PROSPECTUS
SUMMARY
This
summary highlights some information about us and selected information contained elsewhere in this prospectus and in the documents we
incorporate by reference. This summary does not contain all of the information you should consider before investing in our common stock.
You should read this entire prospectus and the documents incorporated by reference carefully, especially the risks of investing in our
common stock discussed under and incorporated by reference in “Risk Factors” on page 7 of this prospectus, along with
our consolidated financial statements and notes to those consolidated financial statements and the other information incorporated by
reference in this prospectus, before making an investment decision.
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 lead investigational new drug product, AD04, is being developed as a therapeutic agent for the treatment of
alcohol use disorder (“AUD”). In January 2021, we expanded our portfolio in the field of addiction with the acquisition of
Purnovate, LLC, and we continue to explore opportunities to expand our portfolio in the field of addiction and related disorders, both
through internal development and through acquisitions. Our vision is to create the world’s leading addiction focused pharmaceutical
company.
AUD
is characterized by an urge to consume alcohol and an inability to control the levels of consumption. We have commenced the landmark
ONWARD™ pivotal Phase 3 clinical trial using AD04 for the potential treatment of AUD in subjects with certain target
genotypes. As of this filing, all 25 planned clinical sites were actively enrolling patients, and the ONWARD trial was more than 50%
enrolled. The trial is expected to be completed by the first quarter of 2022. We believe our approach is unique in that it targets the
serotonin system and individualizes the treatment of AUD, through the use of genetic screening (i.e., a companion diagnostic genetic
biomarker). We have created an investigational companion diagnostic biomarker test for the genetic screening of patients with certain
biomarkers that, as reported in the American Journal of Psychiatry (Johnson, et. al. 2011 & 2013), we believe will benefit
from treatment with AD04. Our strategy is to integrate the pre-treatment genetic screening into AD04’s label to create a patient-specific
treatment in one integrated therapeutic offering. Our goal is to develop a genetically targeted, effective and safe product candidate
to treat AUD by reducing or eliminating the patients’ consumption of alcohol.
We
have a worldwide, exclusive license from the University of Virginia Patent Foundation (d.b.a the Licensing & Venture Group) (“UVA
LVG”), which is the licensing arm of the University of Virginia, to commercialize our investigational drug candidate, AD04, subject
to Food and Drug Administration (“FDA”) approval of the product, based upon three separate patent application families, with
patents issued in over 40 jurisdictions, including three issued patents in the U.S. Our investigational agent has been used in several
investigator-sponsored trials and we possess or have rights to use toxicology, pharmacokinetic and other preclinical and clinical data
that supports our landmark ONWARD pivotal Phase 3 clinical trial. Our therapeutic agent was the product candidate used in a University
of Virginia investigator sponsored Phase 2b clinical trial of 283 patients. In this Phase 2b clinical trial, ultra-low dose ondansetron,
the active pharmaceutical agent in AD04, showed a statistically significant difference between ondansetron and placebo for both the primary
endpoint and secondary endpoint, which were reduction in severity of drinking measured in drinks per drinking day (1.71 drinks/drinking
day; p=0.0042), and reduction in frequency of drinking measured in days of abstinence/no drinking (11.56%; p=0.0352), respectively. Additionally,
and importantly, the Phase 2b results showed a significant decrease in the percentage of heavy drinking days (11.08%; p=0.0445) with
a “heavy drinking day” defined as a day with four (4) or more alcoholic drinks for women or five (5) or more alcoholic drinks
for men consumed in the same day.
The
active pharmaceutical agent in AD04, our lead investigational new drug product, is ondansetron, which is also the active ingredient in
Zofran®, which was granted FDA approval in 1991 for nausea and vomiting post-operatively and after chemotherapy or radiation
treatment and is now commercially available in generic form. In studies of Zofran®, conducted as part of its FDA review
process, ondansetron was given acutely at dosages up to almost 100 times the dosage expected to be formulated in AD04 with the highest
doses of Zofran® given intravenously (“i.v.”), which results in approximately 160% of the exposure level as
oral dosing. Even at high doses given i.v. the studies found that ondansetron is well-tolerated and results in few adverse side effects
at the currently marketed doses, which reach more than 80 times the AD04 dose and are given i.v. The formulation dosage of ondansetron
used in our drug candidate (and expected to be used by us in our Phase 3 clinical trials) has the potential advantage that it contains
a much lower concentration of ondansetron than the generic formulation/dosage that has been used in prior clinical trials, is dosed orally,
and is available with use of a companion diagnostic genetic biomarker. Our development plan for AD04 is designed to demonstrate both
the efficacy of AD04 in the genetically targeted population and the safety of ondansetron when administered chronically at the AD04 dosage.
However, to the best of our knowledge, no comprehensive clinical study has been performed to date that has evaluated the safety profile
of ondansetron at any dosage for long-term use as anticipated in our ongoing and planned clinical trials.
AUD
is characterized by an urge to consume alcohol and an inability to control the levels of consumption. Until the publication of the fifth
revision of the Diagnostic and Statistical Manual of Mental Disorders in 2013 (the “DSM-5”), AUD was broken into “alcohol
dependence” and “alcohol abuse”. More broadly, overdrinking due to the inability to moderate drinking is called alcohol
addiction and is often called “alcoholism”, sometimes pejoratively.
Since
ondansetron is already manufactured for generic sale, the active ingredient for AD04 is readily available from several manufacturers,
and we have contracted with a U.S. manufacturer to acquire ondansetron at a cost expected to be under $0.01 per dose. Clinical trial
material (“CTM”) has already been manufactured for the ONWARD Phase 3 trial. The CTM has demonstrated good stability after
four years with the stability studies to date.
We
have also developed the manufacturing process at a third-party vendor to produce tablets at what we expect will serve for commercial
scale production (i.e., greater than 1 million tablets per batch), also at a cost expected to be less than $0.01 per dose. A proprietary
packaging process has been developed, which appears to extend the stability of the drug product. Packaging costs are expected to be less
than $0.05 per dose. We do not have a written commitment for supply of either the tablets or the packaging and believe that alternative
suppliers are available to whom we can transfer the processes that have been developed.
Methods
for the companion diagnostic genetic test have been developed as a blood test, and we established the test with a third-party vendor
capable of supporting the ONWARD Phase 3 clinical trial. Additionally, we have built validation and possible approval of the companion
diagnostic into the Phase 3 program, including that we plan to store blood samples for all patients in the event additional genetic testing
is required by regulatory authorities.
The
Purnovate Acquisition
On
January 26, 2021, we closed the acquisition of Purnovate and acquired, through a merger, all of the equity of Purnovate, all in accordance
with the terms of an Equity Purchase Agreement, that we entered into on December 7, 2020, as amended on January 25, 2021 (the “Purchase
Agreement”) with, Purnovate, the Members and Robert D. Thompson as representative of the Members. The Purnovate Acquisition was
effected by a merger (the “Merger”) of Purnovate into Purnovate, Inc., a Delaware corporation and wholly owned subsidiary
of our ours. In connection with the Merger, on January 20, 2021, Purnovate converted from a limited liability company to a corporation,
and on January 25, 2021, the parties entered into an amendment to the Purchase Agreement (the “Amendment”) to provide for
the mechanism of closing the Purnovate Acquisition through the Merger.
In
exchange for the equity of Purnovate, we paid the Members an aggregate of $350,000 (the “Cash Consideration”) and agreed
to issue to the Members an aggregate of 700,000 shares of Adial restricted common stock (the “Stock Consideration”), of which
699,980 shares were issued and are currently held in escrow to satisfy indemnification obligations pursuant to the Purchase Agreement.
We also assumed all Purnovate’s financial obligations, including $350,000 that we advanced to Purnovate for working capital purposes.
