{"url_path":"/sec/adil/10-q/2026/item-1a","section_key":"item-1a","section_title":"Item 1A Risk Factors.","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-08","source_url":"https://www.sec.gov/Archives/edgar/data/1513525/0001213900-26-053907-index.html","accession_number":"0001213900-26-053907","cik":"0001513525","ticker":"ADIL","issuer_name":"ADIAL PHARMACEUTICALS, INC.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1513525/0001213900-26-053907-index.html","primary_entity_key":"0001513525","primary_entity_name":"ADIAL PHARMACEUTICALS, INC."},"word_count":1573,"has_tables":true,"body_markdown":"Item 1A. Risk Factors.\n\n \n\n*Investing in our securities involves a high\ndegree of risk. You should consider carefully the following risks, together with all the other information in this Quarterly Report on\nForm 10-Q, including our condensed financial statements and notes thereto. If any of the following risks actually materializes, our operating\nresults, financial condition and liquidity could be materially adversely affected. As a result, the trading price of our common stock\ncould decline and you could lose part or all of your investment. The following information updates, and should be read in conjunction\nwith, the information disclosed in Part I, Item 1A, “Risk Factors,” contained in our 2025 Form 10-K. Except\nas disclosed below, there have been no material changes from the risk factors disclosed in our 2025 Form 10-K.*\n\n \n\n*We have incurred losses from our\noperations every year and quarter since our inception and anticipate that we will continue to incur losses from our operations\nin the future.*\n\n \n\nWe are a clinical stage biotechnology\npharmaceutical company that is focused on the discovery and development of medications for the treatment of addictions and related\ndisorders of AUD in patients with certain targeted genotypes. We have a limited operating history. Investment in biopharmaceutical\nproduct development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any\npotential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and\nbecome commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales\nto date, and we continue to incur significant research and development and other expenses related to our ongoing operations. To\ndate, we have not generated positive cash flow from operations, revenues, or profitable operations, nor do we expect to in the\nforeseeable future. As of March 31, 2026, we had an accumulated deficit of approximately $92 million and during the three months\nended March 31, 2026, we incurred a net loss of $2.0 million.\n\n \n\nOur current cash and cash equivalents are not\nexpected to be sufficient to fund operations for the twelve months from the date of filing this Quarterly Report on Form 10-Q and are\nonly anticipated to be sufficient to fund our needs into the second half of 2026, based our current projections and current commitments.\nImplementation of our full development plans would exhaust our cash on hand more quickly. Therefore, despite the funding we have recently\nreceived, we will need to engage in additional fundraising in the near term as we carry out our development plans. We do not have any\nfixed commitments of financing and there can be no assurance that we will be able to meet the conditions for continued sales pursuant\nto the AGP ATM. In addition, there is no assurance that funds could be raised before we have expended our current cash on hand on acceptable\nterms to continue our operations and AD04 development projects. We are actively pursuing financing and other strategic plans and strategic\nalternatives, that may include a business combination, merger or reverse merger, but can provide no assurances that such financing or\nother strategic plans or strategic alternatives will be available on acceptable terms, or at all.\n\n \n\n18 \n\n \n\n \n\nWe expect our research and development expenses\nto increase as we continue our clinical development program in the US. Even if we succeed in commercializing our product candidate or\nany future product candidates, we expect that the commercialization of our product will not begin until 2028 or later, we will continue\nto incur substantial research and development and other expenditures, including potentially developing additional product candidates and\nwill continue to incur substantial losses and negative operating cash flow. We may encounter unforeseen expenses, difficulties, complications,\ndelays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the\nrate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will\ncontinue to have an adverse effect on our stockholders’ equity and working capital. \n\n \n\n*Our independent registered public accounting\nfirm has expressed doubt about our ability to continue as a going concern as do our notes to financial statements included in this Quarterly\nReport on Form 10-Q.