Adial Pharmaceuticals, Inc. has amended agreements with investors to remove a penalty provision that was causing the company’s financial statements to classify future warrant rights as a liability. The filing states that this classification had driven the company’s stockholders’ equity below the minimum requirements for continued listing on the Nasdaq Capital Market.
On September 16, 2026, the company entered into an Amendment No. 2 to the Securities Purchase Agreement with certain PIPE Investors. This amendment removed the Penalty Provision, which had previously reduced investors' rights to purchase additional Milestone Warrants if they exercised their Initial Closing Pre-Funded Warrants early. The amendment also added a lock-up provision prohibiting the investors from selling shares issued upon the exercise of the Initial Closing Pre-Funded Warrants for a specified period.
The company also entered into an Amendment No. 1 to the Note Exchange Agreement with certain Former Azora Noteholders. This amendment similarly removed the Penalty Provision and added a lock-up provision for shares issued upon the exercise of Initial Closing Noteholder Pre-Funded Warrants.
The purpose of these amendments is to change the accounting treatment of the Milestone Warrant rights. By removing the penalty provision, the company intends to reclassify these rights from liability to equity on its balance sheet. This reclassification is expected to restore compliance with Nasdaq listing standards.
As a result of the amendments, the company filed an unaudited pro forma condensed balance sheet for the quarter ended June 30, 2026. The pro forma adjustments reflect the reclassification of $19.7 million related to PIPE Investors and $3.0 million related to Former Azora Noteholders from liability to equity. The balance sheet also gives effect to the conversion of the company's Series A Non-Voting Convertible Preferred Stock into common stock.
The company plans to hold its 2026 Annual Meeting of Stockholders on September 17, 2026. At this meeting, stockholders will be asked to approve the issuance of shares of common stock upon the conversion of the Series A Preferred Stock, which would represent more than 19.99% of the outstanding common stock and trigger a change of control.