In addition, upon attainment of certain milestones Members will receive (i) development milestone payments in an aggregate amount of
up to $2,100,000 for each compound developed, (ii) development milestone payments in an aggregate amount of up to $20,000,000 for each
compound commercialized, and (iii) royalties of 3.0% of Net Sales (as such term is defined in the Purchase Agreement). The Stock Consideration
issued to each of the selling stockholders in connection with the Purnovate Acquisition has been placed into escrow to secure certain
indemnification and other obligations of Purnovate and the Members. The terms of the release of those shares include the following:
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(i)
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with
respect to the Members other than William Stilley and Dr. Robert D. Thompson, Purnovate’s CEO, (x) five (5) days after the effective
date of the registration statement of which this prospectus forms a part, thirty percent (30%) of such shares to be received by such
Members (91,546 shares of our common stock) will be released; and (y) on the one (1) year anniversary of the closing of the Purnovate
Acquisition (the “Closing”), seventy percent (70%) of such shares (213,608 shares of our common stock) to be received by
such Members will be released;
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(ii)
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with
respect to Dr. Thompson, (x) five (5) days after the effective date of the registration statement of which this prospectus forms a
part, thirty percent (30%) of such shares (58,115 shares of our common stock) to be received by him will be released; (y) on the one
(1) year anniversary of the Closing of the Purnovate Acquisition, twenty percent (20%) of such shares (38,743 shares of our common stock)
to be received by him will be released; and (z) on the earlier of the two (2) year anniversary of the Closing of the Purnovate Acquisition
or on the termination date of his employment if termination is by us without cause, the remaining fifty percent (50%) of such shares
(96,859 shares of our common stock) to be received by him will be released; and
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(iii)
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with
respect to William Stilley, on the earlier of the two (2) year anniversary of the Closing of the Purnovate Acquisition or on the termination
date of his employment if termination is by us without cause, all of such shares to be received by him will be released.
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The
Cash Consideration has been distributed to the Members on a pro rata basis based on each such Members’ equity
interest in Purnovate as compared to the aggregate Purnovate equity interests held by all Members and the Stock Consideration, if not
used to satisfy indemnification obligations, will be distributed to the Members on a pro rata basis based on each such
Members’ equity interest in Purnovate as compared to the aggregate Purnovate equity interests held by all Members.
The
acquisition was effected by a merger (the “Merger”) of Purnovate into Purnovate, Inc., a Delaware corporation and wholly
owned subsidiary of Adial, which will survive the Merger. In connection with the Merger, on January 20, 2021, Purnovate converted from
a limited liability company to a corporation and on January 25, 2021, the parties entered into an Amendment to the Purchase Agreement
(the “Amendment”) to provide for the mechanism of closing the Acquisition through a Merger.
Members
of Purnovate included William Stilley, our Chief executive Officers and entities controlled by James W. Newman.
Pursuant
to the Purchase Agreement, in connection with the Purnovate Acquisition, at the Closing Mr. Stilley sold approximately a 28.7% interest
in Purnovate to us in consideration of our issuance to him of 201,109 shares of our common stock and Mr. Newman, through two entities
he controls, together sold an aggregate of 0.53% interest in Purnovate in consideration of our issuance to such entities of 3,731 shares
of our common stock, which shares have been placed in escrow.
Summary
Risk Factors
Our
business faces significant risks and uncertainties of which investors should be aware before making a decision to invest in our common
stock. If any of the following risks are realized, our business, financial condition and results of operations could be materially and
adversely affected. The following is a summary of the more significant risks relating to our Company. A more detailed description of
our risk factors set forth under the caption “Risk Factors” beginning on page 7.
Risks
Relating to our Company
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We
have a limited operating history with which to compare, have incurred significant losses since our inception, and expect to incur
substantial and increasing losses for the foreseeable future.
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We
currently have no product revenues and may not generate revenue at any time in the near future, if at all.
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We
and our independent registered accounting firm has expressed substantial doubt about our ability to continue as a going concern.
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We
will need to secure additional financing, which may not be available to us on favorable terms, if at all.
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We
have identified weaknesses in our internal controls, and it cannot be assured that these weaknesses will be effectively remediated
or that additional material weaknesses will not occur in the future.
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We
rely on a license to use various technologies that are material to our business and there is no guarantee that such license agreements
won’t be terminated, or that other rights necessary to commercialize our products will be available to us on acceptable terms
or at all.
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Our
business is dependent upon the success of our lead product candidate, AD04, which requires significant additional clinical testing
before we can seek regulatory approval and potentially launch commercial sales.
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The
active ingredient of our product candidate, ondansetron, is currently available in generic form and has been shown to have adverse
effects on patients.
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Coronavirus
or other global health crises could adversely impact our business, including our clinical trials.
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While
there exists a large body of evidence supporting the safety of our primary API, ondansetron, under short-term use, there are currently
no long-term use clinical safety data available.
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All
of our current data for our lead product candidate are the result of Phase 2 clinical trials conducted by third parties and do not
necessarily provide sufficient evidence that our products are viable as potential pharmaceutical products.
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The
FDA and/or EMA may not accept our planned Phase 3 endpoints for final approval of AD04 and may determine additional clinical trials
are required for approval of AD04.
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Our
lead investigational product, AD04, is dependent on a successful development, approval, and commercialization of a genetic test,
which is expected to be classified as a companion diagnostic, which may not attain regulatory approval.
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We
have limited experience as a company conducting clinical trials, any may experience delays in our clinical trials and may fail to
demonstrate adequately the safety and efficacy of AD04 or any future product candidates.
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Our
product candidate and the product candidates of Purnovate are in the early stages of development and there is uncertainty as to market
acceptance of our technology and product candidates.
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Risks
Relating to our Acquisition of Purnovate
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The
combined company may not experience the anticipated strategic benefits of the Acquisition and we may be unable to successfully integrate
the Purnovate businesses.
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Purnovate
has a limited operating history upon which to evaluate its ability to commercialize its products.
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Risks
Relating to our Business and Industry
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We
must obtain and maintain regulatory approvals in every jurisdiction in which we intend to sell our product candidate and the regulatory
approval in one jurisdiction does not guarantee the approval in another jurisdiction.
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AD04
and any future product candidates may cause undesirable side effects or have other properties that could halt their clinical development,
prevent their regulatory approval, limit their commercial potential or result in significant negative consequences such as incurring
product liability lawsuits
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We
will continue to be subject to ongoing and extensive regulatory requirements even after regulatory approval, and compliance with
such regulatory requirements cannot be assured.
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Our
employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements.
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We
have no experience selling, marketing or distributing products and have no internal capability to do so.
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We
may not be successful in establishing and maintaining strategic partnerships.
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We
have limited protection for our intellectual property. Our licensed patents and proprietary rights may not prevent us from infringing
on the rights of others or prohibit potential competitors from commercializing products.
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We
may be involved in lawsuits to protect or enforce the patents of our licensors, which could be expensive, time-consuming and unsuccessful.
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We
rely on key executive officers and scientific, regulatory and medical advisors, and their knowledge of our business and technical
expertise would be difficult to replace.
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Certain
of our officers may have a conflict of interest.
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Risks
Related to our Securities and Investing in our Securities
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Certain
of our shareholders have sufficient voting power to make corporate governance decisions that could have a significant influence on
us and the other stockholders.
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We
have never paid dividends and have no plans to pay dividends in the foreseeable future.
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Our
failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a de-listing of our common stock.
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Our
stock price has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result, investors
in our common stock could incur substantial losses.
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Our
need for future financing may result in the issuance of additional securities which will cause investors to experience dilution.
