Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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 consolidated financial statements and the notes presented herein. In 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. See "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Annual Report on Form 10-K. Our actual results could differ significantly from those expressed, implied or anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed by us with the Securities and Exchange Commission.

On February 5, 2026, we effected the Reverse Stock Split of our outstanding shares of common stock, trading on Nasdaq under the symbol ADIL, at a ratio of 1-for-25. We have 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 following discussion to reflect the effect of the reverse stock split.

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 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 filing this Annual Report on Form 10-K, 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 are not expected to be sufficient for the planned Phase 3 clinical trials or to fund operations for the twelve months from the date of filing the Annual Report on Form 10-K, based our current projections, and in fact are only expected to be sufficient to fund operations into the second half of 2026.

We have incurred net losses in each year since our inception, including net losses of approximately $8 million and $13.2 million for the years ended December 31, 2025 and 2024. We had accumulated deficits of approximately $90 and $82 million as of December 31, 2025 and 2024, respectively. Our operating losses resulted from costs incurred in continuing operations, including costs in connection with our continuing research and development programs, from general and administrative costs associated with our operations, and from financing costs.

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. We do not believe our current cash and equivalents will be sufficient to fund our operations for the next twelve months from the filing of these financial statements.

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 continue to develop AD04.

Clinical Trials - Research and Development Schedule

AD04 - Clinical Development Strategy - Conduct two additional Phase 3 clinical trials

The clinical development plan for AD04 is based on the regulatory feedback received in the meetings that took place in the third quarter of 2025 and our current planning assumptions are that we will need to conduct two additional Phase 3 trials with AD04, where the first trial will be an adaptive design comparing active AD04 to placebo and the second trial is a more traditional placebo controlled trial. This is expected to support potential approval in the shortest time frame possible as well as improve the probability of regulatory authority acceptance and approval in the US and Europe. The new clinical development plan includes both the US and EU endpoints and will be designed to satisfy both US and EU AD04 submission requirements. In a recent article, published on February 19, 2026 in The New England Journal of Medicine, the FDA leadership has outlined a shift in the agency's default evidentiary posture under which, where scientifically appropriate, approval may be supported by one adequate and well-controlled clinical trial plus confirmatory evidence, rather than the historic expectation of two independent clinical trials. Hence, it is possible that we may conduct only one additional Phase 3 clinical trial of AD04. Confirmation of the clinical development plan and pathway is currently being conducted by Adial's clinical development and regulatory advisors.

2025 Financing Developments

May 2025 Warrant Inducement Transaction

On May 2, 2025, we entered into a warrant inducement agreement (the "May 2025 Inducement Agreement") with an existing healthcare-focused institutional investor of ours (the "Holder") for the immediate exercise of existing Series B Warrants to purchase 56,737 shares of our common stock and Series C Warrants, and together with the Series B Warrants (the "Existing Warrants") to purchase 92,000 shares of our common stock at a reduced exercise price of $18.50 per share for net proceeds of approximately $2.2 million. In consideration for the immediate exercise in full of the Existing Warrants, the Holder received, in a private placement, new unregistered (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 "May 2025 Warrants"). Upon issuance the May 2025 Warrants had an exercise price of $18.50 per share and were exercisable upon stockholder approval, which approval was obtained on August 1, 2025. 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.

In addition, we issued to a former placement agent's designees tail fee warrants, consisting of 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 May 2025 Warrants, except that they have an exercise price of $23.125 per share.

June 2025 Best Efforts Offering and Warrant Amendment

On June 17, 2025, we entered into an amendment agreement (the "Warrant Amendment") with the Holder, pursuant to which we agreed (i) to amend the May 2025 Warrants to reduce the exercise price of the May 2025 Warrants to $8.75 per share, (ii) to amend the May 2025 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 the May 2025 Inducement Agreement, to provide that we 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, of the June 2025 Offering (as defined below) for the purpose of obtaining Stockholder Approval (as defined in the May 2025 Inducement Agreement).

