ADIAL PHARMACEUTICALS, INC.

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 October 5, 2017. Adial is presently engaged in the development of medications for the treatment or prevention of addictions and related disorders.

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 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 was completed during the third quarter of 2025 and there is no effect on the Company’s consolidated financial statements.

2 — GOING CONCERN AND OTHER UNCERTAINTIES

The 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 consolidated financial statements. The Company has incurred recurring losses and needs to raise additional funds to sustain its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Based on the announced results of its ONWARD Phase 3 trial, the Company has completed and publicly reported meetings with the FDA and various European national authorities to discuss the appropriate next steps towards the future development of AD04. The Company has sold its Purnovate programs to a company formed for that purpose, reducing the Company’s operating expenses. During 2025, the Company received net proceeds of approximately $8.5 million from the exercise of warrants and equity issuances. The Company will nonetheless require additional capital to continue operating and development of AD04. There is no certainty that the Company will be able to access additional capital on acceptable terms, if at all, to continue operations after whatever funds are received from the buyer are expended. If unable to access sufficient capital, the Company would be required to delay, scale back or eliminate some or all of its research and development programs or delay its approach to commercialization of AD04, which would likely have a material adverse effect on the Company and its financial statements.

The Company’s continued operations will depend on its 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. 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, if at all. Without additional funding, the Company would be required to delay, scale back or eliminate some or all of its research and development programs, which would likely have a material adverse effect on the Company and its financial statements.

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, and demand for, Company products once approved; the ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products.

3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of these consolidated financial statements in conformity with GAAP requires Company management to make estimates and assumptions the 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, income tax asset realization, and the valuation of equity method investments.

Basis of Presentation and Principals of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with GAAP. The financial statements represent the consolidation of the Company and its subsidiary in conformity with GAAP. All intercompany transactions have been eliminated in consolidation.

Reverse Stock Split

On February 5, 2026, the Company effected a reverse stock split of the outstanding shares of common stock, trading on Nasdaq under the symbol ADIL, at a ratio of 1-for-25. As a result of the reverse split, the Company had 1,111,010 shares of common stock outstanding immediately after effecting the reverse split. The shares authorized for issue under the Company’s charter remained 100,000,000 common stock. The Company has retrospectively adjusted all references to common stock, stock warrants to purchase common stock, stock options to purchase common stock, share data, per share data and related information contained in the consolidated financial statements.

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 years ended December 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 years ended December 31, 2025 and 2024 were as follows:

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 December 31, 2025, the Company did exceed FDIC insurance limits in its insured bank accounts by approximately $17,000 and held approximately $5.6 million in non-FDIC insured cash equivalent accounts. Included in cash equivalents are money market investments with original maturity dates when purchased less than ninety days and are carried at fair value. Unrealized gain or loss are included in the interest income and are immaterial to the financial statements. At December 31, 2024, the Company did exceed FDIC insurance limits by approximately $927,000 and held approximately $1.6 million in non-FDIC insured cash equivalent investments.

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 income or loss. The proportionate share of the income or loss from equity method investments is recognized on a 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 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:

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.

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 our common stock on the date of the commitment to make the issuance.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Changes in recognition and measurement are reflected in the period in which the change in judgment occurs. Interest and penalties related to unrecognized tax benefits are included in income tax expense. The Company has generally recorded a full valuation allowance for its tax carryforwards, reflecting the judgment of Company management that they are more likely than not to expire unused.

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 has adopted ASU 2023-09 during the fiscal year ended December 31, 2025 on a prospective basis and the adoption had no material impact on the Companies financial statement disclosures.

Segment Information

The Company operates asone operating segment with a focus on drug development for addiction and related disorders. The Company’s Chief Executive Officer, as its chief operating decision maker (CODM), manages and allocates resources to the operations of the Company’s on a consolidated basis. The CODM assesses performance and allocates resources based on the Company’s consolidated statements of operations and key components and processes of the Company’s operations are managed centrally. Segment asset information is not used by the CODM to allocate resources. This enables our Chief Executive Officer to assess our overall level of available resources and determine how best to deploy these resources across research and development projects in line with our long-term company-wide strategic goals.

Recent Accounting Pronouncements

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 financial statements.