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Provisions
in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
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Our
Certificate of Incorporation and our bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum
for certain types of state actions that may be initiated by our stockholders, which could limit our stockholders’ ability to
obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
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If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock
price and trading volume could decline.
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Implications
of Being an Emerging Growth Company
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),
and therefore we intend to take advantage of certain exemptions from various public company reporting requirements, including not being
required to have our internal controls over financial reporting audited by our independent registered public accounting firm pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote
on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an “emerging
growth company.” In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised
accounting standards until such time as those standards apply to private companies. We have elected to use the extended transition period
for complying with new or revised accounting standards under the JOBS Act. This election allows us to delay the adoption of new or revised
accounting standards that have different effective dates for public and private companies until those standards apply to private companies.
As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We will remain an “emerging growth company” until the earlier of (1) the last day of the fiscal year: (a) following the fifth
anniversary of the completion of our initial public offering; (b) in which we have total annual gross revenue of at least $1.07 billion;
or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates
exceeded $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible
debt during the prior three-year period. References herein to “emerging growth company” have the meaning associated with
that term in the JOBS Act.
Corporate
Information
ADial
Pharmaceuticals, L.L.C. was formed as a Virginia limited liability company in November 2010. ADial Pharmaceuticals, L.L.C. converted
from a Virginia limited liability company into a Virginia corporation on October 3, 2017, and then reincorporated in Delaware on October
11, 2017 by merging the Virginia corporation with and into Adial Pharmaceuticals, Inc., a Delaware corporation that was incorporated
on October 5, 2017 as a wholly owned subsidiary of the Virginia corporation. We refer to this as the corporate conversion/reincorporation.
In connection with the corporate conversion/reincorporation, each unit of ADial Pharmaceuticals, L.L.C. was converted into shares of
common stock of the Virginia corporation and then into shares of common stock of Adial Pharmaceuticals, Inc., the members of ADial Pharmaceuticals,
L.L.C. became stockholders of Adial Pharmaceuticals, Inc. and Adial Pharmaceuticals, Inc. succeeded to the business of ADial Pharmaceuticals,
L.L.C.
Our
principal executive offices are located at 1180 Seminole Trail, Suite 495, Charlottesville VA 22901, and our telephone number is (434)
422-9800. Our website address is www.adialpharma.com. Information contained in our website does not form part of prospectus and
is intended for informational purposes only.
This
prospectus contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and
trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the ® or TM symbols,
but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our
rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’
trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
THE
OFFERING
Common
Stock offered by us in this offering
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We
are not selling any shares of common stock pursuant to this prospectus.
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Common
Stock offered by the selling stockholders
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Up
to 699,980 shares of common stock.
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Terms
of the offering
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The
selling stockholders will determine when and how they will sell the common stock offered in this prospectus, as described in “Plan
of Distribution” on page 21 of this prospectus.
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Use
of Proceeds
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The
selling stockholders will receive all of the proceeds from the sale of shares of common stock offered from time to time pursuant
to this prospectus. Accordingly, we will not receive any proceeds from the sale of shares of common stock that may be sold from time
to time pursuant to this prospectus.
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Risk
factors
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You
should read the “Risk Factors” section of this prospectus on page 7 and the information incorporated by reference
therein for a discussion of factors to consider before deciding to purchase shares of our common stock.
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Nasdaq
Capital Market symbol
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Our
common stock is listed on the Nasdaq Capital Market under the symbol “ADIL.” Our warrants are listed on the Nasdaq Capital
Market under the symbol “ADILW.” On May 26, 2021, the last reported sale price of our common stock and warrants on the
Nasdaq Capital Market was $2.42 per share and $0.6999 per warrant, respectively.
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RISK
FACTORS
An
investment in our common stock involves a high degree of risk. Before deciding whether to invest in our common stock, you should consider
carefully the risks and uncertainties described in the section captioned “Risk Factors” contained in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 22, 2021, as updated by any other filings we make with
the SEC from time to time, which are incorporated by reference herein in their entirety, together with other information in this prospectus
and the information incorporated by reference herein. For a description of these reports and documents, and information about where you
can find them, see “Where You Can Find More Information” and “Incorporation of Certain Documents By Reference.”
Additional risks not presently known or that we presently consider to be immaterial could subsequently materially and adversely affect
our and the information incorporated by reference herein. If any of these risks actually occurs, our business, financial condition, results
of operations or cash flow could suffer materially. In such event, the trading price of our common stock could decline, and you might
lose all or part of your investment.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and the documents incorporated by reference herein contain forward-looking statements that are based on current management
expectations. Statements other than statements of historical fact included in this prospectus, including statements about us and the
future growth and anticipated operating results and cash expenditures, are forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used
in this prospectus the words “anticipate,” “objective,” “may,” “might,” “should,”
“could,” “can,” “intend,” “expect,” “believe,” “estimate,” “predict,”
“potential,” “plan” or the negative of these and similar expressions identify forward-looking statements. These
statements reflect our current views with respect to uncertain future events and are based on imprecise estimates and assumptions and
subject to risk and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
While we believe our plans, intentions and expectations reflected in those forward-looking statements are reasonable, these plans, intentions
or expectations may not be achieved. Our actual results, performance or achievements could differ materially from those contemplated,
expressed or implied by the forward-looking statements contained in, or incorporated by reference into, this prospectus for a variety
of reasons. Those risks and uncertainties include, among others:
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our
ability to implement our business plan;
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ability to raise additional capital to meet our liquidity needs;
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ability to generate product revenues;
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our
ability to achieve profitability;
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our
ability to satisfy U.S. (including FDA) and international regulatory requirements;
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our
ability to obtain market acceptance of our technology and products;
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our
ability to compete in the market;
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our
ability to advance our clinical trials;
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our
ability to fund, design and implement clinical trials;
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our
ability to demonstrate that our lead product candidate is safe for human use and effective for indicated uses;
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our
ability to gain acceptance of physicians and patients for use of our lead product;
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our
dependency on third-party researchers, manufacturers and payors;
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our
ability to establish and maintain strategic partnerships, including for the distribution of our lead product and any future products
that we may acquire;
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our
ability to attract and retain a sufficient qualified personnel;
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our
ability our ability to obtain or maintain patents or other appropriate protection for the intellectual property;
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our
dependency on the intellectual property licensed to us or possessed by third parties;
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our
ability to adequately support future growth;
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potential
product liability or intellectual property infringement claims;
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our
ability to successfully integrate the Purnovate business into our business; and
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disruption
or delay of our ongoing clinical trial, disruption of our corporate operations or those of our critical vendors, or general significant
disruption to the global economy as a resulting of ongoing the COVID-19 pandemic.
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We
urge investors to review carefully risks contained in the section of this prospectus entitled “Risk Factors” above as well
as other risks and factors identified from time to time in our SEC filings in evaluating the forward-looking statements contained in
this prospectus. We caution investors not to place significant reliance on forward-looking statements contained in this document; such
statements need to be evaluated in light of all the information contained herein.
All
forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the risk factors
and other cautionary statements set forth, or incorporated by reference, in this prospectus. Other than as required by applicable securities
laws, we are under no obligation, and we do not intend, to update any forward-looking statement, whether as result of new information,
future events or otherwise.
USE
OF PROCEEDS
The
selling stockholders will receive all of the proceeds of the sale of shares of common stock offered from time to time pursuant to this
prospectus. Accordingly, we will not receive any proceeds from the sale of shares of common stock that may be sold from time to time
pursuant to this prospectus.
We
will bear the out-of-pocket costs, expenses and fees incurred in connection with the registration of shares of our common stock to be
sold by the selling stockholders pursuant to this prospectus. Other than registration expenses, the selling stockholders will bear underwriting
discounts, commissions, placement agent fees or other similar expenses payable with respect to sales of shares of our common stock.
