Quarterly report pursuant to Section 13 or 15(d)

Shareholders' Equity

v3.22.2.2
Shareholders' Equity
9 Months Ended
Sep. 30, 2022
Stockholders' Equity Note [Abstract]  
SHAREHOLDERS' EQUITY

6 — SHAREHOLDERS’ EQUITY

  

Common Stock Issuances

 

On February 10, 2022, the Company, entered into a securities purchase agreement with an accredited institutional investor (“the Investor”) providing for the issuance of (i) 2,322,250 shares of the Company’s common stock, par value $0.001, (ii) pre-funded warrants to purchase up to 1,865,000 shares of common stock with an exercise price of $0.001 per share, which Pre-Funded Warrants are to be issued in lieu of shares of common stock to ensure that the Investor does not exceed certain beneficial ownership limitations, and (iii) warrants, with a term of five years and six months from the date of issuance, to purchase an aggregate of up to 3,977,888 shares of common stock at an exercise price of $2.52 per share. The Company received net proceeds from the offering of $9,123,741 after deducting fees due to the placement agent and the Company’s transaction expenses. On June 8, 2022, all of the pre-funded warrants issued on February 10, 2022 were exercised for proceeds of $1,865, resulting in issuance of 1,865,000 shares common stock.

 

During the three and nine months ended September 30, 2022, the Company issued no shares of common stock and 470,000 shares of common stock at a cost of $818,350, respectively, to consultants for services rendered.

 

During the nine months ended September 30, 2022, the Company issued employees 1,250,000 shares of common stock as bonuses. The first issuance of 250,000 shares are subject to forfeiture for nominal consideration to Company on termination of the employee, the shares no longer being liable to forfeiture (“vesting”) on the following schedule: 1/24 of 166,667 shares vesting on the date of issue and the first of each of the next twenty-three subsequent months, and 83,333 shares vesting on the third anniversary of the date of issue. The second issuance of 1,000,000 shares are subject to forfeiture on the same conditions, but on the following schedule: 1/6 of the issued shares vesting six months from date of issue, then 1/12 vesting at the end of each subsequent three month period, the entire grant being vested three years from date of issue. On September 30, 2022, 55,556 shares were vested and 1,194,444 shares remained subject to repurchase.

 

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 our common stock that may be issued pursuant to stock awards under the 2017 Equity Incentive Plan was 1,750,000 shares. On October 13, 2022, by a vote of the shareholders, the number of shares issuable under the 2017 Equity Incentive Plan was increased to 9,500,000. At September 30, 2022, the Company had issued 2,414,993 shares under the 2017 Equity Incentive Plan and had outstanding 4,177,291 options to purchase shares of our common stock under the 2017 Equity Incentive Plan, as well as 139,686 options to purchase shares of common stock that were issued before the 2017 Equity Incentive Plan was adopted, leaving 2,907,716 available for issue.

 

Stock Options

 

The following table provides the stock option activity for the nine months ended September 30, 2022:

 

    Total
Options
Outstanding
    Weighted
Average
Remaining
Term
(Years)
    Weighted
Average
Exercise
Price
    Weighted
Average
Fair Value
at Issue
 
Outstanding December 31, 2021     3,585,310       7.80     $ 2.64     $ 2.02  
Issued     731,667               1.70       1.39  
Cancelled    
                         
Outstanding September 30, 2022     4,316,977       7.47     $ 2.48     $ 1.91  
Outstanding September 30, 2022, vested and exercisable     2,987,820       6.95     $ 2.63     $ 1.99  

 

At September 30, 2022, the total intrinsic value of the outstanding options was $0.

 

The Company used the Black Scholes valuation model to determine the fair value of the options issued, using the following key assumptions for the nine months ended September 30, 2022:

 

    September 30,
2022
 
Fair Value per Share   $ 0.59-2.00  
Expected Term (years)     6.0  
Expected Dividend   $  
Expected Volatility     107.88-116.54 %
Risk free rate     1.89-3.26 %

 

During the nine months ended September 30, 2022, 731,667 options to purchase shares of common stock were granted at a fair value of $1,017,095, an approximate weighted average fair value of $1.39 per option, to be amortized over a service a weighted average period of 2.89 years. As of September 30, 2022, $2,374,688 in unrecognized compensation expense will be recognized over a weighted average remaining service period of 1.8 years.

 

The components of stock-based compensation expense included in the Company’s Statements of Operations for the three and nine months ended September 30, 2022 and 2021 are as follows:

 

    Three months ended
September 30,
    Nine months ended
September 30,
 
    2022     2021     2022     2021  
Research and development options expense     51,799       79,604       180,627       223,413  
Total research and development expenses     51,799       79,604       180,627       223,413  
General and administrative options expense     426,069       468,281       1,490,246       1,289,192  
Stock and warrants issued to consultants and employees     79,147       640,992       969,476       1,844,254  
Total general and administrative expenses     505,216       1,109,273       2,459,722       3,133,446  
Total stock-based compensation expense   $ 557,015     $ 1,188,877     $ 2,640,349     $ 3,356,859  

 

Stock Warrants

 

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

 

   

Total

Warrants

    Weighted
Average
Remaining
Term
(Years)
   

Weighted

Average

Exercise

Price

    Average
Intrinsic
Value
 
Outstanding December 31, 2021     7,990,271       2.63     $ 4.82       0.14  
Issued     6,042,888               1.74          
Exercised     (1,865,000 )           $ 0.001          
Outstanding September 30, 2022     12,168,159       3.29     $ 4.03       0.01  

 

This table includes warrants to purchase 344,851 shares of common stock issued to consultants, including the 200,000 issued during the nine months ended September 30, 2022, with a total fair value of $263,195 at time of issue, calculated using the Black Scholes model assuming an underlying security values of $2.06, volatility rate of 107.88% risk-free rate of 1.71%, and an expected term of 6.5 years. During the nine months ended September 30, 2022, the Company recognized $305,230 in expense associated with these warrants with no additional expense remaining to be recognized.