4 — EQUITY METHOD INVESTMENTS

On June 30, 2023, Adovate issued to the Company a 19.9% equity stake in Adovate as part of consideration owed upon the exercise of Adovate’s option to purchase the business and assets of the Company’s wholly owned subsidiary, Purnovate, Inc. Under the terms of the final asset purchase agreement, Adovate was obligated to protect the Company against dilution by issuing additional equity to the Company in Adovate as Adovate equity was sold to maintain the Company’s 15% equity stake until such time as Adovate had raised $4 million through equity sales, at which time the Company’s equity stake would be adjusted to equal to 15%. The Company determined the fair value of this equity to be $1,727,897 at time of issue, based on the price of cash sales by Adovate of the same class of equity to third parties around the same time as the date of issue.

On January 30, 2024, the Company acknowledged that Adovate had raised $4 million and the Company’s equity in Adovate was reduced to equal 15% of Adovate’s equity then outstanding. As a result, the Company recorded a reduction on the value of its equity stake of $283,268.

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 $1,727,897 in “Equity method investments” on its consolidated balance sheet. Due to the timing and availability of Adovate’s financial information, the Company is recording its proportionate share of losses from Adovate on a one quarter lag basis. Adovate’s summary balance sheet information as of September 30, 2025 and 2025 is below:

Results for Adovate’s operations in the twelve months ended September 30, 2025 and 2024 are summarized below:

The Company held a weighted average of 11.2% of Adovate’s equity during the year ended September 30, 2025. The Company recognized an expense of $492,130, classified as other income (expense), against the carrying amount of the equity method investment, representing the Company’s portion of Adovate operating loss for the year ended September 30, 2025. At December 31, 2025, the Company held 10.3% of Adovate’s outstanding equity.

Activity recorded for the Company’s equity method investment in Adovate in the year ended December 31, 2025 is summarized in the following table:

At December 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 $150,000 in other income for a milestone achieved and payment received during the year ended December 31, 2025.

The Company had shared service agreements with Adovate during the years ended December 31, 2025 and 2024. Under the terms of these agreements, certain employees of the Company provided services to Adovate. The Company is reimbursed for the allocable portion of the salaries, benefits and bonuses when paid based upon each individual agreement. The Company’s policy is to record these reimbursements as a reduction of General and Administrative expenses in the accompanying Consolidated Statement of Operations. During the years ended December 31, 2025 and 2024, the Company recognized reimbursements of approximately $138,000 and $163,000, respectively, under these agreements. At December 31, 2025 and 2024 accounts receivable balances of $41,758 and $56,020 were recorded in Prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets.

5 — ACCRUED EXPENSES

Accrued expenses consist of the following:

6 — STOCKHOLDERS’ EQUITY

On August 1, 2025, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation to increase the authorized number of shares of the Company’s common stock, from 50,000,000 to 100,000,000.

At-the-market Offering Agreement 2025

On August 1, 2025, the Company, entered into a sales agreement (the “ATM”) with A.G.P./Alliance Global Partners (“AGP”) providing for the sale by the Company of its shares of common stock, from time to time, through the ATM, with certain limitations on the amount of common stock that may be offered and sold by the Company. The aggregate market value of the shares of common stock eligible for sale under the ATM prospectus supplement filed in connection with the ATM was $4,983,000 which is based on the limitations of such offerings under SEC regulations. The ATM provides that the Company will pay AGP commissions for its services in acting as agent in the sale of shares of common stock pursuant to the ATM. AGP will be entitled to compensation at a fixed commission rate of 3.0% of the gross proceeds from the sale of shares of common stock pursuant to the ATM.

During the year ended December 31, 2025 the Company sold 80,839 shares of common stock under the ATM and received net proceeds of approximately $531,000.

At the Market Offering Agreement 2024

On April 18, 2024, the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (the “Sales Agent” or “Wainwright”) providing for the sale by the Company of its shares of common stock, from time to time, through the Sales Agent, with certain limitations on the amount of Common Stock that may be offered and sold by the Company as set forth in the ATM Agreement. The aggregate market value of the shares of Common Stock eligible for sale under the ATM Prospectus Supplement was $4,283,650 which was based on the limitations of such offerings under SEC regulations. The Company recognized $77,600 in expenses associated with the conclusion the ATM Agreement, which expenses were classified as cost of capital.