DIVIDEND
POLICY
We
do not anticipate paying dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance
the growth and development of our business. We are not subject to any legal restrictions respecting the payment of dividends, except
that we may not pay dividends if the payment would render us insolvent. Any future determination as to the payment of cash dividends
on our common stock will be at our board of directors’ discretion and will depend on our financial condition, operating results,
capital requirements and other factors that our board of directors considers to be relevant.
THE
PURNOVATE ACQUISITION
On
January 26, 2021, we closed the acquisition of Purnovate and acquired through a merger all of the equity of Purnovate, all in accordance
with the terms of an Equity Purchase Agreement, that we entered into on December 7, 2020, as amended on January 25, 2021 (the “Purchase
Agreement”) with, Purnovate, the Members and Robert D. Thompson as representative of the Members. The Purnovate Acquisition was
effected by a merger (the “Merger”) of Purnovate into Purnovate, Inc., a Delaware corporation and wholly owned subsidiary
of our ours. In connection with the Merger, on January 20, 2021, Purnovate converted from a limited liability company to a corporation,
and on January 25, 2021, the parties entered into the Amendment to provide for the mechanism of closing the Purnovate Acquisition through
the Merger.
As
more fully described under “About the Purnovate Members” and “About Purnovate” below, our Chief
Executive Officer and board member, William B. Stilley, and James W. Newman, another of our board members were, directly or indirectly,
Members of Purnovate.
Material
Terms of the Acquisition
In
exchange for the outstanding equity of Purnovate and in accordance with the terms of the Purchase Agreement, at the closing of the Acquisition
(the “Closing”): (i) we paid to the Members an aggregate of $350,000 (the “Cash Consideration”), and (ii) issued
to the Members an aggregate of 700,000 shares of Adial restricted common stock (the “Stock Consideration”), of which 699,980
shares have been issued and placed into escrow to secure certain indemnification and other obligations of Purnovate and the Members in
connection with the Purnovate Acquisition. The shares are to be released from escrow as follows:
|
(i)
|
with
respect to the Members other than William Stilley and Dr. Robert D. Thompson, Purnovate’s CEO, (x) five (5) days after the
effective date of the registration statement of which this prospectus forms a part, thirty percent (30%) of such shares to be received
by such Members (91,546 shares of our common stock) will be released; and (y) on the one (1) year anniversary of the Closing of the
Purnovate Acquisition, seventy percent (70%) of such shares (213,608 shares of our common stock) to be received by such Members will
be released;
|
|
(ii)
|
with
respect to Dr. Thompson, (x) five (5) days after the effective date of the registration statement of which this prospectus forms
a part, thirty percent (30%) of such shares (58,115 shares of our common stock) to be received by him will be released; (y) on the
one (1) year anniversary of the Closing of the Purnovate Acquisition, twenty percent (20%) of such shares (38,743 shares of our common
stock) to be received by him will be released; and (z) on the earlier of the two (2) year anniversary of the Closing of the Purnovate
Acquisition or on the termination date of his employment if termination is by us without cause, the remaining fifty percent (50%)
of such shares (96,859 shares of our common stock) to be received by him will be released; and
|
|
(iii)
|
with
respect to William Stilley, on the earlier of the two (2) year anniversary of the Closing of the Purnovate Acquisition or on the
termination date of his employment if termination is by us without cause, all of such shares to be received by him will be released.
|
The
Cash Consideration was distributed to the Members on a pro rata basis and Stock Consideration, if not used to satisfy indemnification
obligations, will be distributed to the Members on a pro rata basis based on each such Members’ equity interest
in Purnovate as compared to the aggregate Purnovate equity interests held by all Members.
In
addition to the payments described above, under the terms of the Purchase Agreement, we agreed to make cash payments to Robert D. Thompson
as representative of the Members for the benefit of the Members equal to (i) 3.0% of Net Sales (as such term is defined in the Purchase
Agreement) and (ii) upon the achievement of the following development and commercialization milestones:
Development
& Approval Milestones
|
|
Milestone
Payment
|
|
First
human dosing
|
|
$
|
300,000
|
|
First
dose in a Phase 2 Trial
|
|
$
|
300,000
|
|
First
dose in a Phase 3 Trial
|
|
$
|
400,000
|
|
First
acceptance of U.S. NDA submission
|
|
$
|
500,000
|
|
First
acceptance of NDA equivalent submission in Europe
|
|
$
|
300,000
|
|
First
acceptance of NDA equivalent submission in Asia
|
|
$
|
300,000
|
|
First
Commercial Sale in the U.S.
|
|
$
|
10,000,000
|
|
First
Commercial Sale in Europe
|
|
$
|
5,000,000
|
|
First
Commercial Sale in Asia
|
|
$
|
5,000,000
|
|
Total
potential
|
|
$
|
22,100,000
|
|
The
Purchase Agreement contains customary representations, warranties and covenants of us, Purnovate and the Members. Subject to certain
customary limitations, the Members have agreed to indemnify us and our officers and directors against certain losses related to, among
other things, breaches of Purnovate’s and the Members’ representations and warranties, certain specified liabilities and
the failure to perform covenants or obligations under the Purchase Agreement.
Funding
of Purnovate Expenses Prior to Closing
In
connection with the entry into the Purchase Agreement, we loaned Purnovate $350,000 to continue its research and development efforts,
which loan was assumed by Adial the Closing.
The
foregoing summaries of the Purchase Agreement do not purport to be complete and are qualified in their entirety by reference to the full
texts of the Purchase Agreement that is filed as an exhibit to the registration statement of which this prospectus forms a part.
About
the Purnovate Members
William
B. Stilley, our President and Chief Executive Officer and a member of our board of directors, and James W. Newman, a member of our board
of directors, were Members and sold their equity in Purnovate on the same terms as the other Members, except that Mr. Stilley is subject
to a two (2) year lock up with respect to the sale and transfer of the Stock Consideration that he receives so long as his employment
has not been terminated by us without cause prior to the end of such two (2) year period. Mr. Stilley owned approximately 28.7% of the
equity of Purnovate and received 201,109 shares of our common stock upon the Closing. Mr. Newman controls two entities that, together,
owned less than 1% of the equity of Purnovate and such entities received an aggregate of 3,731 shares of our common stock upon the Closing.
Dr.
Thompson D. Thompson, Purnovate’s Chief Executive Officer who has continued employment with Purnovate and joined us as our Vice
President of Chemistry after the Acquisition, is a distinguished adenosine chemist that has been working in the field for over 35 years.
He is an inventor on over 20 adenosine analog patents covering tens of thousands of novel molecules and has authored dozens of scientific
publications.
About
Purnovate
Purnovate
is 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. Purines are a class of chemical
structures that include adenosine, an important neurotransmitter. Purnovate uses innovative methods and technologies to enhance the drug
properties of purines (“Purines” + “Innovate” = Purnovate). With its proprietary purification and solubilizing
platform technologies it synthesizes and develops adenosine analogs to treat serious diseases and disorders with a focus on pain, cocaine
addiction, infectious disease, inflammation, cancer, asthma, and diabetes. Purnovate’s platform technologies are believed to also
offer opportunities to improve the characteristics of other classes of molecules outside of the adenosine chemistry space and maybe even
outside the purine chemistry space. All drug candidates developed using Purnovate’s platform technologies are expected to be patently
distinct new chemical entities (i.e., patentable compositions of matter). Purnovate operates a chemistry and analytics laboratory in
its 4,175 square feet leased laboratory and office space. Purnovate has been synthesizing new adenosine analog chemical entities with
promising potency, selectivity, stability, and solubility characteristics.
Purnovate,
was formed in 2019 by Dr. Thompson, William Stilley, our Chief Executive Officer, and two other Members.
