Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the notes presented herein included in this Form 10-Q and the audited financial statements and the other information set forth in the Annual Report on Form 10-K for the year ended December 31, 2024 that we filed with the SEC on March 4, 2025 (the "2024 Form 10-K"). ln addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties including, but not limited to, those set forth below under "Risk Factors" and elsewhere herein, and those identified under Part I, Item 1A of the 2024 Form 10-K. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission ("SEC").

Overview

We are a clinical-stage biopharmaceutical company focused on the development of therapeutics for the treatment or prevention of addiction and related disorders. Our investigational new drug candidate, AD04, is being developed as a therapeutic agent for the treatment of alcohol use disorder ("AUD"). AD04 was investigated in a Phase 3 clinical trial, designated the ONWARD trial, for the potential treatment of AUD in subjects with certain target genotypes, which were identified using our companion diagnostic genetic test. Based on our analysis of the subgroup data from the ONWARD trial, we are now focused on completing the clinical development program for AD04 in the specified genetic subgroups to meet regulatory requirements primarily in the US and secondarily in Europe/UK.

We have devoted the vast majority of our resources to development efforts relating to AD04, including preparation for and conducting clinical trials, providing general and administrative support for these operations and protecting our intellectual property. We expect these activities to continue to demand most of our resources for the foreseeable future.

We currently do not have any products approved for sale and we have not generated any significant revenue since our inception. From our inception through the date of this Quarterly Report on Form 10-Q, we have funded our operations primarily through the private and public placements of debt, equity securities, warrant inducements, at-the market offerings and an equity line.

Our current cash and cash equivalents, including the cash received from the warrant inducement transaction in May 2025 and equity issuance in June 2025, are not expected to be sufficient to fund operations for the twelve months from the date of filing this Quarterly Report on Form 10-Q, based on our current commitments and development plans. We have incurred recurring losses and need to raise additional funds to sustain our operations. These factors raise substantial doubt about our ability to continue as a going concern.

We have incurred net losses in each year since our inception, including net losses of approximately $6.0 million and $13.2 million for the nine months ended September 30, 2025 and year ended December 31, 2024, respectively. We had accumulated deficits of approximately $88 million and $82 million as of September 30, 2025 and December 31, 2024, respectively. All of our operating losses in the three months ended September 30, 2025 resulted from costs incurred in continuing operations, including costs in connection with our continuing research and development programs and from general and administrative costs associated with our operations.

We will not generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for AD04, which we expect will take a number of years and is subject to significant uncertainty.

Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop AD04.

Recent Developments

Clinical Developments

On September 16, 2025, we announced the receipt of the final meeting minutes from our End of Phase 2 (EOP2) meeting with the FDA held on July 29, 2025. The minutes provide the FDA's formal input into the AD04 Phase 3 adaptive clinical trial design and broader clinical development strategy. The objective for the EOP2 meeting was to align with the FDA on the design of the Phase 3 clinical development program for AD04. The discussion included key elements of the planned adaptive study design elements, such as target population, clinical endpoints, inclusion and exclusion criteria, dosing regimen, and affirmation of the biomarker-positive and biomarker-negative groups.

Financings

May 2025 Warrant Inducement Transaction

On May 2, 2025, we entered into a warrant inducement agreement (the "May 2025 Inducement Agreement") with an existing healthcare-focused institutional investor of ours (the "Holder") for the immediate exercise of existing Series B Warrants to purchase 1,418,440 shares of our common stock and Series C Warrants, and together with the Series B Warrants (the "Existing Warrants") to purchase 2,300,000 shares of our common stock at a reduced exercise price of $0.74 for net proceeds of approximately $2.2 million. In consideration for the immediate exercise in full of the Existing Warrants, the investor received, in a private placement, new unregistered (i) Series B-1 warrants to purchase up to 2,482,270 shares of common stock(the "Series B-1 Warrants"), and (ii) Series C-1 Warrants to purchase up to 4,025,000 shares of common stock (the "Series C-1 Warrants"), and together with the Series B-1 Warrants the "May 2025 Warrants"). Upon issuance the May 2025 Warrants had an exercise price of $0.74 and were exercisable upon stockholder approval, which approval was obtained on August 1, 2025. The Series B-1 Warrants expire five years from the date of such approval and the Series C-1 Warrants will expire eighteen months from the date of such approval. The warrant inducement transaction closed on May 5, 2025.

