Shareholders’ Equity

6 Months Ended

Jun. 30, 2024

Shareholders’ Equity [Abstract]

SHAREHOLDERS’ EQUITY

8 — SHAREHOLDERS’ EQUITY

Standby Equity Purchase Agreement

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 will 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.

Upon the Company’s entry into and subject to the terms and conditions set forth in the SEPA, 7,983 shares of common stock were issued to Alumni as consideration for its irrevocable commitment to purchase shares of common stock, pursuant to the SEPA, as shown in the consolidated statement of shareholders’ equity. The fair value of these shares of $51,901 was recorded under other expenses.

On August 3, 2023, 20,550 shares of common stock were sold under the terms of the SEPA for cash proceeds $140,330. No sales of stock pursuant to the SEPA took place during the six months ended June 30, 2024.

At the Market Offering Agreement

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 is 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.

In the six months ended June 30, 2024, the Company sold 238,820 shares of common stock through the ATM agreement, for net proceeds of $411,091 after placement fees and expenses.

Other Common Stock Issuances

On February 13, 2024, pre-funded warrants for the purchase of 184,000 shares of common stock were exercised for total proceeds of $184.

On February 14, 2024, pre-funded warrants for the purchase of 789,000 shares of common stock were exercised for total proceeds of $789. After this exercise, no pre-funded warrants remained outstanding.

On March 1, 2024, warrants for the purchase of 268,440 shares of common stock with an exercise fee 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 1,150,000 shares of common stock, at an exercise price of $2.82 per share. The transactions contemplated by the inducement agreement closed on March 6, 2024. 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 $0.125 per warrant in accordance with the inducement agreement, the Company issued unregistered Series C warrants (the “Series C Warrants”) to purchase 2,300,000 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 $2.066 per warrant, resulting in an expense of issuance of $1.94 per warrant as excess fair value over the $0.125 paid, or $4,464,427 in total inducement expense, classified under other income (expenses).

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. Initially, the aggregate number of shares of the Company’s common stock that may be issued pursuant to stock awards under the 2017 Equity Incentive Plan was 70,000 shares. On September 29, 2023, by a vote of the shareholders, the number of shares issuable under the 2017 Equity Incentive Plan was increased to 500,000. At June 30, 2024 the Company had issued and outstanding 138,527 shares of the Company’s common stock and 352,619 options to purchase shares of the Company’s common stock under the 2017 Equity Incentive Plan, as well as 3,286 options to purchase shares of common stock that were issued before the 2017 Equity Incentive Plan was adopted, leaving 8,854 available for issue. 

Stock Options

The following table provides the stock option activity for the six months ended June 30, 2024 and year ended December 31, 2023:

	Total Options Outstanding			Weighted Average Remaining Term (Years)		Weighted Average Exercise Price		Weighted Average Fair Value at Issue
Outstanding December 31, 2023		152,194			7.02	$	48.00	$	36.72
Cancelled		(1,289	)
Issued		205,000			3.00		1.35		1.14
Outstanding June 30, 2024		355,905			8.36	$	21.24	$	16.30
Outstanding June 30, 2024, vested and exercisable		146,764			6.60	$	47.14	$	35.93

At June 30, 2024, the total intrinsic value of the outstanding options was zero 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 six months ended June 30, 2024:

	June 30, 2024
Fair Value per Share	$	1.35
Expected Term		5.75 years
Expected Dividend	$	—
Expected Volatility		111.89	%
Risk free rate		4.23	%

During the six months ended June 30, 2024, 205,000 options to purchase shares of the Company’s common stock were granted at a fair value of $232,812, an approximate weighted average fair value of $1.14 per option, to be amortized over a service a weighted average period of 3.0 years. As of June 30, 2024, $599,582 in unrecognized compensation expense will be recognized over a dollar weighted remaining service period of 1.23 years.

The components of stock-based compensation expense included in the Company’s Statements of Operations for the three and six months ended June 30, 2024 and 2023 are as follows:

	Three months ended  June 30,				Six months ended  June 30,
	2024		2023		2024		2023
Research and development options expense		14,141		40,636		30,875		89,549
Total research and development expenses		14,141		40,636		30,875		89,549
General and administrative options expense		139,250		269,627		299,519		618,156
Stock and warrants issued to consultants and employees		48,987		427,317		97,974		489,452
Total general and administrative expenses		188,237		696,944		397,493		1,107,608
Total stock-based compensation expense	$	202,378	$	737,580	$	428,368	$	1,197,157

Stock Warrants

The following table provides the activity in warrants for the three and six months ended June 30, 2024 and the year ended December 31, 2023.

	Total Warrants			Weighted Average Remaining Term (Years)			Weighted Average Exercise Price		Average Intrinsic Value
Outstanding December 31, 2023		4,224,008			3.31	*	$	7.76	$	0.43
Issued		2,369,000						2.84
Exercised		(2,391,440	)				$	1.67
Outstanding June 30, 2024		4,201,568			2.57		$	8.45	$	0.01

* As the 973,000 pre-funded warrants outstanding on December 31, 2023 did not expire, they have been excluded from this calculation.

During the six months ended June 30, 2024, 2,391,440 warrants to purchase shares of common stock were exercised for total gross proceeds of $4,000,974. During the six months ended June 30, 2023, 433 warrants to purchase shares of common stock were exercised for total gross proceeds of $58.