SELLING
STOCKHOLDERS
This
prospectus covers the resale or other disposition by the Selling Stockholders identified in the table below of up to an aggregate of
699,980 shares of our common stock. These shares have been or will be acquired by the Selling Stockholders in the Purnovate Acquisition
transaction described above under the heading “Prospectus Summary –– Private Placement” and “The Purnovate
Transaction.”
Other
than as described herein, the Purnovate Acquisition, and in the documents incorporated by reference herein, we have not had a material
relationship with any of the Selling Stockholders during the last three years. See “The Purnovate Acquisition- About the Purnovate
Members.”
The
number of shares of common stock beneficially owned by the Selling Stockholders has been determined in accordance with Rule 13d-3 under
the Exchange Act and includes, for such purpose, shares of common stock that the Selling Stockholders has the right to acquire within
60 days of May 26, 2021. The percentage of shares of common stock beneficially owned by the selling stockholders shown in the table below
is based on an aggregate of 17,503,522 shares of our common stock outstanding on May 26, 2021, and includes the shares of common stock
issued to the Selling Stockholders in connection with the Purnovate Acquisition The maximum number of shares of common stock that may
be offered for resale include only the shares of common stock issued to the Selling Stockholders in connection with the Purnovate Acquisition,
including those held in escrow in accordance with the terms of the Purchase Agreement.
All
information with respect to the ownership of the shares of common stock by the Selling Stockholders has been furnished by or on behalf
of the Selling Stockholders. We believe, based on information supplied by the selling stockholders, that except as may otherwise be indicated
in the footnotes to the table below, the Selling Stockholders have sole voting and dispositive power with respect to the shares of common
stock reported as beneficially owned by it. Because the Selling Stockholders identified in the table may sell some or all of the shares
of common stock beneficially owned by it and covered by this prospectus, and because there are currently no agreements, arrangements
or understandings with respect to the sale of any of the shares of common stock, no estimate can be given as to the number of shares
of common stock available for resale hereby that will be held by the Selling Stockholders upon termination of this offering. In addition,
the Selling Stockholders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time
and from time to time, the shares of common stock they beneficially own in transactions exempt from the registration requirements of
the Securities Act after the date on which they provided the information set forth in the table below. We have, therefore, assumed for
the purposes of the following table, that the Selling Stockholders will sell all of the shares of common stock that it owns or may own
beneficially that are covered by this prospectus, but will not sell any other shares of our common stock that they presently own that
are not covered by this prospectus.
The
Stock Consideration issued to each of the Selling Stockholders in connection with the Purnovate Acquisition has been placed into escrow
to secure certain indemnification and other obligations of Purnovate and the Members. See “Prospectus Summary –– Private
Placement” and “The Purnovate Transaction.” For additional information with respect to the shares held in escrow.
|
|
Number
of Shares of Common Stock Beneficially Owned Prior to Offering
|
|
|
Maximum
Number of Shares of Common Stock that may be Offered for Resale
|
|
|
Number
of Shares of Common Stock Beneficially Owned After Offering
|
|
|
Percent
Beneficial Ownership After the Offering (7)
|
|
Name of Selling Stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony Beauglehole (1)(2)
|
|
|
339
|
|
|
|
339
|
|
|
|
0
|
|
|
|
*
|
|
Cameron Black (1)(2)
|
|
|
29,567
|
|
|
|
29,567
|
|
|
|
0
|
|
|
|
*
|
|
Matthew Blumberg (1)(2)
|
|
|
983
|
|
|
|
983
|
|
|
|
0
|
|
|
|
*
|
|
Eric M. Carlson (1)(2)
|
|
|
337
|
|
|
|
337
|
|
|
|
0
|
|
|
|
*
|
|
David Caro (1)(2)
|
|
|
509
|
|
|
|
509
|
|
|
|
0
|
|
|
|
*
|
|
Kenneth Crowther (1)(2)
|
|
|
169
|
|
|
|
169
|
|
|
|
0
|
|
|
|
*
|
|
Paul Cusenza (1)(2)
|
|
|
1,187
|
|
|
|
1,187
|
|
|
|
0
|
|
|
|
*
|
|
Charles Dangler (1)(2)
|
|
|
339
|
|
|
|
339
|
|
|
|
0
|
|
|
|
*
|
|
Todd Davis (1)(2)
|
|
|
10,177
|
|
|
|
10,177
|
|
|
|
0
|
|
|
|
*
|
|
Robert Figler (1)(2)
|
|
|
678
|
|
|
|
678
|
|
|
|
0
|
|
|
|
*
|
|
Harley G. Frederick & Du Ann A. Frederick #(1)(2)
|
|
|
4,928
|
|
|
|
4,928
|
|
|
|
0
|
|
|
|
*
|
|
Gregory Gartland (1)(2)
|
|
|
2,374
|
|
|
|
2,374
|
|
|
|
0
|
|
|
|
*
|
|
David Glover (1)(2)
|
|
|
169
|
|
|
|
169
|
|
|
|
0
|
|
|
|
*
|
|
Paul Henderson (1)(2)
|
|
|
1,017
|
|
|
|
1,017
|
|
|
|
0
|
|
|
|
*
|
|
Bambam Holdings LLC (1)(3)
|
|
|
14,783
|
|
|
|
14,783
|
|
|
|
0
|
|
|
|
*
|
|
Kantor Family Investments Inc (1)(2)(4)
|
|
|
14,783
|
|
|
|
14,783
|
|
|
|
0
|
|
|
|
*
|
|
Kevin Kennedy (1)(2)
|
|
|
14,783
|
|
|
|
14,783
|
|
|
|
0
|
|
|
|
*
|
|
Joel Morris Linden (1)(2)
|
|
|
8,481
|
|
|
|
8,481
|
|
|
|
0
|
|
|
|
*
|
|
Melissa Marshall (1)(2)
|
|
|
169
|
|
|
|
169
|
|
|
|
0
|
|
|
|
*
|
|
John Montogomery (1)(2)
|
|
|
9,329
|
|
|
|
9,329
|
|
|
|
0
|
|
|
|
*
|
|
James W. Newman, Jr. (1)(2)(5)
|
|
|
774,229
|
|
|
|
3,731
|
|
|
|
770,498
|
|
|
|
4.29
|
%
|
JP O’Sullivan (1)(2)
|
|
|
1,696
|
|
|
|
1,696
|
|
|
|
0
|
|
|
|
*
|
|
J. Mikel Poulson & Marci Poulson (1)(2)
|
|
|
84,265
|
|
|
|
84,265
|
|
|
|
0
|
|
|
|
*
|
|
Allyson A. Rasmussen (1)(2)
|
|
|
4,928
|
|
|
|
4,928
|
|
|
|
0
|
|
|
|
*
|
|
James Record (1)(2)
|
|
|
847
|
|
|
|
847
|
|
|
|
0
|
|
|
|
*
|
|
Larry Rodman (1)(2)
|
|
|
5,258
|
|
|
|
5,258
|
|
|
|
0
|
|
|
|
*
|
|
Jerald Sargent & Ann M. Sargent (1)(2)
|
|
|
14,783
|
|
|
|
14,783
|
|
|
|
0
|
|
|
|
*
|
|
Michael Schill (1)(2)
|
|
|
7,347
|
|
|
|
7,347
|
|
|
|
0
|
|
|
|
*
|
|
Peter A. Schnall (1)(2)
|
|
|
4,579
|
|
|
|
4,579
|
|
|
|
0
|
|
|
|
*
|
|
Suseela Srinvasan (1)(2)
|
|
|
678
|
|
|
|
678
|
|
|
|
0
|
|
|
|
*
|
|
Andrew J. Stevens (1)(2)(6)
|
|
|
42,734
|
|
|
|
36,699
|
|
|
|
6,035
|
|
|
|
*
|
|
William B. Stilley (1)(7)
|
|
|
1,904,919
|
|
|
|
201,109
|
|
|
|
1,703,810
|
|
|
|
9.21
|
%
|
Richard C. Stock (1)(2)
|
|
|
1,696
|
|
|
|
1,696
|
|
|
|
0
|
|
|
|
*
|
|
Robert D. Thompson & Cheryl L. Thompson (1)(8)
|
|
|
193,717
|
|
|
|
193,717
|
|
|
|
0
|
|
|
|
*
|
|
Susan T. Victor (1)(2)
|
|
|
5,174
|
|
|
|
5,174
|
|
|
|
0
|
|
|
|
*
|
|
Schuyler Vinzant (1)(2)
|
|
|
6,159
|
|
|
|
6,159
|
|
|
|
0
|
|
|
|
*
|
|
Guoquan Wang (1)(2)
|
|
|
339
|
|
|
|
339
|
|
|
|
0
|
|
|
|
*
|
|
Edward J. Williams (1)(2)(9)
|
|
|
14,374
|
|
|
|
11,874
|
|
|
|
2,500
|
|
|
|
*
|
|
Total
|
|
|
3,182,823
|
|
|
|
699,980
|
|
|
|
2,482,843
|
|
|
|
13.05
|
%
|
*
|
Represents
beneficial ownership of less than 1% of the outstanding shares of our common stock.