On June 18, 2025, we consummated a best efforts offering (the "June 2025 Offering") of (i) 213,648 shares of our common stock (the "June 2025 Shares"), (ii) pre-funded warrants (the "June 2025 Pre-Funded Warrants") to purchase up to an aggregate of 230,352 shares of our common stock (the "the June 2025 Pre-Funded Warrant Shares"), (iii) Series D warrants (the "Series D Warrants") to purchase up to an aggregate of 444,000 shares of our common stock (the "Series D Warrant Shares"), (iv) Series E warrants (the "Series E Warrants" and, together with the Series D Warrants, the "June 2025 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 "June 2025 Warrant Shares"). Each June 2025 Share or June 2025 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 June 2025 Warrants was $8.1275. The combined public offering price for each Pre-Funded Warrant and accompanying June 2025 Warrants was $8.1025. The aggregate net proceeds from the June 2025 Offering was approximately $3.0 million.

Each June 2025 Pre-Funded Warrant was immediately exercisable for one June 2025 Pre-Funded Warrant Share at an exercise price of $0.025 per share and will remain exercisable until such June 2025 Pre-Funded Warrant is exercised in full. The June 2025 Warrantshave an exercise price of $8.75 per June 2025 Warrant Share and became exercisable beginning on the effective date of stockholder approval of the issuance of the June 2025 Warrant Shares, which approval was obtained on August 1, 2025. The Series D Warrants will expire on the 5-year anniversary of the date of such approval and the Series E Warrants will expire on the 18-month anniversary of the date of such approval. As of December 31, 2025, all of the June 2025 Pre-Funded Warrants have been exercised.

A.G.P. At the Market Offering

On August 1, 2025, we, entered into a sales agreement (the "ATM") with A.G.P./Alliance Global Partners ( "AGP") providing for the sale by us of our 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 us. 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 we will pay AGP commissions for its services in acting as agent in the sale of shares of common stock pursuant to the ATM. AGP is 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 three and twelve months ended December 31, 2025, we sold 10,619 and 80,839 shares of common stock, respectively under the ATM and received net proceeds of approximately $104 thousand and $531 thousand, respectively, after fees and expenses. After the year ended December 31, 2025 through March 3, 2026, we sold 100,000 shares of common stock under the ATM and received net proceeds of approximately $229,000.

November 2025 Warrant Inducement Transaction

On November 25, 2025, we entered into a warrant inducement agreement (the "November Inducement Agreement") with a certain holder for the immediate exercise of existing Series C-1 Warrants to purchase 161,000 shares of our common stock and Series E Warrants to purchase 207,627 shares of our 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, which approval has not yet been obtained. We were unable to hold our planned special meeting of stockholders and vote upon a proposal to allow for the full exercise of the Series F Warrants due to lack of quorum. The Series F Warrants expire (24) months from the date of such approval. The aggregate net proceeds from the transactions contemplated by the November Inducement Agreement were approximately $2.6 million. As of December 31, 2025, the issuance of 216,960 shares of common stock issuable upon exercise of existing warrants pursuant to the November Inducement Agreement was held in abeyance subject to a beneficial ownership limitation provision in such warrants

2024 Financing Developments

March 2024 Warrant Inducement Transaction

On March 1, 2024, we entered into a warrant inducement agreement (the "March 2024 Inducement Agreement") with the Holder of the Company's warrants to purchase shares of our common stock, issued in a private placement offering that closed on October 24, 2023 (the "March 2024 Existing Warrants"). Pursuant to the March 2024 Inducement Agreement, the Holder of the March 2024 Existing Warrants agreed to exercise for cash the March 2024 Existing Warrants to purchase up to approximately 46,000 shares of common stock, at an exercise price of $70.50 per share. The transactions contemplated by the March 2024 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 March 2024 Existing Warrants and the payment of $3.125 per Series C Warrant in accordance with the Inducement Agreement, we issued unregistered 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 March 2024 Existing Warrants) to the Holder, recognizing a non-cash inducement expense of approximately $4.5 million.

On March 1, 2024, warrants to purchase 10,737 shares of common stock with an exercise price of $70.50 per share were exercised for gross proceeds of approximately $757 thousand.