The ATM Agreement provides that the Company will pay the Sales Agent commissions for its services in acting as agent in the sale of shares of Common Stock pursuant to the ATM Agreement. The Sales Agent will be entitled to compensation at a fixed commission rate of 3.0% of the gross proceeds from the sale of shares of Common Stock pursuant to the ATM Agreement. The Offering of shares of Common Stock pursuant to the ATM Agreement will terminate upon the earlier of (i) the sale of all shares of Common Stock subject to the ATM Agreement; or (ii) termination of the ATM Agreement by the Company as permitted therein.

During the year ended December 31, 2024, the Company sold 93,940 shares of common stock through the ATM Agreement, for net proceeds of $4,021,485 after placement fees and expenses.

Standby Equity Purchase Agreements

On May 31, 2023, the Company entered into an Equity Purchase Agreement with Alumni Capital, LLC (“Alumni”). This agreement constituted a standby equity purchase agreement (a “SEPA”). Pursuant to the SEPA, the Company has the right, but not the obligation, to sell to Alumni up to $3,000,000 of newly issued shares, subject to increase to $10,000,000 at the option of the Company, at the Company’s request at any time during the commitment period, which commenced on May 31, 2023 and was to end on the earlier of (i) December 31, 2024, or (ii) the date on which Alumni shall have made payment of advances requested by the Company totaling up to the commitment amount of $3,000,000. Each sale the Company requests under the SEPA (a “Purchase Notice”) may be for a number of shares of common stock with an aggregate value of up to $500,000, and up to $2,000,000 provided certain conditions concerning the average daily trading value are met. The SEPA provides for shares to be sold to Alumni at 95% of the lowest daily volume weighted average price during the three days after a Purchase Notice is issued to Alumni. The Company determined that the SEPA contains put option elements and forward share issuance elements that fail to meet equity classification under ASC 815-40,Contracts in an Entity’s Own Equity; the put option is recorded at fair value at inception and each reporting date thereafter. Forward contracts to issue shares created on the occurrence of a Purchase Notice will be measured at fair value, with changes in fair value recognized in net loss upon closing of the Purchase Notice and sale of the Company’s stock.

On December 13, 2024, the existing SEPA 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 $5,000,000 in newly issued shares and an end date of the commitment period of December 31, 2026. Upon the Company’s entry into and subject to the terms and conditions set forth in the New SEPA,2,752 shares of common stock were issued to Alumni as consideration for its irrevocable commitment to purchase shares of common stock, pursuant to the New SEPA, as shown in the consolidated statement of shareholders’ equity. The fair value of these shares of $74,999 was recorded under other expenses for the year ended December 31, 2024. During the year ended December 31, 2025,5,666 shares had been sold under the terms of the New SEPA for total proceeds of $93,044 leaving a remaining $4.9 million to be sold under the New SEPA.

Other Common Stock Issuances

On January 27, 2025, the Company issued 4,000 shares of common stock to a vendor and cash of $4,970 in consideration for services rendered valued at $100,000. On July 30, 2025, the Company issued 3,196 shares of common stock to our former CFO to satisfy the final payout for the earned 2024 bonus valued at $36,050. On August 14, 2025, the Company issued 8,695 shares of common stock to a vendor in consideration for services to be rendered valued at $100,000, these shares are restricted from trading for a six-month period. On October 24, 2025, the Company held in escrow 10,000 restricted shares to be issued to a vendor for services to be rendered. These restricted shares will be released and issued after the six-month period has expired.

On August 19, 2024, the Company issued 96 shares of common stock under the 2017 Equity Incentive Plan to Bankole Johnson, the former CMO and a continuing consultant.

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 December 31, 2025, the Company had 144,075 shares issuable under the 2017 Equity Incentive Plan.

On August 1, 2025, the Company’s stockholders approved an amendment to the Company’s 2017 Equity Incentive Plan to increase the number of shares of common stock authorized for grant under the plan from 80,000 to 200,000.

Stock Options

The following table provides the stock option activity for the years ended December, 2025 and 2024:

At December 31, 2025, the total intrinsic value of the outstanding options waszero dollars.

The Company used the Black Scholes valuation model to determine the fair value of the options issued, using the following key assumptions for the years ended December 31, 2025 and 2024:

The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2025 and 2024 was $16.70 and $25.91, respectively. As of December 31, 2025, $575,700 in unrecognized compensation expense will be recognized over weighted average period of 1.9 years.

The components of stock-based compensation expense included in the Company’s Statements of Operations for the years ended December 31, 2025 and 2024 are as follows:

Stock Warrants

The following table provides the activity in warrants for the respective periods.

