Adial Pharmaceuticals (NASDAQ: ADIL) details Azora merger finances and $26.8M PIPE
Adial Pharmaceuticals, Inc. filed an amended report to add the historical financial statements of its newly acquired subsidiary Azora Therapeutics, Inc. and unaudited pro forma condensed combined financial information following completion of their June 11, 2026 merger. The amendment includes Azora’s audited financials for 2025 and 2024, unaudited results for the quarter ended March 31, 2026, and combined pro forma statements for 2025 and the first quarter of 2026. Azora is a pre‑revenue biopharmaceutical company focused on autoimmune diseases, with a 2025 net loss of $0.7 million and year‑end cash of $0.3 million, and its auditors highlight substantial doubt about its ability to continue as a going concern. The notes describe the merger consideration and a concurrent PIPE financing under which Adial issued pre‑funded and incentive warrants for gross proceeds of about $26.8 million, with the potential for an additional $26.8 million and the extinguishment of $5.5 million of Azora convertible notes through warrant exchanges.
Positive
- Adial raises ~$26.8M in PIPE financing via Initial Closing Pre-Funded Warrants priced at $2.7489, significantly strengthening liquidity around the Azora acquisition.
- Potential additional ~$26.8M PIPE proceeds from Milestone Pre-Funded and Milestone Incentive Warrants could further bolster capital if specified milestones are achieved.
- $5.5M of Azora convertible promissory notes extinguished through exchange into pre-funded warrants, reducing debt overhang at the acquired business.
Negative
- Azora’s financial statements include a going-concern warning, citing recurring losses, limited cash ($0.3M at December 31, 2025), and dependence on future capital raises.
- Azora remains loss-making, with net losses of $0.7M in 2025 and $0.2M for the quarter ended March 31, 2026, and no product revenue to offset R&D and G&A costs.
Filing Explained
The merger issued equity-linked securities whose conversion or exercise would increase Adial’s common share count, subject mainly to stockholder approval.
At the completed
The initial PIPE closing occurred on
The pre-funded warrants have a nominal
8-K Event Classification
Key Figures
Key Terms
going concern financial
Pre-Funded Warrant financial
PIPE Financing financial
Milestone Incentive Warrants financial
convertible preferred stock financial
fair value option financial
AI-generated analysis. How Rhea-AI works. Not financial advice.
FAQ
What does Adial Pharmaceuticals (ADIL) add in this 8-K/A amendment?
What are Azora Therapeutics’ key 2025 financial figures in the ADIL filing?
What going-concern risks are disclosed for Azora in Adial’s (ADIL) filing?
What are the main terms of the PIPE financing described by Adial Pharmaceuticals (ADIL)?
How were Azora’s convertible promissory notes treated in the Adial (ADIL) transaction?
What does the pro forma information in the Adial (ADIL) amendment represent?
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
(Exact name of registrant as specified in charter)
(State or other jurisdiction of incorporation)
| (Commission File Number) | (IRS Employer Identification No.) |
(Address of principal executive offices and zip code)
(
(Registrant’s telephone number including area code)
(Former Name and Former Address)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR 240.14a-12) | |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbols | Name of each exchange on which registered | ||
|
The (Nasdaq Capital Market) |
Indicate by check mark whether the registrant is an emerging growth company as defined in in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Explanatory Note
In the Original Form 8-K, the Company stated its intention to file the historical financial statements of Azora and the pro forma financial information required by parts (a) and (b) of Item 9.01 of Form 8-K not later than 71 calendar days after the date that the Original Form 8-K was required to be filed with the SEC. This Amendment amends the Original Form 8-K in order to include the required financial information, which is filed as exhibits hereto and is incorporated herein by reference.
This Amendment should be read in conjunction with the Original Form 8-K. Except as set forth herein, no modifications have been made to information contained in the Original Form 8-K, and the Company has not updated any information contained therein to reflect events that have occurred since the date of the Original Form 8-K. The unaudited pro forma condensed combined financial information, and the related notes, attached as Exhibit 99.3 to this Amendment have been presented for informational purposes only, as required by Form 8-K, and does not represent or purport to represent actual financial positions or results of operations that the Company would have achieved had the companies been combined as of the dates or during the periods presented, nor do they represent or purport to represent any anticipated combined financial position or the future results of operations that the Company may achieve after the Merger.