In addition, we issued to a former placement agent's designees tail fee warrants, consisting of Placement Agent Series B-1 Common Stock Purchase Warrants and Placement Agent Series C-1 Common Stock Purchase Warrants, to purchase up to an aggregate of 223,106 shares of common stock, which tail fee warrants have the same terms as the May 2025 Warrants, except that they have an exercise price of $0.925 per share.

June 2025 Best Efforts Offering and Warrant Amendment

On June 17, 2025, we entered into an amendment agreement (the "Warrant Amendment") with the Holder, pursuant to which we agreed (i) to amend the May 2025 Warrants to reduce the exercise price of the May 2025 Warrants to $0.35 per share, (ii) to amend the May 2025 Warrants to modify the termination date thereof to (x) June 17, 2030 for the Series B-1 Warrants and (y) December 17, 2026 for the Series C-1 Warrants, and (iii) to amend (the "May 2025 Inducement Agreement"), to provide that we would hold a special meeting of stockholders at the earliest practicable date, but in no event later than one hundred twenty (120) days after the closing date, of the June 2025 Offering (as defined below) for the purpose of obtaining Stockholder Approval (as defined in the May 2025 Inducement Agreement).

On June 18, 2025, we consummated a best efforts offering (the "June 2025 Offering") of (i) 5,341,200 shares of our common stock (the "June 2025 Shares"), (ii) pre-funded warrants (the "June 2025 Pre-Funded Warrants") to purchase up to an aggregate of 5,758,800 shares of our common stock (the "the June 2025 Pre-Funded Warrant Shares"), (iii) Series D warrants (the "Series D Warrants") to purchase up to an aggregate of 11,100,000 shares of our common stock (the "Series D Warrant Shares"), (iv) Series E warrants (the "Series E Warrants" and, together with the Series D Warrants, the "June 2025 Warrants") to purchase up to an aggregate of 8,325,000 shares of common stock (the "Series E Warrant Shares" and, together with the Series D Warrant Shares, the "June 2025 Warrant Shares"). Each June 2025 Share or June 2025 Pre-Funded Warrant was sold together with one Series D Warrant and one Series E Warrant. The combined public offering price for each Share and accompanying June 2025 Warrants was $0.3251. The combined public offering price for each Pre-Funded Warrant and accompanying June 2025 Warrants was $0.3241. The aggregate net proceeds from the June 2025 Offering was approximately $3.0 million.

Each June 2025 Pre-Funded Warrant was immediately exercisable for one June 2025 Pre-Funded Warrant Share at an exercise price of $0.001 per share and will remain exercisable until such June 2025 Pre-Funded Warrant is exercised in full. The June 2025have an exercise price of $0.35 per June 2025 Warrant Share and will be exercisable beginning on the effective date of stockholder approval of the issuance of the June 2025 Warrant Shares, which approval was obtained on August 1, 2025. The Series D Warrants will expire on the 5-year anniversary of the date of such approval and the Series E Warrants will expire on the 18-month anniversary of the date of such approval. As of September 30, 2025 all of the pre-funded warrants have been exercised.