H.C. Wainwright At the Market Offering

On April 18, 2024, we entered into an At the Market Offering Agreement (the "ATM Agreement") with H.C. Wainwright & Co., LLC ( "Wainwright") providing for sale of our shares of common stock, from time to time, through Wainwright, with certain limitations on the number of shares of common stock that may be offered and sold by us 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 filed in connection with the ATM Agreement was $4,283,650, which was based on the limitations of such offerings under SEC regulations. The ATM Agreement provided that we would pay Wainwright 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 ATM Agreement provided that the offering of shares of common stock pursuant to the ATM Agreement would 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 us as permitted therein. The Wainwright ATM Agreement was terminated on July 24, 2025, effective as of July 31, 2025. During the year ended December 31, 2024, we used this ATM Agreement to sell 93,940 shares of common stock for net proceeds of approximately $4 million, after fees and expenses. During the year ended December 31, 2025, we did not sell any shares of common stock under the Wainwright ATM Agreement.

Alumni Equity Line of Credit

On December 13, 2024, we entered into a Purchase Agreement (the "ELOC Agreement") with Alumni Capital LP ("Alumni Capital"). Pursuant to the ELOC Agreement, we have the right to sell to Alumni Capital up to the lesser of (i) $5,000,000 of newly issued shares, subject to increase to $10,000,000 at our option (the "Investment Amount"), of the shares (the "Shares") of the Company's common stock, par value $0.001 per share (the "Common Stock"), and (ii) the Exchange Cap (as defined below) (subject to certain conditions and limitations), from time to time during the term of the ELOC Agreement. Sales of Common Stock pursuant to the ELOC Agreement, and the timing of any sales, are solely at our option and we are under no obligation to sell securities pursuant to this arrangement. Shares of Common Stock may be sold by us pursuant to this arrangement over a period ending on the earlier of December 31, 2026 or the date on which Alumni Capital shall have purchased Shares pursuant to the ELOC Agreement for an aggregate purchase price of the Investment Amount; provided, however that we can terminate the Agreement at any time upon ten days prior written notice, subject to the satisfaction of the conditions in the ELOC Agreement.

The purchase price per Share that may be sold to Alumni Capital under the ELOC Agreement in such fixed purchases equals ninety-seven percent (97%) of the lowest daily dollar volume-weighted average price for the Common Stock during the period ending on the earlier of (i) three (3) consecutive trading days period following the date we deliver a purchase notice and (ii) the date on which Alumni Capital notifies us that it is prepared to proceed with the closing, subject to a Minimum Acceptable Price (as defined in the ELOC Agreement). There is no upper limit on the price per share that Alumni Capital might be obligated to pay for the Common Stock under the ELOC Agreement; provided, however, that at no time can the purchase price be below $13.75 per share (subject to adjustment as provided in the ELOC Agreement for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring after the date of the ELOC Agreement).

During the year ended December 31, 2025, we sold 5,666 shares of common stock under the ELOC Agreement for net proceeds of approximately $93,000, after fees and expenses.

Clinical and Research Developments

In September 2025, we announced a summary of feedback received following the FDA EOP2 meeting.

Feedback from the FDA included:

●

FDA recognized AUD as an unmet need.

●

FDA supported Adial's protocol and proposed adaptive trial design core elements, including the defined biomarker-positive and biomarker-negative patients, key inclusion criteria targeting moderate to severe AUD, trial duration, primary endpoints, interim analysis sample size, and safety monitoring framework.

●

FDA confirmed the primary efficacy endpoints for AD04, specifically, zero heavy drinking days during months 5 and 6 of the efficacy observation period.

●

FDA advised that key secondary endpoints intended for future product labeling should be pre-specified in the protocol for consideration.

●

The FDA supported Adial's plan to account for homozygous populations and referenced guidance on developing targeted therapies for low-frequency molecular subsets, with implications for study design and potentially labeling of rare subgroups.

●

The FDA provided feedback on the planned interim analyses. Statistical Analysis Plan (SAP), and Data Monitoring Committee (DMC) structure, and emphasized the importance of alignment between the study protocol, simulation report, and SAP to ensure appropriate alpha control and minimize post-trial data analysis risk.

We have a high level of confidence that AD04 will achieve success in clinical development based on our post hoc analysis and the regulatory feedback on the pre-specified primary endpoint that the FDA has now confirmed, specifically, a reduction of heavy drinking days to zero at months 5 and 6. This is also vital for our ongoing partnering efforts based on discussions with companies active in the US and Europe. Importantly, the regulators acknowledged the value of this post hoc work, which showed that patients with the AG+ genetic subtype began treatment averaging more than 17 heavy drinking days per month (17.23) and improved to fewer than 3 heavy drinking days per month (2.37) by study completion. This resulted in statistical significance difference for the AG+ group of p=0.031 and p=0.021 respectively in the Phase 2 and Phase 3 trials Importantly, the credible intervals generated by the independent, third-party statistical consulting group confirmed signals highly consistent with those identified in the original post hoc analysis.