In accordance with Rule 12b-15 of the Securities Exchange Act of 1934, as amended, the complete text of Item 9.01 (as amended) is included herein.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired.
The historical audited consolidated balance sheets of Azora as of December 31, 2025 and 2024 and the related audited consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ deficit, and cash flows for the years ended December 31, 2025 and 2024, and the notes related thereto, are included as Exhibit 99.3 hereto and incorporated by reference into this Item 9.01(a).
The unaudited condensed consolidated financial statements of Azora as of March 31, 2026 and 2025 and for the three months ended March 31, 2026 and 2025, and the related notes thereto, are included as Exhibit 99.4 hereto and incorporated by reference into this Item 9.01(a).
(b) Pro forma financial information.
The Company’s unaudited pro forma condensed combined balance sheet as of March 31, 2026, the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2026, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2025, and the related notes thereto, are included as Exhibit 99.5 hereto and incorporated by reference into this Item 9.01(b).
1
(d) Exhibits
The following exhibits are furnished with this Current Report on Form 8-K:
| Exhibit Number |
Exhibit Description | |
| 2.1* | Agreement and Plan of Merger, dated June 11, by and among Adial Pharmaceuticals, Inc., Adial First Merger Sub, Inc., Adial Second Merger Sub, LLC and Azora Therapeutics, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 3.1 | Certificate of Designation of Series A Non-Voting Convertible Preferred Stock, dated June 11, 2026 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 4.1 | Form of Pre-Funded Warrant (Financing) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 4.2 | Form of Warrant (Financing) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 4.3 | Form of Pre-Funded Warrant (Note Exchange) (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 4.4 | Form of Warrant (Note Exchange) (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 10.1* | Form of Securities Purchase Agreement, dated as of June 11, 2026, by and among Adial Pharmaceuticals, Inc. and each investor listed on Exhibit A thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 10.2* | Form of Exchange Agreement, dated as of June 11, 2026, by and among Adial Pharmaceuticals, Inc. and each note holder listed on Exhibit A thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 10.3 | Form of Registration Rights Agreement, by and among Adial Pharmaceuticals, Inc. and the investors signatory thereto (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 10.4 | Amendment to Amended and Restated Employment Agreement between Adial Pharmaceuticals, Inc. and Cary J. Claiborne, effective June 11, 2026 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 10.5 | Amendment to Employment Agreement between Adial Pharmaceuticals, Inc. and Tony Goodman, effective June 11, 2026 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 10.6 | Amendment to Employment Agreement between Adial Pharmaceuticals, Inc. and Vinay Shah, effective June 11, 2026 (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 23.1 | Consent of CBIZ CPAs P.C., independent registered public accounting firm for Azora Therapeutics, Inc. | |
| 99.1 | Press Release issued on June 11, 2026 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 99.2 | Investor Presentation, dated June 2026 (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2026). | |
| 99.3 | Audited consolidated financial statements of Azora Therapeutics, Inc. as of and for the years ended December 31, 2025 and December 31, 2024 and the related notes thereto. | |
| 99.4 | Unaudited condensed consolidated financial statements of Azora Therapeutics, Inc. as of and for the three months ended March 31, 2026 and 2025 and the related notes thereto. | |
| 99.5 | Unaudited pro forma condensed combined financial information of Adial Pharmaceuticals, Inc. as of and for the three months ended March 31, 2026 and for the year ended December 31, 2025, and the related notes thereto. | |
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within in the inline XBRL document) |
| * | Certain schedules and attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to provide, on a supplemental basis, a copy of any omitted schedules and attachments to the Securities and Exchange Commission or its staff upon request. |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: August 10, 2026 | ||
| ADIAL PHARMACEUTICALS, INC. | ||
| By: | /s/ Cary J. Claiborne | |
| Name: | Cary J. Claiborne | |
| Title: | President and Chief Executive Officer | |
3
Exhibit 99.3
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Independent Auditors’ Report | F-2 |
| Consolidated Financial Statements as of and for the years ended December 31, 2025 and 2024: | |
| Consolidated Balance Sheets | F-4 |
| Consolidated Statements of Operations and Comprehensive Loss | F-5 |
| Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit | F-6 |
| Consolidated Statements of Cash Flows | F-7 |
| Notes to Consolidated Financial Statements | F-8 |
F-1
Independent Auditors’ Report
To the Board of Directors and Stockholders of
Azora Therapeutics, Inc.