At the Market Offering

On August 1, 2025, we, entered into a sales agreement (the "ATM") with A.G.P./Alliance Global Partners ( "AGP") providing for the sale by us of our shares of common stock, from time to time, through the ATM, with certain limitations on the amount of common stock that may be offered and sold by us. The aggregate market value of the shares of Common Stock eligible for sale under the ATM prospectus supplement filed in connection with the ATM was $4,983,000 which is based on the limitations of such offerings under SEC regulations. The ATM provides that we will pay AGP commissions for its services in acting as agent in the sale of shares of common stock pursuant to the ATM. AGP is entitled to compensation at a fixed commission rate of 3.0% of the gross proceeds from the sale of shares of common stock pursuant to the ATM. During the three months and nine months ended September 30, 2025, we sold 1,869,996 shares of common stock under the ATM and received net proceeds of approximately $478,000.

2025 Annual Meeting of Stockholders

At our 2025 Annual Meeting of Stockholders (the "2025 Annual Meeting"), which was held on August 1, 2025, our stockholders approved, among other matters: (1) the issuance of up to an aggregate of 6,730,376 shares of our common stock upon the exercise of the May 2025 Warrants and placement agent warrants issued pursuant to the May 2025 Inducement Agreement; (2) the issuance of up to an aggregate of 19,425,000 shares of our common stock upon the exercise of the June 2025 Warrants issued in connection with the June 2025 Offering; (3) a reverse stock split with respect to our issued and outstanding shares of our common stock, at a ratio within the range of 1-for-2 to 1-for-25, with the ratio within such range to be determined at the discretion of the Board and included in a public announcement, subject to the authority of the Board of Directors to abandon such amendment; (4) an amendment to our Certificate of Incorporation, as amended (the "Certificate of Incorporation"), at the discretion of our Board of Directors, to increase the authorized number of shares of our common stock, from 50,000,000 to 100,000,000; and (5) an amendment to our 2017 Equity Incentive Plan (the "2017 Plan") to increase the number of shares of our common stock that we will have authority to grant under the 2017 Plan from 2,000,000 to 5,000,000.

Results of operations for the three months ended September 30, 2025 and 2024 (rounded to nearest thousand)

The following table sets forth the components of our statements of operations in dollars for the periods presented:

		For the Three Months Ended September 30,
		2025				2024				Change
Research and development expenses		$	521,000			$	1,032,000			$	(511,000	)
General and administrative expenses			1,243,000				1,180,000				63,000
Total Operating Expenses			1,764,000				2,212,000				(448,000	)
Loss From Operations			(1,764,000	)			(2,212,000	)			448,000
Inducement expense			-				-				-
Other income (expense)			(1,000	)							(1,000	)
Change in value of equity method investment			(77,000	)			(31,000	)			(46,000	)
Interest income			48,000				51,000				(3,000	)
Total other income (expenses)			(30,000	)			20,000				(50,000	)
Net loss			(1,794,000	)			(2,192,000	)			398,000

Research and development ("R&D") expenses

Research and development expenses decreased by approximately $511,000 (50%) during the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The decrease was mainly due to decreased clinical activity in the three months ended September 30, 2025 as compared to the same period in 2024.

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

General and administrative expenses increased by approximately $63,000 (5%) during the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The increase was mainly due to expenses incurred for our annual meeting in the three months ended September 30, 2025 as compared to the same period in 2024 expenses occurred in a different quarter.

Change in Value of Equity Method Investment

The expense recognized to the change in the value of our equity method investment in Adovate, LLC increased by approximately $46,000 in the three months ended September 30, 2025 compared to the three months ended September 30, 2024. This increase is due to variations in the loss recognized related to our equity investment which includes a lower equity share, with changes to the value of our Adovate equity recognized on a three month lag.

Total Other income (expenses)

Total other income, excluding losses from the equity method investment, decreased by approximately $4,000 in the three months ended September 30, 2025 compared to the three months ended September 30, 2024. This decrease was mainly due to lower interest income due to lower cash balances in the three months ended September 30, 2025 as compared to the three months ended September 30, 2024.