|
#
|
Owned
jointly.
|
(1)
|
Represents
an aggregate of 699,980 shares of the Company’s common stock issued to such Selling Stockholder in connection with the Purnovate
Acquisition. Robert D. Thompson is the representative of each of the Members.
|
(2)
|
In
accordance with the terms of the Purchase Agreement thirty percent (30%) of the number of shares of common stock that may be offered
for resale will be released from escrow five days after the effective date of the registration statement of which this prospectus
forms a part and the remaining seventy percent (70%) will be released from escrow on one year anniversary of the Closing of the Purnovate
Acquisition, subject to there being no claims for indemnification.
|
(3)
|
Ben
Moore is the Managing Member of Bambam Holdings, LLC and disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein.
|
(4)
|
Brian
Kantor is the President of Kantor Family Investments Inc. and disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest therein.
|
(5)
|
James
W. Newman, Jr. is a director of the Company. Includes (i) 152,963 shares of common stock, a warrant to purchase 5,415 shares of our
common stock having an exercise price of $.0054 per share, a warrant to purchase 4,974 shares of our common stock having an exercise
price of $7.63 per share, a warrant to acquire 205,715 shares of our common stock having an exercise price of $6.25 per share, and
a warrant to acquire 92,000 shares of common stock having an exercise price of $5.00 per share, all owned by Virga Ventures, LLC;
(ii) 41,160 shares of our common stock a warrant to acquire 29,931 shares of our common stock at an exercise price of $6.25 per share
and a warrant to acquire 2,372 shares of our common stock having an exercise price of $7.63 per share, all owned by Newman GST Trust
FBO James W. Newman Jr; (iii) 45,221 shares of our common stock, a warrant to acquire 1,186 shares of our common stock having an
exercise price of $7.63 per share and a warrant to acquire 45,178 shares of our common stock having an exercise price of $6.25 per
share, and a warrant to acquire 20,000 shares of our common stock having an exercise price of $5.00 per share, all owned by Ivy Cottage
Group, LLC.; (iv) 24,475 shares of our common stock, a warrant to acquire 2,707 shares of our common stock having an exercise price
of $.0054 per share, a warrant to acquire 708 shares of our common stock having an exercise price of $7.63 per share, all owned by
Rountop Limited Partnership, LLP; (v) 24,644 shares of common stock and a warrant to acquire 10,000 shares of common stock having
an exercise price of $6.25 per share held in a Roth IRA for the benefit of Mr. Newman; (vi) 10,000 shares of common stock and a warrant
to acquire 10,000 shares of common stock having an exercise price of $6.25 per share, all owned directly by Mr. Newman, and (vii)
5,000 shares of common stock owned by Courtney Newman, daughter of Mr. Newman. Mr. Newman is the sole member of Virga Ventures, LLC,
the general partner of Ivy Cottage Group, LLC and Rountop Limited Partnership, LLP, and Trustee of the Newman GST Trust. Includes
40,580 shares of common stock which will vest within 60 days of May 21, 2021, which shares were part of total option grants to purchase
105,580 shares of our common stock. Of the shares of our common stock listed above, 2,544 held by Virga Ventures, LLC and 1,187 held
by Rountop Limited Partnership, LLP that were issued to them in connection with the acquisition of Purnovate are subject to a lock-up
and are held in escrow as collateral to secure certain of our rights in connection with the Purchase Agreement until five (5) days
after the effective date of the registration statement of which this prospectus forms a part with respect to thirty percent (30%)
of such shares and on the one (1) year anniversary of the Closing of the Purnovate Acquisition with respect to seventy percent (70%)
of such shares; subject to there being no claims for indemnification.
|
(6)
|
Includes
36,699 shares issued pursuant to the Purnovate Acquisition, 5,535 shares held by such Selling Stockholder and 500 shares gifted to
a minor in the same household as the Selling Stockholder, over which the Selling Stockholder has dispositive control over.
|
(7)
|
William
B. Stilley is the Chief Executive Officer and a director of the Company. Includes (i) 201,109 shares of common stock issued in connection
with the Purnovate Acquisition and which is owned jointly by William B. Stilley and his wife Anne T. Stilley (ii) 583,796 shares
of common stock, a warrant to acquire 10,829 shares of our common stock having an exercise price of $.0054 per share, a warrant to
acquire 36,800 shares of our common having an exercise price of $5.00 per share, a warrant to acquire 5,452 shares of our common
stock having an exercise price of $7.63 per share, a warrant to acquire 205,827 shares of our common stock having an exercise price
of $6.25 per share; (iii) 333,250 shares of common stock and a warrant to acquire 9,824 shares of our common stock having an exercise
price of $7.63 per share owned by Mr. Stilley and his wife Anne T. Stilley. Does not include (x) 5,580 shares of our common stock
owned by the Meredith A. Stilley Trust dtd 11/23/2010; (y) 5,580 shares of our common stock owned by the Morgan J. Stilley Trust
dtd 11/23/2010; and (z) 5,580 shares of our common stock owned by the Blair E. Stilley Trust dtd 11/23/2010. The trusts are for the
benefit of Mr. Stilley’s children and Mr. Stilley is not the trustee. Mr. Stilley disclaims beneficial ownership of these shares
except to the extent of any pecuniary interest he may have in such shares. The number of shares reported for Mr. Stilley represents
the number of shares he and the trusts received in connection with the corporate conversion/reincorporation and subsequent stock
issuances. Includes 719,141 shares of common stock which will have been vested within 60 days of May 21, 2021, which shares were
part of total option grants to purchase 1,267,474 shares of our common stock. Of the shares of common stock listed above, 201,109
held by Mr. Stilley and his wife Anne T. Stilley that were issued to them in connection with the Purnovate acquisition, are subject
to a lock-up and are held in escrow as collateral to secure certain of our rights in connection with the acquisition agreement until
the earlier of two (2) year anniversary of the Closing of the Purnovate Acquisition or on the termination date of Mr. Stilley’s
employment if termination is by us without cause; subject to there being no claims for indemnification.