Opinion
We have audited the consolidated financial statements of Azora Therapeutics, Inc. (the “Company”), which comprise the consolidated balance sheets as of December 31, 2025 and 2024, and the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ deficit, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (“GAAS”). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant losses, needs to raise additional funds to meet its obligations to sustain its operations and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.
F-2
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
| ● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| ● | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| ● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| ● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| ● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
/s/ CBIZ CPAs P.C.
CBIZ CPAs P.C.
Melville, NY
August 10, 2026
F-3
AZORA THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 282 | $ | 675 | ||||
| Prepaid expenses and other current assets | 8 | 245 | ||||||
| Total current assets | 290 | 920 | ||||||
| Property and equipment, net | - | 1 | ||||||
| Other noncurrent assets | 7 | - | ||||||
| Total assets | $ | 297 | $ | 921 | ||||
| Liabilities, convertible preferred stock and stockholders’ deficit | ||||||||
| Current liabilites: | ||||||||
| Accounts payable | $ | 26 | $ | 57 | ||||
| Deferred grant liability | - | 4 | ||||||
| Accrued expenses and other current liabilities | 459 | 59 | ||||||
| Total current liabilities | 485 | 120 | ||||||
| Total liabilities | $ | 485 | $ | 120 | ||||
| Commitments and contingencies (Note 11) | ||||||||
| Series A-1 convertible preferred stock, $0.0001 par value, 11,191,152 shares authorized as of December 31, 2025 and 2024; 11,191,152 shares issued and outstanding as of December 31, 2025 and 2024; liquidation value of $5,596 as of December 31, 2025 and 2024 | 5,542 | 5,542 | ||||||
| Series A-2 convertible preferred stock, $0.0001 par value, 6,783,587 shares authorized as of December 31, 2025 and 2024; 6,783,587 shares issued and outstanding as of December 31, 2025 and 2024; liquidation value of $2,764 as of December 31, 2025 and 2024 | 2,764 | 2,764 | ||||||
| Series A-3 convertible preferred stock, $0.0001 par value, 1,082,443 shares authorized as of December 31, 2025 and 2024; 1,055,262 shares issued and outstanding as of December 31, 2025 and 2024; liquidation value of $581 as of December 31, 2025 and 2024 | 559 | 559 | ||||||
| Total convertible preferred stock | 8,865 | 8,865 | ||||||
| Stockholders’ Deficit: | ||||||||
| Common Stock, $0.0001 par value, 48,800,000 shares authorized as of December 31, 2025 and 2024; 22,857,534 shares issued and outstanding as of December 31, 2025 and 2024 | 2 | 2 | ||||||
| Additional paid-in capital | 107 | 97 | ||||||
| Accumulated deficit | (9,363 | ) | (8,619 | ) | ||||
| Accumulated other comprehensive income | 201 | 456 | ||||||
| Total Stockholders’ Deficit | (9,053 | ) | (8,064 | ) | ||||
| Total liabilities, convertible preferred stock and stockholders’ deficit | $ | 297 | $ | 921 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
AZORA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands)
| Year Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Operating expenses: | ||||||||
| Research and development | $ | 340 | $ | 588 | ||||
| General and administrative | 660 | 762 | ||||||
| Total operating expenses | 1,000 | 1,350 | ||||||
| Loss from operations | (1,000 | ) | (1,350 | ) | ||||
| Other income (expense), net: | ||||||||
| Interest income | 1 | 26 | ||||||
| Other income (expense), net | 255 | (316 | ) | |||||
| Total other income (expense), net | 256 | (290 | ) | |||||
| Net loss | $ | (744 | ) | $ | (1,640 | ) | ||
| Other comprehensive income (loss) | ||||||||