Results of operations for the nine months ended September 30, 2025 and 2024 (rounded to nearest thousand)

The following table sets forth the components of our statements of operations in dollars for the periods presented:

		For the Nine Months Ended September 30,
		2025				2024				Change
Research and development expenses		$	2,000,000			$	2,498,000			$	(498,000	)
General and administrative expenses			3,914,000				3,845,000				69,000
Total Operating Expenses			5,914,000				6,343,000				(429,000	)
Loss From Operations			(5,914,000	)			(6,343,000	)			429,000
Inducement expense			-				(4,464,000	)			4,464,000
Losses from equity method investment			(339,000	)			(444,000	)			105,000
Other income (expenses)			165,000				-				165,000
Interest income			107,000				125,000				(18,000	)
Total other income (expenses)			(67,000	)			(4,783,000	)			4,716,000
Net loss			(5,981,000	)			(11,126,000	)			5,145,000

Research and development ("R&D") expenses

Research and development expenses decreased by approximately $498,000 (20%) in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The decrease was primarily driven by decreased clinical activity expense in the nine months ended September 30, 2025 as compared to the same period in 2024.

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

General and administrative expenses increased by approximately $69,000 in the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. This increase was mainly due to higher compensation expense in the nine months ended September 30, 2025 as compared to the same period in 2024.

Losses from Equity Method Investment

The expense recognized to the change in the value of our equity method investment in Adovate, LLC decreased by approximately $105,000 in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This decrease is due to variations in the loss recognized related to our equity investment which includes a lower equity share, with changes to the value of our Adovate equity recognized on a three month lag.

Inducement Expense

The inducement expense of approximately $4,464,000 which was a one-time, noncash expense associated with the issuance of new warrants to induce the exercise of outstanding warrants which occurred in the nine months ended September 30, 2024.

Total Other income (expenses)

Total other income, excluding losses from the equity method investment and inducement expense, increased by $147,000 (118%) in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This increase was due to the recognition of a milestone payment received from Adovate of $150,000 during the nine months ended September 30, 2025.

Liquidity and Capital Resources at September 30, 2025

Our principal liquidity needs have historically been working capital, R&D costs including clinical trials, patent costs and personnel costs. We expect these needs to continue to increase in the near term as we engage in clinical trials and develop and eventually commercialize our compound, if approved by regulatory authorities. Over the next several years, we expect to increase our R&D expenses as we undergo clinical trials to demonstrate the safety and efficacy of our lead product candidate. To date, we have funded our operations primarily with the proceeds from our initial and secondary public offerings, at the market offerings, private placements, warrant inducements, use of our equity line, as well as other equity financings, warrant exercises, and the issuance of debt securities.

During the year ended December 31, 2024, our primary sources of funding were the exercise of previously issued warrants, sales through an At the Market Offering Agreement with H.C. Wainwright & Co., LLC (the "HCW ATM Agreement") and the March 2024 warrant inducement described below.

On March 1, 2024, warrants to purchase 268,440 shares of common stock at an exercise price of $2.82 per share were exercised for gross proceeds of approximately $757 thousand.

On March 1, 2024, we entered into an inducement agreement (the "March 2024 Inducement Agreement") pursuant to which the holder of certain existing warrants exercised for cash warrants to purchase up to approximately 1,150,000 shares of common stock, at an exercise price of $2.82 per share. The transactions contemplated by the March 2024 Inducement Agreement closed on March 6, 2024 and we received aggregate gross proceeds of approximately $3.5 million, before deducting placement agent fees and other expenses payable by us. Net proceeds of this transaction were approximately $3.1 million.

During the year ended December 31, 2024, we sold 2,348,520 shares of common stock through the HCW ATM Agreement, for net proceeds of approximately $4 million after placement fees and expenses.

On May 2, 2025, we entered into the May 2025 Inducement Agreement with the Holder providing for the immediate exercise of existing the Series B Warrants to purchase 1,418,440 shares of our common stock and the Series C Warrants, and together with the Series B Warrants to purchase 2,300,000 shares of our common stock at a reduced exercise price of $0.74 for net proceeds of approximately $2.2 million.