These clinically meaningful results are important as evidenced by the US healthcare provider research completed after the ONWARD trial, which suggests AD04 would play an important role as a medication for physicians currently treating patients with AUD.

Market research conducted subsequent to completion of the ONWARD trial suggests unit pricing for AD04 could be significantly higher than previous assumptions which we believe confirms AD04 as an attractive commercial opportunity.

We have assessed the impact of the regulatory guidance on the future business and operating plan requirements to meet the needs of the FDA and EU regulators for submission and approval of AD04 to treat genetic subtypes of AUD. While the Company is in the process of confirming the impact on the clinical development plans and timing with its external advisors and ongoing partnership discussions, the following provides a working summary subject to final discussions with the regulatory agencies.

Efficacy Requirements:

●

Regulatory feedback from 2023, indicates that even though a single additional Phase 3 trial with convincing data may suffice for approval, it would be a review issue for the agencies following trial completion to determine if the data was sufficient for approval. More recent FDA interaction in Q3 2025 suggested that 2 efficacy trials will likely be required.

●

Therefore, our current planning assumption is to conduct one Phase 3 trial with an adaptive enrichment trial design, one subsequent confirmatory Phase 3 trial and one open label extension safety study. These assumptions may change based on ongoing discussions with regulatory authorities, and final trial designs and results. For example, given the recent shift in the FDA's evidentiary posture to potentially provide approval based on one adequate and well-controlled clinical trial plus confirmatory evidence, rather than the historic expectation of two independent clinical trials, it is possible that we may conduct only one additional Phase 3 clinical trial of AD04.

●

The new clinical development plan design may include both the US and EU endpoints and will be designed to potentially satisfy both US and EU AD04 submission requirements. Confirmation of the clinical development plan and pathway is currently being conducted by Adial's clinical development and regulatory advisors.

Safety Requirements:

●

FDA agreed to our plan to comply with ICH E1A by adding a long-term safety follow-up to the planned Phase 3 trial, thereby exposing at least 100 patients to AD04 for one year.

●

A thorough QT study will not be required.

In parallel with the Phase 3 trials, we expect to conduct any standard Phase 1 studies required by the regulatory agencies. Studies that have been discussed with the FDA as potentially being required might assess potentiation of the central nervous system effects of alcohol and pharmacodynamic impact of certain cytochrome P450 enzyme variants.

Results of Operations for the Years Ended December 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 Year Ended December 31,
		2025				2024				Change
Research and development expenses		$	2,620,000				3,229,000				(609,000	)
General and administrative expenses			5,180,000				5,055,000				125,000
Total operating expenses			7,800,000				8,284,000				(484,000	)
Loss from operations			(7,800,000	)			(8,284,000	)			484,000
Interest income			150,000				179,000				29,000
Inducement expense			-				(4,464,000	)			(4,464,000	)
Change in value of equity method investment			(493,000	)			(553,000	)			(60,000	)
Other income (expense)			165,000				(75,000	)			240,000
Total other income (expenses)			(178,000	)			(4,913,000	)			(4,735,000	)
Net loss			(7,978,000	)			(13,197,000	)			(5,219,000	)

Research and development ("R&D") expenses

Research and development expenses decreased by approximately $609,000 (19%) during the year ended December 31, 2025 compared to the year ended December 31, 2024. The decrease was primarily driven by decreased clinical activity and lower compensation expense for the year ended December 31, 2025 as compared to the same period in 2024.

General and administrative expenses ("G&A") expenses

General and administrative expenses increased by approximately $125,000 (2%) during the year ended December 31, 2025 compared to the year ended December 31, 2024. This increase was mainly due to higher compensation expense for the year ended December 31, 2025 as compared to the same period in 2024.

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 $60,000 in the year ended December 31, 2025 compared to the year ended December 31, 2024. This decrease is due to variations in the loss recognized related to our equity investment which includes a lower equity share, with changes to the value of our Adovate equity recognized on a three month lag.