| Foreign currency translation adjustment, net of taxes | (255 | ) | 384 | |||||
| Total other comprehensive income (loss) | (255 | ) | 384 | |||||
| Total comprehensive loss | $ | (999 | ) | $ | (1,256 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
AZORA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(in thousands, except share and per share amounts)
| Convertible Preferred Stock | Additional | Accumulated other | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Series A-1 | Series A-2 | Series A-3 | Common Stock | Paid-In | Accumulated | comprehensive | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | income (loss) | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 11,191,152 | $ | 5,542 | 6,783,587 | $ | 2,764 | 1,055,262 | $ | 559 | 22,849,982 | $ | 2 | $ | 84 | $ | (6,979 | ) | $ | 72 | $ | (6,821 | ) | ||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | - | - | 13 | - | - | 13 | ||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock | - | - | - | - | - | - | 7,552 | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | - | - | 384 | 384 | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (1,640 | ) | - | (1,640 | ) | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | 11,191,152 | $ | 5,542 | 6,783,587 | $ | 2,764 | 1,055,262 | $ | 559 | 22,857,534 | $ | 2 | $ | 97 | $ | (8,619 | ) | $ | 456 | $ | (8,064 | ) | ||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | - | - | 10 | - | - | 10 | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | - | - | (255 | ) | (255 | ) | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (744 | ) | - | (744 | ) | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | 11,191,152 | $ | 5,542 | 6,783,587 | $ | 2,764 | 1,055,262 | $ | 559 | 22,857,534 | $ | 2 | $ | 107 | $ | (9,363 | ) | $ | 201 | $ | (9,053 | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
AZORA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Year Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (744 | ) | $ | (1,640 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | 1 | 1 | ||||||
| Stock-based compensation expense | 10 | 13 | ||||||
| Realized and unrealized foreign exchange gain (loss) | (251 | ) | 449 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 252 | 687 | ||||||
| Other noncurrent assets | (7 | ) | - | |||||
| Accounts payable | (31 | ) | 19 | |||||
| Deferred grant liability | (4 | ) | (162 | ) | ||||
| Accrued expenses | 399 | (168 | ) | |||||
| Net cash used in operating activities | (375 | ) | (801 | ) | ||||
| Effect of exchange rate changes on cash | (18 | ) | (27 | ) | ||||
| Net decrease in cash | (393 | ) | (828 | ) | ||||
| Cash at beginning of period | 675 | 1,503 | ||||||
| Cash at end of period | $ | 282 | $ | 675 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Basis of Presentation
Azora Therapeutics, Inc. (collectively with its wholly owned subsidiary, Azora Therapeutics Australia PTY LTD, the “Company”) was originally incorporated on May 4, 2017 under the laws of the state of Delaware under the name Meya Pharmaceuticals, Inc. In March 2019, Meya Pharmaceuticals, Inc. changed its name to Azora Therapeutics, Inc. The Company is a biopharmaceutical company focused on developing aryl hydrocarbon receptor agonists to treat autoimmune diseases. The Company’s small molecule formulations are designed to rebalance the body’s natural immune response mechanisms in order to treat serious inflammatory diseases.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.
Risks and Uncertainties
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, the outcome of clinical trials, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technologies, compliance with government regulations, ability to secure additional capital to fund operations, and potential delays associated with the Company’s anticipated and planned trials.