2024 Warrant Transactions

On March 1, 2024, warrants for the purchase of 10,737 shares of common stock with an exercise price of $2.82 per share were exercised for total gross proceeds of $756,732.

On March 1, 2024, the Company entered into a warrant inducement agreement with a certain holder of the Company’s warrants to purchase shares of the Company’s common stock (the “Existing Warrants”) issued in a private placement offering that closed on October 24, 2023. Pursuant to the inducement agreement, the holder of the Existing Warrants agreed to exercise for cash the Existing Warrants to purchase up to approximately 46,000 shares of common stock, at an exercise price of $70.5 per share. The transactions contemplated by the inducement agreement closed on March 6, 2024. The Company received aggregate gross proceeds of approximately $3.5 million, before deducting placement agent fees and other expenses payable by the Company. Net proceeds of this transaction were estimated to be approximately $3.1 million.

In consideration of the holder’s immediate exercise of the Existing Warrants and the payment of $3.125 per warrant in accordance with the inducement agreement, the Company issued unregistered Series C warrants (the “Series C Warrants”) to purchase 92,000 shares of common stock (200% of the number of shares of common stock issued upon exercise of the Existing Warrants) to the holder of Existing Warrants. The shares underlying the Series C Warrants were registered for sale on April 12, 2024 and the registrations statement registering the shares underlying the Series C Warrants was declared effective on April 19, 2024. The fair value per warrant was determined to be $51.65 per warrant, resulting in an expense of issuance of $48.50 per warrant as excess fair value over the $3.125 paid, or $4,464,427 in total inducement expense, classified under other income (expenses).

2025 Warrant Transactions

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 56,737 shares of the Company’s common stock and Series C Warrants, and together with the Series B Warrants (the “Existing Warrants”) to purchase 92,000 shares of the Company’s common stock at a reduced exercise price of $18.50 in exchange for (i) Series B-1 warrants to purchase up to 99,290 shares of common stock (the “Series B-1 Warrants”), and (ii) Series C-1 Warrants to purchase up to 161,000 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 $18.50 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 expire eighteen months from the date of such approval. The Company’s stockholders have approved the exercise of the Series B-1 and C-1 warrants as of August 1, 2025.

In addition, the Company issued to a former placement agent’s designees as tail fee warrants, Placement Agent Series B-1 Common Stock Purchase Warrants and Placement Agent Series C-1 Common Stock Purchase Warrants, to purchase up to an aggregate of 8,924 shares of common stock, which tail fee warrants have the same terms as the New Warrants, except that they have an exercise price of $23.125 per share.

The Inducement Agreement, which resulted in the lowering of the exercise price of the Existing Warrants and the issuance of the New Warrants, is considered a modification of the Existing Warrants under the guidance ASC 815-40. The modification is consistent with the equity issuance classification under that guidance as the reason for the modification was to induce the holders of the Existing Warrants to cash exercise their warrants, which raised equity capital and generated net proceeds of approximately $2.2 million. The Company incurred approximately $0.5 million as equity issuance costs associated with the inducement agreement. As the Existing Warrants and the New Warrants were classified as equity instruments before and after the exchange, and as the exchange is directly attributable to an equity offering, the Company recognized the effect of the modification of approximately $3.0 million as additional equity issuance cost.

On June 17, 2025, the Company entered into an amendment agreement (the “Warrant Amendment”) with the holder of certain existing warrants to purchase common stock (the “Holder”), consisting of (i) Series B-1 warrants to purchase up to 99,290 shares of common stock and (ii) Series C-1 warrants to purchase up to 161,000 shares of common stock and, together with the Series B-1 Warrants, the “Prior Warrants”). Pursuant to the Warrant Amendment, the Company agreed (i) to amend the Prior Warrants to reduce the exercise price of the Prior Warrants to $8.75 per share, (ii) to amend the Prior Warrants to modify the termination date thereof to (x) June 17, 2030 for the Series B-1 Warrants and (y) December 17, 2026 for the Series C-1 Warrants, and (iii) to amend that certain warrant inducement agreement (the “Inducement Agreement”), dated May 2, 2025, by and between the Company and the Holder, to provide that the Company would hold a special meeting of stockholders at the earliest practicable date, but in no event later than one hundred twenty (120) days after the Closing Date, for the purpose of obtaining Stockholder Approval (as defined in the Inducement Agreement). As the Warrant Amendment was classified as equity instruments before and after the Warrant Amendment, and as the Warrant Amendment is directly attributable to an equity offering, the Company recognized the effect of the Warrant Amendment of approximately $197,000 as additional equity issuance cost.