Inducement Expense

The inducement expense of approximately $4,464,000 which was a one time, noncash expense associated with the issuance of new warrants to induce the exercise of outstanding warrants which occurred during the year ended December 31, 2024.

Total Other income (expenses)

Total other income, excluding losses from the equity method investment and inducement expense, increased by approximately $211,000 (203%) in the year ended December 31, 2025 compared to year ended December 31, 2024. This increase was primarily due to the recognition of a milestone payment received from Adovate of $150,000 during the year ended December 31, 2025.

Liquidity and Capital Resources

Overview

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 out 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, 2025, our primary sources of funding were the exercise of previously issued warrants, and sales of stock through public offerings, including at-the-market offerings.

On May 2, 2025, we entered into the May 2025 Inducement Agreement with the Holder providing for the immediate exercise of existing the Series B Warrants to purchase 56,737 shares of our common stock and the Series C Warrants, and together with the Series B Warrants to purchase 92,000 shares of our common stock at a reduced exercise price of $18.50 per share for net proceeds of approximately $2.2 million.

On June 18, 2025, we consummated the June 2025 Offering as describe above in the section titled "2025 Financing Developments." The aggregate net proceeds from the June 2025 Offering were approximately $3.0 million.

On November 25, 2025, we entered into a warrant inducement agreement as describe above in the section titled "2025 Financing Developments." We received aggregate net proceeds of approximately $2.6 million in connection therewith.

For the year ended December 31 2025, we sold 80,839 shares of common stock through the AGP ATM, for net proceeds of approximately $531 thousand after placement fees and expenses. From January 1, 2026 through March 3, 2026 we sold 100,000 shares of common stock through the AGP ATM, for net proceeds of approximately $229 thousand after placement fees and expenses.

At December 31, 2025, we had cash and cash equivalents of $5.9 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 3 study of AD04 in 2026, pending availability of adequate funds, to complete production of sufficient drug product to carry out the study, and to begin the process of clinical validation of our new cheek swab diagnostic genetic test, which will be conducted with the Phase 3 study. We have signed a contract with a vendor for approximately $2.3 million with approximately $1.9 million remaining under this contract, 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 is sufficient to fund our operations and meet our existing commitments into the second half of 2026, based on our current commitments.

We will require additional financing as we continue to execute our overall business strategy. Our current planning assumption is to conduct one Phase 3 trial with adaptive trial design, one subsequent confirmatory Phase 3 trial and one open label extension study. These assumptions may change based on ongoing 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, our ability to sell shares under the AGP ATM is restricted by certain SEC rules, and our ability to sell shares under the ELOC Agreement is restricted by the terms of such agreement and 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 shareholders 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. There can be no assurance that grant funding will be available. 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.

Cash flows

		For the Year Ended December 31,
(rounded to nearest thousand)		2025				2024
Provided by (used in)
Operating activities		$	(6,493,000	)		$	(6,922,000	)
Investing activities			150,000				-
Financing activities			8,473,000				7,846,000
Net increase in cash and cash equivalents		$	2,130,000			$	924,000

Net cash used in operating activities

Net cash used in operating activities decreased by approximately $429,000 during the year ended December 31, 2025 compared to the year ended December 31, 2024. The primary driver was a decrease in the net loss during the year ended December 31, 2025 as compared to the same period in 2024, excluding the inducement expense.

Net cash provided by investing activities

Net cash provided by investing activities increased by approximately $150,000 in the year ended December 31, 2025 compared to the year ended December 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 increased by approximately $627,000 in the year ended December 31, 2025 compared to the year ended December 31, 2024. During the year ended December 31, 2025, we realized proceeds of approximately $8,473,000 from the June 2025 Offering, ATM sales and from the exercise of warrants in connection with the May 2025 Inducement Agreement and November 2025 Inducement Agreement, as compared to approximately $7,846,000 for the same period in 2024, from sales under the Wainwright ATM Agreement and exercise of warrants in connection with the March 2024 Inducement Agreement.

Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

See Note 3 to the 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 consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these 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 consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above. Our significant accounting policies are more fully described in Note 3 to our financial statements included in this Annual Report on Form 10-K.