There can be no assurance that the Company will be able to successfully complete the development of, or receive regulatory approval for, any products developed, and if approved, that any products will be commercially viable. Any products resulting from the Company’s current research and development efforts will require significant additional research and development, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel, infrastructure, and extensive compliance reporting capabilities. The Company has not generated any revenue from the sale of any products to date. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
Merger and Financing
On June 11, 2026, Adial Pharmaceuticals, Inc. (“Adial” or the “Acquirer”) completed the acquisition of the Company pursuant to a merger agreement, with Azora surviving as a wholly owned subsidiary of Adial. At closing, in exchange for all shares of capital stock of the Company, Adial issued 437,421 shares of common stock and 12,930.617 shares of Series A Non-Voting Convertible Preferred Stock, each convertible into 1,000 shares of common stock, subject to certain conditions, including stockholder approval. The Company’s outstanding stock options were assumed and converted into options to purchase an aggregate of 1,177,782 shares of Adial’s common stock, also subject to stockholder approval.
Concurrently with the Closing, Adial entered into the Purchase Agreement with certain purchasers (the “PIPE Investors”), pursuant to which Adial agreed to issue Initial Closing Pre-Funded Warrants, Milestone Pre-Funded Warrants, and Milestone Incentive Warrants in a private placement financing (the “PIPE Financing”). At the Initial Closing on June 12, 2026, Adial issued Initial Closing Pre-Funded Warrants to purchase an aggregate of 9,749,345 shares of its common stock at a price of $2.7489 per Initial Closing Pre-Funded Warrant (the “Purchase Price”), for gross proceeds of approximately $26.8 million. The PIPE Investors may also participate in a future Milestone Closing, pursuant to which Adial may issue Milestone Pre-Funded Warrants to purchase up to an aggregate of 9,749,345 shares of its common stock and Milestone Incentive Warrants to purchase up to an aggregate of 9,749,345 shares of its common stock upon the occurrence of specified milestone events, resulting in aggregate additional proceeds of up to approximately $26.8 million.
F-8
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Each Pre-Funded Warrant has an exercise price of $0.001 per share, does not expire until exercised in full, and is exercisable upon receipt of stockholder approval, subject to certain beneficial ownership limitations. The Milestone Incentive Warrants have an exercise price equal to the Purchase Price, expire five years from issuance, and are subject to substantially similar stockholder approval and beneficial ownership provisions.
In connection with the Merger, Adial also facilitated the extinguishment of $5.5 million of Azora convertible promissory notes through exchange agreements, whereby noteholders received pre-funded warrants to purchase 2,031,603 shares of common stock and may participate in future milestone financings on similar terms as PIPE Investors. The former noteholders are also entitled to participate in Milestone Closings to purchase Milestone Pre-Funded Warrants and Milestone Incentive Warrants to purchase up to an aggregate of 2,031,603 shares of Adial common stock each, on substantially the same terms as the PIPE Investors.
Liquidity and Going Concern
The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are available to be issued.
To date, the Company has funded its operations primarily with proceeds from the issuance and sale of convertible preferred stock and convertible promissory notes and the receipt of grant funding. As of December 31, 2025, the Company has raised an aggregate of $9.4 million in net proceeds through the sale of convertible preferred stock and convertible promissory notes and the receipt of grant funding. The Company has incurred annual net operating losses in every year since inception, including net losses of $0.7 million and $1.6 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, the Company had cash of $0.3 million and an accumulated deficit of $9.4 million. The Company expects its operating losses to continue into the foreseeable future as it continues to pursue its research and development efforts.
The Company’s ability to continue as a going concern is dependent upon the ability to raise additional debt or equity capital. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to the Company. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Based upon the Company’s current plans, management believes there currently is insufficient financial resources to fund the Company’s operations for at least twelve months from the date the 2025 consolidated financial statements are available to be issued. As such, there is substantial doubt about the Company’s ability to continue as a going concern. To address the Company’s capital needs, the Company will continue to actively pursue additional equity or debt financing. Adequate financing opportunities might not be available to the Company, when and if needed, on acceptable terms or at all. If the Company is unable to obtain additional financing in sufficient amounts or on acceptable terms under such circumstances, the Company’s operating results and prospects will be adversely affected. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
F-9
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the consolidated financial statements. Areas of the consolidated financial statements where estimates may have the most significant effect include, but are not limited to, accrued research and development expenses, determination of the fair value of stock-based compensation expense, and the fair value of common stock.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist principally of cash. The Company places its cash with high credit quality financial institutions. At times, cash may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement (“ASC 820”) identifies fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In determining fair value, the use of various valuation approaches, including market, income, and cost approaches, is permitted.