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

For the three months ended September 30, 2025, we sold 1,869,996 shares of common stock through the AGP ATM, for net proceeds of approximately $478 thousand after placement fees and expenses.

At September 30, 2025, we had cash and cash equivalents of $4.6 million. We completed a Phase 1 pharmacokinetic study of AD04 in 2024 with a total cost of approximately $1.4 million. We plan to begin a Phase III study of AD04 in the first half of 2026, assuming availability of adequate funding, conclusion of ongoing discussions with regulatory authorities and finalization of the trial design, and availability of sufficient drug product to carry out the study. We have signed a contract with a vendor for approximately $2.4 million, which is cancellable by either party, to produce sufficient drug product to carry out the study, validate the manufacturing process, and manufacture registration batches for commercial usage. The amount remaining on this contract after billings to date was approximately $2.0 million as of September 30, 2025. Our cash on hand and cash equivalents, including the cash proceeds from the June 2025 Offering, the warrant inducement that closed on May 5, 2025 and ATM sales, is expected to be sufficient to fund our operations and meet our existing commitments into the second quarter of 2026, based on our current commitments. We have incurred recurring losses and need to raise additional funds to sustain our operations. These factors raise substantial doubt about our ability to continue as a going concern.

We will require additional financing as we continue to execute our overall business strategy. Our current planning assumption is to conduct one Phase 3 trial with adaptive trial design, one subsequent confirmatory Phase 3 trial and one open label extension study. These assumptions may change based on ongoing discussions with regulatory authorities and final trial designs. Our liquidity may be negatively impacted as a result of research and development cost increases in addition to general economic and industry factors. Our continued operations will depend on our ability to raise additional capital through various potential sources, such as equity and/or debt financings, grant funding, strategic relationships, or out-licensing in order to complete its subsequent clinical trial requirements for AD04. At this time, we have no committed sources of funding and our ability to use our ATM is restricted by certain SEC rules and our ability to use our equity line is restricted by certain Nasdaq rules. Management is actively pursuing financing and other strategic plans but can provide no assurances that such financing or other strategic plans will be available on acceptable terms, or at all. Without additional funding, we will be required to delay, scale back or eliminate some or all of our research and development programs, which would likely have a material adverse effect on us and our financial statements.

If we raise additional funds by issuing equity securities or convertible debt, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our products, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. We cannot be certain that additional funding will be available on acceptable terms, or at all. Any failure to raise capital in the future could have a negative impact on our financial condition and our ability to pursue our business strategies. These factors raise substantial doubt about our ability to continue as a going concern.

Cash flows

		For the Nine Months Ended September 30,
(rounded to nearest thousand)		2025				2024
Provided by (used in)
Operating activities		$	(5,168,000	)			(5,468,000	)
Investing activities			150,000				-
Financing activities			5,874,000				7,846,000
Net increase in cash and cash equivalents		$	856,000				2,378,000

Net cash used in operating activities - continuing operations

Net cash used in operating activities decreased by approximately $300,000 in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The primary driver was a decrease in the net loss during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, excluding the inducement expense.

Net cash provided by investing activities

Net cash provided by investing activities increased by approximately $150,000 in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This increase was due to the recognition of a milestone payment received from Adovate of $150,000.

Net cash provided by financing activities

Net cash provided by financing activities decreased by approximately $1,972,000 in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. During the nine months ended September 30, 2025, we realized proceeds of approximately $5,874,000 from the June 2025 Offering, ATM sales and from the exercise of warrants in connection with the May 2025 Inducement Agreement, as compared to approximately $7,846,000 for the same period in 2024, from sales under the HCW ATM Agreement and exercise of warrants in connection with the March 2024 Inducement Agreement.

Off-balance sheet arrangements

We do not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

See Note 3 to the unaudited condensed consolidated financial statements for a discussion of recent accounting pronouncements.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results and experiences may differ materially from these estimates. We did not identify any critical accounting estimates. Our significant accounting policies are more fully described in Note 3 to our unaudited condensed consolidated financial statements included with this report.