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(8)
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In
accordance with the terms of the Purchase Agreement of the shares set forth under the number of shares of common
stock that may be offered for resale, 58,115 of such shares will be released from escrow five days after the effective date of the
registration statement of which this prospectus forms a part; 38,743 of such shares will be released from escrow on the one (1) year
anniversary of the Closing of the Purnovate Acquisition and 96,859 shares of our common stock will be released on the earlier of
the two year anniversary of the Closing of the Purnovate Acquisition or on the termination date of Dr. Thompson’s employment
if termination is by us without cause; subject to there being no claims for indemnification.
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(9)
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Includes11,874
shares issued pursuant to the Purnovate Acquisition and 2,500 shares held by the wife of the Selling Stockholder.
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DETERMINATION
OF OFFERING PRICE
The
prices at which the shares of common stock covered by this prospectus may actually be sold by the Selling Stockholders will be determined
by prevailing market prices for shares of our common stock at the time of sale, by negotiations between the Selling Stockholders and
buyers of our common stock or as otherwise described in “Plan of Distribution.”
DESCRIPTION
OF CAPITAL STOCK
The
following description of our capital stock and the provisions of our certificate of incorporation and our bylaws are summaries and are
qualified by reference to the certificate of incorporation and the bylaws. We have filed copies of these documents with the SEC as exhibits
to our registration statement of which this prospectus forms a part.
General
As
of the date of this prospectus, our authorized capital stock consists of 50,000,000 shares of common stock, par value $0.001 per share,
and 5,000,000 shares of preferred stock, par value $0.001 per share.
Common
Stock
For
a description of our capital stock, please see the Description of Securities included as Exhibit 4.19 to our Annual Report on Form 10-K
for the year ended December 31, 2020, filed with the SEC on March 22, 2021, which is incorporated by reference herein. See “Incorporation
of Certain Documents by Reference” and “Where You Can Find More Information.”
Common
stock outstanding. As of May 21, 2021, there were 17,503,522 shares of our common stock outstanding.
Voting
rights. The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders, except
on matters relating solely to terms of preferred stock. Stockholders do not have cumulative voting rights.
Dividend
rights. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled
to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available
therefor. See “Dividend Policy on page 10.”
Rights
upon liquidation. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably
in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding.
Other
rights. The holders of our common stock have no preemptive or conversion rights or other subscription rights. There are no redemption
or sinking fund provisions applicable to our common stock.
Preferred
Stock
There
are no shares of our preferred stock outstanding as of the date of this prospectus.
Our
board of directors has the authority to issue preferred stock in one or more classes or series and to fix the designations, powers, preferences
and rights, and the qualifications, limitations or restrictions thereof, including dividend rights, conversion right, voting rights,
terms of redemption, liquidation preferences and the number of shares constituting any class or series, without further vote or action
by the stockholders. Although we have no present plans to issue any other shares of preferred stock, the issuance of shares of preferred
stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution
to the holders of common stock, could adversely affect the rights and powers, including voting rights, of the common stock, and could
have the effect of delaying, deterring or preventing a change of control of us or an unsolicited acquisition proposal. To date, no preferred
stock has been issued.
Warrants
At
the date of this prospectus, we had outstanding warrants to purchase 7,957,225 shares of common stock at exercise prices ranging from
$0.005 to $7.634 (with a weighted average exercise price of $4.83) and expiration dates from July 31, 2023 to December 31, 2031.
Anti-Takeover
Effects of Delaware Law
The
provisions of Delaware law, our certificate of incorporation and our bylaws described below may have the effect of delaying, deferring
or discouraging another party from acquiring control of us.
Section
203 of the Delaware General Corporation Law
We
are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder,
with the following exceptions:
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before
such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder;
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upon
completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining
the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by
persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
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on
or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting
of the stockholders, and not by written consent, by the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of
the outstanding voting stock that is not owned by the interested stockholder.
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In
general, Section 203 defines business combination to include the following:
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any
merger or consolidation involving the corporation and the interested stockholder;
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any
sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
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subject
to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
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any
transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series
of the corporation beneficially owned by the interested stockholder; or
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the
receipt by the interested stockholder of the benefit of any loss, advances, guarantees, pledges or other financial benefits by or
through the corporation.
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Certificate
of Incorporation and Bylaws
Our
certificate of incorporation and bylaws provide that:
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our
board of directors is divided into three classes, one class of which is elected each year by our stockholders with the directors
in each class to serve for a three-year term;
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the
authorized number of directors can be changed only by resolution of our board of directors;
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directors
may be removed only by the affirmative vote of the holders of at least 60% of our voting stock, whether for cause or without cause;
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our
bylaws may be amended or repealed by our board of directors or by the affirmative vote of sixty-six and two-thirds percent (66 2/3%)
of our stockholders;
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stockholders
may not call special meetings of the stockholders or fill vacancies on the board of directors;
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our
board of directors will be authorized to issue, without stockholder approval, preferred stock, the rights of which will be determined
at the discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the stock
ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve;
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our
stockholders do not have cumulative voting rights, and therefore our stockholders holding a majority of the shares of common stock
outstanding will be able to elect all of our directors; and
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our
stockholders must comply with advance notice provisions to bring business before or nominate directors for election at a stockholder
meeting.
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Board
Classification
Our
board of directors is divided into three classes, one class of which is elected each year by our stockholders. The directors in each
class will serve for a three-year term. The classification of our board of directors and the limitations on the ability of our stockholders
to remove directors could make it more difficult for a third-party to acquire, or discourage a third-party from seeking to acquire, control
of us.
Potential
Effects of Authorized but Unissued Stock
We
have shares of common stock and preferred stock available for future issuance without stockholder approval. We may utilize these additional
shares for a variety of corporate purposes, including future public offerings to raise additional capital, to facilitate corporate acquisitions
or payment as a dividend on the capital stock.
The
existence of unissued and unreserved common stock and preferred stock may enable our board of directors to issue shares to persons friendly
to current management or to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to
obtain control of us by means of a merger, tender offer, proxy contest or otherwise, thereby protecting the continuity of our management.
In addition, the board of directors has the discretion to determine designations, rights, preferences, privileges and restrictions, including
voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred stock,
all to the fullest extent permissible under the Delaware General Corporation Law and subject to any limitations set forth in our certificate
of incorporation. The purpose of authorizing the board of directors to issue preferred stock and to determine the rights and preferences
applicable to such preferred stock is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred
stock, while providing desirable flexibility in connection with possible financings, acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority
of our outstanding voting stock.
Limitations
of Director Liability and Indemnification of Directors, Officers and Employees
Our
certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors,
except for liability for any:
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breach
of their duty of loyalty to us or our stockholders;
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act
or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
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unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation
Law; or
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transaction
from which the directors derived an improper personal benefit.
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These
limitations of liability do not apply to liabilities arising under the federal or state securities laws and do not affect the availability
of equitable remedies such as injunctive relief or rescission.
Our
bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law, and may indemnify employees
and other agents. Our bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the
final disposition of any action or proceeding.
We
have obtained a policy of directors’ and officers’ liability insurance.
We
have entered into separate indemnification agreements with our directors and officers. These agreements, among other things, require
us to indemnify our directors and officers for any and all expenses (including reasonable attorneys’ fees, retainers, court costs,
transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by such directors or officers
or on his or her behalf in connection with any action or proceeding arising out of their services as one of our directors or officers,
or any of our subsidiaries or any other company or enterprise to which the person provides services at our request provided that such
person follows the procedures for determining entitlement to indemnification and advancement of expenses set forth in the indemnification
agreement. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons
as directors and officers.
The
limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation
against directors and officers, even though an action, if successful, might provide a benefit to us and our stockholders. Our results
of operations and financial condition may be harmed to the extent we pay the costs of settlement and damage awards against directors
and officers pursuant to these indemnification provisions.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us,
we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
At
present, there is no pending litigation or proceeding involving any of our directors or officers as to which indemnification is required
or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Requirements
for Advance Notification of Stockholder Nominations and Proposals
Our
Bylaws establish advance notice procedures with respect to stockholder proposals and nomination of candidates for election as directors.