A fair value hierarchy has been established based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from sources independent of the reporting entity and unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.
As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:
| ● | Level 1 – Quoted market prices in active markets; |
| ● | Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
| ● | Level 3 – Unobservable inputs in which there is little or no market data. |
To the extent that the valuation is based on inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The carrying amounts of the Company’s cash, prepaid expenses and other current assets, other non-current assets, accounts payable, and accrued expenses approximate their fair values due to their short-term nature.
F-10
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment, net
Property and equipment are stated at cost, less accumulated depreciation. Depreciation expense is computed on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives are as follows:
| Estimated Useful Life | ||
| Computer software | 3 years | |
| Furniture and fixtures | 7 years | |
| Laboratory equipment | 5 years | |
| Leasehold improvements | Shorter of the useful life of the asset or the life of the lease |
Costs for capital assets not yet placed in service are capitalized and depreciation starts once placed into service. Upon retirement or sale, the cost of assets disposed of, and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operating expenses. Expenditures for repairs and maintenance are expensed as incurred.
Patent Costs
Patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as research and development expenses in the accompanying consolidated statements of operations and comprehensive loss.
Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of ASC Topic 360, Property, Plant and Equipment (“ASC 360”). ASC 360 requires that long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. During the years ended December 31, 2025 and 2024, the Company has not recorded any impairment losses on long-lived assets.
Research and Development Costs
Research and development expenses consist of expenses incurred in performing research and development activities such as employee payroll, stock-based compensation, costs of funding research performed by third parties that conduct research and development and preclinical activities on the Company’s behalf, the cost of purchasing lab supplies and non-capital equipment used in preclinical activities and in manufacturing preclinical study materials, consulting, contract research, license and milestones fees, and other related costs, and are expensed as incurred.
Grants
Grants from non-profit entities awarded to the Company for research and development are outside the scope of ASC 606 and are accounted for under ASC 832. The Company has applied for reimbursement of expenditures for certain qualified research and development expenditures. The Company recognizes grants when there is reasonable assurance that the Company will comply with the conditions attached to the grant arrangement and the grant will be received. Grants related to reimbursements of research and development expenditures are recognized as a reduction of the associated research and development expense in the consolidated statements of operations and comprehensive loss.
F-11
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Accrued Research and Development Costs
The Company has entered into various research and development contracts. The payments under these contracts are recorded as research and development expenses as incurred. The Company records accrued expenses for estimated ongoing research costs. When evaluating the adequacy of the accrued expenses, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs. Judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.
Income Taxes
The Company’s provision for income taxes, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect the Company’s best assessment of estimated future taxes to be paid. Significant judgments and estimates based on interpretations of existing tax laws or regulations in the United States are required in determining the Company’s provision for income taxes. Changes in tax laws, statutory tax rates, and estimates of future taxable income could impact the deferred tax assets and liabilities provided for in the financial statements and would require an adjustment to the provision for income taxes.
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, which are considered appropriate as well as the related net interest and penalties.
Stock-Based Compensation
The Company’s stock-based compensation program allows for grants of stock options, restricted stock awards and restricted stock units. Grants are awarded to employees and non-employees, including directors.
The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation- Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and non-employees to be recognized as expense in the consolidated statements of operations and comprehensive loss based on their fair values. The Company estimates the fair value of options granted using the Black-Scholes option pricing model (“Black-Scholes”) for stock option grants. The fair value of the Company’s common stock is used to determine the fair value of restricted stock awards and restricted stock units.