*\n\n \n\nOur consolidated unaudited financial statements\nas of March 31, 2026 have been prepared assuming we will continue as a going concern. During the three months ended March 31, 2026, we\nincurred a net loss of $2.0 million and used $1.6 million of cash in operations. During the year ended December 31, 2025, we incurred\na net loss of $8.0 million and used cash in operations of $6.5 million. Losses have principally occurred as a result of the research and\ndevelopment efforts coupled with no operating revenue. The notes to the unaudited condensed financial statements included in this Quarterly\nReport on Form 10-Q state that we do not believe that the existing cash and cash equivalents are sufficient to fund operations for the\nnext twelve months following the filing of this Quarterly Report on Form 10-Q and our significant accumulated deficit, recurring losses,\nand needs to raise additional funds to sustain its operations raise substantial doubt about our ability to continue as a going concern.\nIn addition, the report of our independent registered public accounting firm included in the 2025 Form 10-K contains an explanatory paragraph\nthat our accumulated deficit, incurred recurring losses and need to raise additional funds to sustain our operations has raised substantial\ndoubt about our ability to continue as a going concern. During 2026, the Company received net proceeds of approximately $0.3 million from\nequity issuances. However, the Company will require additional capital to continue operations and development of AD04.\n\n* *\n\nEven if we succeed in commercializing our product\ncandidate or any future product candidates, we expect that the commercialization of our product will not begin until 2028 or later, we\nwill continue to incur substantial research and development and other expenditures to develop and market additional product candidates\nand will continue to incur substantial losses and negative operating cash flow. \n\n \n\n*Our activities\nto evaluate and pursue potential strategic alternatives may not result in any transaction or enhance stockholder value.*\n\n \n\nWe are evaluating and\nexploring a variety of strategic alternatives focused on maximizing stockholder value, including, but not limited to, an acquisition,\nmerger, reverse merger, other business combination, sales of assets or other strategic transactions. Our ability to successfully execute\non a strategic alternative is dependent on a number of factors and we may not be able to execute upon a transaction or other strategic\nalternative upon favorable terms within an advantageous timeframe and recognize significant value for our assets, if at all. Additionally,\nthe negotiation and consummation of a transaction or other strategic alternative may be costly and time-consuming. Any executed strategic\nalternative may not maximize or even enhance stockholder value, could result in total costs and expenses that are greater than expected,\ncould make it more difficult to attract and retain qualified personnel and may disrupt our operations, each of which could have a material\nadverse effect on our business.\n\n \n\nThe market price of our\ncommon stock may reflect a market assumption that a strategic alternative will occur, and a failure to complete a strategic alternative\ncould result in negative investor perceptions and could cause a decline in the market price of our common stock, which could adversely\naffect our ability to access the equity and financial markets, as well as our ability to explore and enter into different strategic alternatives.\nThere can be no certainty that any strategic alternative will be completed, be on attractive terms, enhance stockholder value or deliver\nthe anticipated benefits, and successful integration or execution of the strategic alternatives will be subject to additional risks.\n\n  \n\n*Future sales and issuances of our common\nstock or rights to purchase common stock, including pursuant to our equity incentive plans and outstanding warrants, could result in additional\ndilution of the percentage ownership of our stockholders and could cause our stock price to fall.*\n\n \n\nWe expect that significant additional\ncapital may be needed in the future to continue our planned operations, including conducting clinical trials, commercialization\nefforts, expanded research and development activities and costs associated with operating a public company. To raise capital, we may\nsell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we\ndetermine from time to time. If we sell common stock, convertible securities or other equity securities, investors may be materially\ndiluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could\ngain rights, preferences and privileges senior to the holders of our common stock. Pursuant to our 2017 equity incentive plan, which\nbecame effective on the business day prior to the public trading date of our common stock, our management is authorized to grant\nequity awards to our employees, officers, directors and consultants.\n\n \n\n19 \n\n \n\n \n\nAt March 31, 2026, we had outstanding (i) warrants\nto purchase 1,240,480 shares of common stock outstanding with a weighted average exercise price of $19.25, and (ii) options to purchase\n47,220 shares of common stock at a weighted average exercise price of $151.15 per share. The issuance of the shares of common stock underlying\nthe options and warrants will have a dilutive effect on the percentage ownership held by holders of our common stock."}