive business days, from August 7, 2023 to August 18, 2023, the closing bid price of our common stock has been at $1.00 per share or greater. Accordingly, the Staff determined that we had regained compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was closed.
On May 19, 2023, we received a letter from the Staff stating that we were not in compliance with Nasdaq Listing Rule 5550(b)(1) because our stockholders’ equity of $1,439,848 as of March 31, 2023, as reported in our Quarterly Report on Form 10-Q filed with the SEC on May 12, 2023, was below the minimum requirement of $2,500,000. On August 22, 2023, we also received a notice from the Staff that we now complied with Nasdaq Listing Rule 5550(b)(1), and that the matter was closed.
On November 21, 2023, we received a letter from Nasdaq stating that we were not in compliance with Nasdaq Listing Rule 5550(b)(1) because our stockholders’ equity of $2,339,258 as of September 30, 2023, as reported in our Quarterly Report on Form 10-Q filed with the SEC on November 14, 2023, was below the minimum requirement of $2,500,000. On November 29, 2023, we received a letter from Nasdaq stating that based on the Current Report on Form 8-K that we filed with the Securities and Exchange Commission on November 28, 2023 it determined that we were in compliance with Nasdaq Listing Rule 5550(b)(1). The letter further stated that if we failed to evidence compliance with Nasdaq Listing Rule 5550(b)(1) upon filing of our next periodic report we might be subject to delisting. At such time, Nasdaq staff would provide written notification to us and we might then appeal the Staff’s determination to a Nasdaq Hearings Panel. Our subsequent annual report on form 10-K, filed on April 1, 2024, disclosed stockholders’ equity at a level which was in compliance with Nasdaq Listing Rule 5550(b)(1) and the matter was closed.
On March 5, 2025, we received written notice from Nasdaq notifying us that for the preceding 30 consecutive business days (January 17, 2025 through March 4, 2025), our common stock did not maintain the Minimum Bid Price Requirement as required by Nasdaq Listing Rule 5550(a)(2). The notice has no immediate effect on the listing or trading of the our common stock and the common stock will continue to trade on The Nasdaq Capital Market under the symbol “ADIL.” In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have a compliance period of 180 calendar days, or until September 1, 2025, to regain compliance with Nasdaq Listing Rule 5550(a)(2). Compliance may be achieved without further action if the closing bid price of our common stock is at or above $1.00 for a minimum of ten consecutive business days at any time during the 180-day compliance period, in which case Nasdaq will notify us if it determines it is in compliance and the matter will be closed; however Nasdaq may require the closing bid price to equal or to exceed the Minimum Bid Price Requirement for more than 10 consecutive business days before determining that a company complies. If, however, we do not achieve compliance with the Minimum Bid Price Requirement by September 1, 2025, we may be eligible for additional time to comply. We intend to actively monitor the bid price of our common stock and will consider available options to regain compliance with the Nasdaq listing requirements, including such actions as effecting a reverse stock split to maintain our Nasdaq listing.
As reported in this Quarterly Report on Form 10-Q, at March 31, 2025, our stockholders’ equity of $2.1 million is below the Nasdaq minimum requirement of $2.5 million.
In the event of a de-listing, we would take actions to restore our compliance with The Nasdaq Capital Market’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below The Nasdaq Capital Market, minimum bid price requirement or prevent future non-compliance with The Nasdaq Capital Market’s listing requirements.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our common stock is listed on The Nasdaq Capital Market, our common stock is covered securities. Although the states are preempted from regulating the sale of covered securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were to be delisted from The Nasdaq Capital Market, our common stock would cease to be recognized as covered securities and we would be subject to regulation in each state in which we offer our securities.
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Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans and outstanding warrants, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We expect that significant additional capital may be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating a public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our common stock. Pursuant to our 2017 equity incentive plan, which became effective on the business day prior to the public trading date of our common stock, our management is authorized to grant equity awards to our employees, officers, directors and consultants.
At March 31, 2025, we had outstanding (i) warrants to purchase 4,201,568 shares of common stock outstanding with a weighted average exercise price of $8.45, and (ii) options to purchase 739,999 shares of common stock at a weighted average exercise price of $9.64 per share. The issuance of the shares of common stock underlying the options and warrants will have a dilutive effect on the percentage ownership held by holders of our common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Unregistered Sales of Equity Securities
We did not sell any equity securities during the three months ended March 31, 2025 in transactions that were not registered under the Securities Act other than as disclosed in our filings with the SEC and other than the issuance on January 27, 2025, of 100,000 shares of common stock to a vendor and cash of $4,970 in consideration for services rendered valued at $100,000. The shares were exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
(b) Use of Proceeds
Not applicable.
(c) Issuer Purchases of Equity Securities
Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During the three months ended March 31, 2025,
no director or officer of the Company
22
Item 6. Exhibits
The exhibit index set forth below is incorporated by reference in response to this Item 6.
| * | Filed herewith |
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ADIAL PHARMACEUTICALS, INC. | ||
| By: | /s/ Cary J. Claiborne | |
| Name: | Cary J. Claiborne | |
| Title: | President and Chief Executive Officer (Principal Executive Officer) | |
| By: | /s/ Vinay Shah | |
| Name: | Vinay Shah | |
| Title: | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |
Dated: May 14, 2025
24
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Cary J. Claiborne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Adial Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 14, 2025 | /s/ Cary J. Claiborne |
| Cary J. Claiborne | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Vinay Shah, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Adial Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 14, 2025 | /s/ Vinay Shah |
| Vinay Shah | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Adial Pharmaceuticals, Inc. (the “Registrant”) on Form 10-Q for the period ended March 31, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Cary J. Claiborne, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| Date: May 14, 2025 | By: | /s/ Cary J. Claiborne |
| Name: | Cary J. Claiborne | |
| Title: |
President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Adial Pharmaceuticals, Inc. (the “Registrant”) on Form 10-Q for the period ended March 31, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Vinay Shah, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| Date: May 14, 2025 | By: | /s/ Vinay Shah |
| Name: | Vinay Shah | |
| Title: |
Chief Financial Officer (Principal Financial Officer) |