On June 18, 2025, the Company consummated a best efforts public offering (the “Offering”) of (i)213,648 shares of the Company’s common stock, (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 230,352 shares of common stock (the “Pre-Funded Warrant Shares”), (iii) Series D warrants (the “Series D Warrants”) to purchase up to an aggregate of 444,000 shares of common stock (the “Series D Warrant Shares”), (iv) Series E warrants (the “Series E Warrants” and, together with the Series D Warrants, the “Common Warrants”) to purchase up to an aggregate of 333,000 shares of common stock (the “Series E Warrant Shares” and, together with the Series D Warrant Shares, the “Common Warrant Shares”). Each Share or Pre-Funded Warrant was sold together with one Series D Warrant and one Series E Warrant. The combined public offering price for each Share and accompanying Common Warrants was $8.1275. The combined public offering price for each Pre-Funded Warrant and accompanying Common Warrants was $8.1025. The aggregate net proceeds from the Offering was approximately $3.0 million. The Company incurred approximately $0.6 million as equity issuance costs associated with the Offering.

In addition, the Company issued a former placement agent’s designees tail fee warrants, Series D Warrants, to purchase up to an aggregate of 4,244 shares of common stock, which tail fee warrants have the same terms as the Series D Warrants, except that they have an exercise price of $10.9375 per share.

The Common Warrants have an exercise price of $8.75 per Common Warrant Share and will be exercisable beginning on the effective date of shareholder approval of the issuance of the Common Warrant Shares. The Series D Warrants will expire on the 5-year anniversary of the shareholder approval and the Series E Warrants will expire on the 18-month anniversary of the shareholder approval. The Company’s stockholders have approved the Series D and E warrants as of August 1, 2025. The Company evaluated the pre-funded warrants and the common warrant shares under ASC480, Distinguishing Liabilities from Equity, and ASC815, Derivatives and Hedging, and determined the warrants meet the requirements to be classified in permanent equity. The fair value of the Common Warrants approximated $3.3 million and was recognized as additional-paid-in capital during the three months ended June 30, 2025. As of December 31, 2025 all of the pre-funded warrants have been exercised.

On November 25, 2025, the Company entered into a warrant inducement agreement (the “Inducement Agreement”) with a certain holder for the immediate exercise of existing Series C-1 Warrants to purchase 161,000 shares of the Company’s common stock and Series E Warrants to purchase 207,627 shares of the Company’s common stock at a reduced exercise price of $7.75 in exchange for warrants to purchase up to 552,940 shares of common stock (the “Series F Warrants”). The Series F Warrants have an exercise price of $7.75 and will be exercisable upon stockholder approval. The Series F Warrants expire (24) months from the date of such approval. As of December 31, 2025, the Company had 216,960 shares held in abeyance related to the exercise of the warrants in November 2025.

The Inducement Agreement, which resulted in the lowering of the exercise price of the Existing Warrants and the issuance of the New Warrants, is considered a modification of the Existing Warrants under the guidance ASC 815-40. The modification is consistent with the equity issuance classification under that guidance as the reason for the modification was to induce the holders of the Existing Warrants to cash exercise their warrants, which raised equity capital and generated net proceeds of approximately $2.6 million. The Company incurred approximately $0.3 million as equity issuance costs associated with the Offering. As the Existing Warrants and the New Warrants were classified as equity instruments before and after the exchange, and as the exchange is directly attributable to an equity offering, the Company recognized the effect of the modification of approximately $3.0 million as an equity issuance cost.

7 — INCOME TAXES

Income before provision for (benefit from) income taxes for the year ended December 31, 2025 and 2024 is shown on the table below:

Tax expense (benefit) for the year ended December 31, 2025 is shown on the table below:

The Company paid no income taxes in the years ended December 31, 2025 and 2024.