Limits
on Special Meetings
Special
meetings of the stockholders may be called at any time only by the board of directors, Chairman or our Chief Executive Officer, subject
to the rights of the holders of any series of preferred stock.
Election
and Removal of Directors
Directors
are elected by a plurality of the votes of shares present in person or represented by proxy at a meeting and entitled to vote generally
on the election of directors. Our stockholders may remove directors only with the vote of sixty percent (60%) of the stockholders, whether
for cause or without cause. Our board of directors may appoint a director to fill a vacancy, including vacancies created by the expansion
of the board of directors. This system of electing and removing directors may discourage a third party from making a tender offer or
otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of
our directors. Our certificate of incorporation and bylaws do not provide for cumulative voting in the election of directors.
Amendments
to Our Governing Documents
Generally,
the amendment of our certificate of incorporation requires approval by our board of directors and a majority vote of stockholders. Any
amendment to our bylaws requires the approval of either a majority of our board of directors or approval of at least sixty-six and two-thirds
(66 2/3%) of the votes entitled to be cast by the holders of our outstanding capital stock in elections of our board of directors.
Choice
of Forum
Our
certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for:
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any
derivative action or proceeding brought on our behalf;
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any
action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation
Law, our certificate of incorporation or our bylaws; or
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any
action asserting a claim against us that is governed by the internal affairs doctrine.
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The
exclusive forum provision does not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange
Act or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon
federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty
or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates
concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities
Act or the rules and regulations thereunder.
These
exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes
with us or our directors, employees, control persons, underwriters, or agents, which may discourage lawsuits against us and our directors,
employees, control persons, underwriters, or agents. Additionally, a court could determine that the exclusive forum provision is unenforceable,
and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations
thereunder. If a court were to find these provisions of our bylaws inapplicable to, or unenforceable in respect of, one or more of the
specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions,
which could adversely affect our business, financial condition, or results of operations.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is VStock Transfer, LLC. The transfer agent’s address is 18 Lafayette Place,
Woodmere, New York 11598.
Warrant
Agent
The
warrant agent for the warrants issued in connection with our initial public offering in July 2018 is VStock Transfer, LLC.
Listing
on the Nasdaq Capital Market
Our
common stock is listed on the Nasdaq Capital Market under the symbol “ADIL.” Our warrants issued in connection with our initial
public offering in July 2018 are currently listed on the Nasdaq Capital Market under the symbol “ADILW.”
PLAN
OF DISTRIBUTION
Each
Selling Stockholder of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any
or all of their securities covered hereby on the Principal Market or any other stock exchange, market or trading facility on which the
securities are traded or in private transactions. The shares of common stock may be sold in one or more transactions at fixed prices,
at prevailing market prices at the time of the sale, at varying prices determined at the time of sale or at negotiated prices. A Selling
Stockholder may use any one or more of the following methods when selling securities:
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ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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block
trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
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an
exchange distribution in accordance with the rules of the applicable exchange;
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privately
negotiated transactions;
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settlement
of short sales;
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in
transactions through broker-dealers that agree with the selling stockholders to sell a specified number of such securities at a stipulated
price per security;
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through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
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a
combination of any such methods of sale; or
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any
other method permitted pursuant to applicable law.
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The
Selling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available,
rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser)
in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in
excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or
markdown in compliance with FINRA IM-2440.
In
connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they
assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan
or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option
or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the
delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer
or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the securities.
We
are required to pay certain fees and expenses incurred by us incident to the registration of the shares of common stock. We have agreed
to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities
Act.
In
addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously
engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M,
prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the
common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders
and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including
by compliance with Rule 172 under the Securities Act).
LEGAL
MATTERS
Unless
otherwise indicated in the applicable prospectus supplement, the validity of the shares of common stock offered hereby will be passed
upon for us by Gracin & Marlow, LLP, New York, New York. If the validity of the securities offered hereby in connection with offerings
made pursuant to this prospectus are passed upon by counsel for the underwriters, dealers or agents, if any, such counsel will be named
in the prospectus supplement relating to such offering.
EXPERTS
The
financial statements of Adial Pharmaceuticals, Inc. as of December 31, 2020 and 2019 and for each of the years in the two year period
ended December 31, 2020 incorporated by reference in this Registration Statement have been so included in reliance on the report of Friedman
LLP, an independent registered public accounting firm (such report includes an explanatory paragraph regarding our ability to continue
as a going concern), given on the authority of said firm as experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and special reports, proxy statements and other information with the SEC. Our public filings are available to
the public at the SEC’s website at www.sec.gov.
Our
website address is www.adialpharma.com. Through our website, we make available, free of charge, the following documents as soon
as reasonably practicable after they are electronically filed with, or furnished to, the SEC: our Annual Reports on Form 10-K; our proxy
statements for our annual and special stockholder meetings; our Quarterly Reports on Form 10-Q; our Current Reports on Form 8-K; Forms
3, 4 and 5 and Schedules 13G and 13D filed on behalf of our directors and our executive officers; and amendments to those documents.
The information contained on, or that may be accessed through, our website is not part of, and is not incorporated into, this prospectus.
This
prospectus is part of a registration statement on Form S-3 that we have filed with the SEC under the Securities Act. This prospectus
does not contain all of the information in the registration statement. We have omitted certain parts of the registration statement, as
permitted by the rules and regulations of the SEC. You may inspect and copy the registration statement, including exhibits, at the SEC’s
website or our website.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The
SEC allows us to “incorporate by reference” the information we file with it which means that we can disclose important information
to you by referring you to those documents instead of having to repeat the information in this prospectus. The information incorporated
by reference is considered to be part of this prospectus, and later information that we file with the SEC will automatically update and
supersede this information. We incorporate by reference the documents listed below and any future filings made with the SEC (other than
any portions of any such documents that are not deemed “filed” under the Exchange Act in accordance with the Exchange Act
and applicable SEC rules) under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act including those made after the date of this prospectus
and before the completion of the offerings of the shares of our common stock included in this prospectus:
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Our
Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 22, 2021 (File No. 001-38323);
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Our
Quarterly report on Form 10-Q for the quarter ended March 31, 2021 filed with the SEC on May 17, 2021 (File No. 001-38323);
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Our
Current Reports on Form 8-K filed with the SEC on February 1, 2021, February 12, 2021, February 26, 2021 (other than as indicated
therein), March 15, 2021, April 9, 2021 and June 4, 2021 (File No. 001-38323); and
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The
description of our common stock set forth in (i) our registration statements on Form 8-A12B, filed with the SEC on December 11, 2017
and Form 8-A12B/A filed with the SEC on July 23, 2018 (File No. 001-38323) and (ii) Exhibit 4.19—Description of Securities
to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
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Any
statement contained in this prospectus or any prospectus supplement, or in a document incorporated or deemed to be incorporated by reference
herein or therein, shall be deemed to be modified or superseded to the extent that a statement contained herein, or in any subsequent
prospectus supplement or in any subsequently filed document that also is incorporated or deemed to be incorporated by reference herein
or therein, modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus or any prospectus supplement.
You
may obtain, free of charge, a copy of any of these documents (other than exhibits to these documents unless the exhibits are specifically
incorporated by reference into these documents or referred to in this prospectus) from our website (www.adiapharma.com) or by
writing or calling us at the following address and telephone number:
1180
Seminole Trail, Suite 495
Charlottesville
VA 22901
Telephone
(434) 422-9800
ADIAL
PHARMACEUTICALS, INC.
699,980
Shares of Common Stock
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