The reconciliation of the U.S. Federal statutory tax rate to the effective income tax rate for the year ended December 31, 2025 is as follows:

A reconciliation of the statutory Federal income tax rate and effective rate for the year ended December 31, 2024 of the provision for income taxes is as follows:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting, and the amounts recognized for income tax purposes. The significant components of deferred tax assets and liabilities as of December 31, 2025 and 2024, respectively, are as follows:

Deferred Tax Assets & Liabilities:

The Company has a net operating loss carry-forward of $59 million for Federal and of $55 million state tax purposes at December 31, 2025, that is potentially available to offset future taxable income. NOLS generated prior to 2018, $340 thousand of Federal NOLS and $317 thousand of state NOLs, will begin to expire in 2037. For Federal and most states, the NOL carryover limitation was eliminated for losses generated after January 1, 2018, giving the taxpayer the ability to carry forward losses indefinitely. However, NOL carry forward arising after January 1, 2018, will now be limited to 80 percent of Taxable income.

In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, net operating loss carryback potential and tax planning strategies in making these assessments.

Based upon the above criteria, the Company believes that it is more likely than not that the remaining net deferred tax assets will not be realized. Accordingly, the Company has recorded a valuation allowance of $16.7 million against the net deferred tax asset that is not realizable as of December 31, 2025.

Section 382 of the Internal Revenue Code (“Section 382”) imposes limitations on a corporation’s ability to utilize net operating losses if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. Any unused annual limitation may be carried over to later years, and the amount of the limitation may under certain circumstances be increased by the built-in gains in assets held by us at the time of the change that are recognized in the five-year period after the change.

The company has not performed a study to assess whether an ownership change for purposes of Section 382 has occurred, or whether there have been multiple ownership change since the Company’s inception, due to the significant costs and complexities associated with such study. If the company has experienced a change in control, as defined by Section 382, at any time since its public offering, utilization of net operating loss carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in expiration of a portion of the net operating losses before utilization.

The Company files tax returns as prescribed by the tax laws of the jurisdiction in which they operate. In the normal course of business, the Company is subject to examination of Federal and state jurisdiction where applicable based on the statute of limitations that apply in each jurisdiction. As of December 31, 2025, open years related to the federal and state Jurisdictions are 2024, 2023, and 2022. Since the Company was not a taxable entity prior to reincorporation, examination of returns for years prior to 2017 will not result in changes to tax liability or benefit. The company has no open tax audits with any taxing authority as of December 31, 2025.

The Company had no uncertain tax positions at December 31, 2025.

8 — 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.

As consideration for the rights granted in the UVA LVG License, the Company is obligated to pay UVA LVG yearly license fees and future milestone payments, as well as a royalty based on net sales of products covered by the patent-related rights. More specifically, the Company paid UVA LVG a license issue fee and is obligated to pay UVA LVG (i) annual minimum royalties of $40,000 commencing in 2017; (ii) $275,000 upon acceptance of an NDA by the FDA and $1,000,000 upon approval for sale of AD04 in the U.S., Europe or Japan; as well as (iii) royalties equal to a 2% and 1% of net sales of licensed products in countries in which a valid patent exists or does not exist, respectively, with royalties paid quarterly. In the event of a sublicense to a third party, the Company is obligated to pay royalties to UVA LVG equal to a percentage of what the Company would have been required to pay to UVA LVG had it sold the products under sublicense ourselves. In addition, the Company is required to pay to UVA LVG 15% of any sublicensing income. A certain percentage of these payments by the Company to the UVA LVG may then be distributed to the Company’s former Chief Medical Officer in his capacity as inventor of the patents by the UVA LVG in accordance with their policies at the time.

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. As a result of our ongoing business and clinical development planning for AD04, we are approaching UVA LVG to extend the milestones referenced in our license agreement with UVA.

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 years ended December 31, 2025 and 2024, the Company recognized a $40,000 and $0 minimum license royalty expense under this agreement. During the year ended December 31, 2024 a credit was issued for $40,000 that was netted against those royalties that were due during that period.

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 former Chief Medical Officer, to secure grant funding for the Company. Under the Grant Incentive Plan, the Company was required to make a cash payment to the Dr. Johnson each year based on the grant funding received by the Company in the preceding year in an amount equal to 10% of the first $1 million of grant funding received and 5% of grant funding received in the preceding year above $1 million. Amounts to be paid to the Dr. Johnson be paid as follows:50% in cash and 50% in stock. As of December 31, 2025, no grant funding that would result in a payment to Dr. Johnson had been obtained.

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 $375,000 per year was paid twice per month. On September 8, 2022, Dr. Johnson’s consulting agreement was amended to increase his annual compensation to $430,000 annually and to pay him a series of bonuses in cash and shares on the occurrence of certain milestones. The Company recognized $0 and $108,750 in compensation expense in the years ended December 31, 2025 and 2024, respectively.

On April 10, 2024, the Company provided Dr. Johnson with notice of the termination of the Company’s consulting agreement with him. As a result of the termination of the Consulting Agreement, effective as of May 17, 2024, Dr. Johnson ceased serving as the Company’s Chief Medical Officer. On April 24, 2024, the Company and Dr. Johnson executed a separation agreement providing for Dr. Johnson’s continued service as a consultant on an hourly basis as needed, a separation payment of $56,792, and for certain payments on the occurrence of milestones. In June of 2024, the Company determined that Dr. Johnson had achieved milestones making due to him payments of $40,000, which payment was made on August 20, 2024. On August 18, 2024, the Company issued 96 shares of common stock to Dr. Johnson on achievement of certain milestones as agreed under the separation agreement at a cost of $24.5 cents per share, for a total cost of $2,352. At December 31, 2025, no milestone payments remained possible under the terms of the separation agreement.

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. Tony Goodman, a director and our Chief Operating Officer, is the founder and principal of Keswick Group. Under the terms of the Keswick MSA, the Keswick Group is to be paid $22,000 per month for its services for a period of one year from execution of the MSA. On January 17, 2024, the Company entered into a statement of work #2 (“SOW #2”) with Tony Goodman and Keswick Group, pursuant to which Mr. Goodman was appointed as Chief Operating Officer of Adial for compensation of $25,000 per month for the role of Chief Operating Officer including carry over duties from a previous statement of work #1. During the years ended December 31, 2025 and 2024, the Company recognized $75,000 and $298,000 in expenses, respectively, associated with this agreement. As of April 1, 2025 the consulting agreement with Keswick MSA was terminated as the Company’s Chief Operating Officer signed an employment agreement with the Company.

Separation Agreement – Related Party

On November 1, 2024, the Company entered into a Separation Agreement and Release, dated November 1, 2024 (the “Separation Agreement”), with Joseph Truluck, the Company’s former Chief Financial Officer. Mr. Truluck resigned as CFO effective November 15, 2024. Pursuant to the Separation Agreement, Mr. Truluck is entitled to receive, as a consultant: (i) from November 16, 2024 through December 31, 2024, an amount equal to 100% of his most recent base salary, (ii) from January 1, 2025 through March 31, 2025, 50% of his most recent base, and (iii) from and after March 31, 2025, $350 an hour on an as needed basis. The Separation Agreement contains a general release of all claims against the Company and its current and former officers, directors, employees and agents, and a non-disparagement clause relating to the Company or any released party.

During the years ended December 31, 2025 and 2024, the Company recognized $36,048 and $36,050 in expenses associated with the Separation Agreement, respectively.

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 December 31, 2025, the Company did not have any pending legal actions.

9 — SEGMENT REPORTING

The Company hasone reportable operating segment relating to drug development for addiction and related disorders. When evaluating the Company’s financial performance, the Chief Operating Decision Maker (“CODM”) reviews total operating expenses for the operating segment excluding 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:

10 — SUBSEQUENT EVENTS

Collaboration Framework

On March 3, 2026, the Company entered into a nonbinding collaboration framework agreement with a strategic partner for a proposed exclusive partnership covering the commercialization of AD04 in Europe. The collaboration framework, which is subject to execution of a final definitive agreement, sets forth the strategic and financial parameters of the proposed partnership, covering clinical, regulatory, manufacturing, and commercial terms. Under the framework, the strategic partner has been granted a period of exclusivity to evaluate the feasibility of the project, conduct planning, due diligence, and a comprehensive assessment of the requirements for the successful commercial launch of AD04 across Europe.

The definitive agreement is expected to include an upfront payment, milestone payments tied to development and commercial progress, and tiered royalties on European AD04 net sales, payable to the Company. The Company believes the total potential aggregate value from royalties and milestones over time will be significant, assuming AD04 progresses through clinical development and is successfully introduced in the European market.

ATM Sales

After the year ended December 31, 2025 through March 3, 2026, the Company sold 100,000 shares of common stock under the ATM and received net proceeds of approximately $229,000.

Shares held in Abeyance

After the year ended December 31, 2025 through March 4, 2026, the Company issued 216,846 shares that were previously held in abeyance.