F-12
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company recognizes stock-based compensation expense over the requisite service period of the individual award, generally equal to the vesting period, and uses the straight-line method to recognize stock-based compensation. The Company recognizes stock-based compensation for performance awards only when it is probable that the performance condition will be met. Forfeitures are accounted for in the period in which they occur.
The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including (i) the expected stock price volatility, (ii) the expected term of the option, (iii) the risk-free interest rate, (iv) expected dividends, and (v) fair value of common stock. The Company bases its computation of expected stock price volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company, including stage of product development and life science industry focus. The historical stock price volatility is calculated based on a period of time commensurate with expected term assumption. The Company uses the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term for options granted to employees and non-employees, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the options due to its lack of sufficient historical data. The risk-free interest rate is based on U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. Given the absence of a public trading market for the Company’s shares of common stock, the board of directors exercises their judgment and considers a number of objective and subjective factors to determine the best estimate of the fair value of the Company’s shares of common stock, including timely third-party valuations. These third-party valuations are performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation, or the Practice Aid.
Convertible Preferred Stock
In accordance with ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), preferred stock issued with redemption provisions that are outside of the control of the Company or that contains certain redemption rights in a deemed liquidation event is required to be presented outside of stockholders’ deficit on the face of the balance sheet. The Company’s convertible preferred stock contains contingent redemption rights in a deemed liquidation event, accordingly the Company has elected to present it outside of stockholders’ deficit.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ deficit that result from transactions and economic events other than those with stockholders. For the years ended December 31, 2025 and 2024, the Company’s only element of other comprehensive loss was foreign currency translation adjustments.
Interest Income
Interest income is recorded when earned on cash balances and is recognized separately on the consolidated statements of operations and comprehensive loss.
Foreign Currency Translation
The Company’s reporting currency is U.S. dollars (“USD”). The functional currency of Azora Therapeutics, Inc is USD. The functional currency of the Company’s foreign wholly owned subsidiary is the local currency. Transactions denominated in other than the functional currencies are remeasured into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities are translated into USD at the exchange rate in effect on the balance sheet date. Equity balances, other than accumulated deficit, are translated at historical exchange rates. Income and expenses are translated at the average exchange rate in effect during the period. Realized translation gains and losses are recorded as foreign currency translation, which is included in the consolidated statements of operations and comprehensive loss. Adjustments resulting from the translation of financial statements are reflected as a component of stockholders’ deficit in accumulated other comprehensive income. Gains and losses from foreign currency transactions, which are included in other income (expense), net, were $0.3 million and $0.5 million, for the years ended December 31, 2025, and 2024, respectively.
Contingencies
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability on the Company’s consolidated balance sheets. The Company does not accrue contingent losses that, in its judgment, are considered to be reasonably possible, but not probable; however, it will disclose the range of reasonably possible losses.
F-13
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Recent Accounting Pronouncements
Recently Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures. (“ASU 2023-09”). ASU 2023-09 provides more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and incomes taxes paid information. For public business entities (“PBEs”), the amendments are effective for annual periods beginning after December 15, 2024, with early adoption permitted. For entities other than PBEs, the requirements will be effective for annual periods beginning after December 15, 2025. Entities may apply the amendments prospectively or may elect retrospective application. The Company early adopted this ASU on January 1, 2024, on a prospective basis, which only impacts the Company’s income tax disclosures with no impact to its operations, cash flows, or financial condition.
In December 2025, the FASB issued ASU No. 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities. This ASU establishes guidance on the recognition, measurement, presentation, and disclosure of government grants received by business entities. The guidance defines a government grant as a transfer of a monetary asset or a tangible nonmonetary asset from a government to a business entity other than in an exchange transaction and excludes transactions within the scope of other U.S. GAAP. Under the ASU, government grants are classified as either grants related to an asset or grants related to income, and recognition is permitted only when it is probable that the entity will comply with the conditions attached to the grant and that the grant will be received. The ASU permits alternative presentation approaches depending on the nature of the grant and requires disclosures regarding the nature of the grant, affected financial statement line items, and significant terms and conditions. The ASU is effective for public business entities for annual reporting periods beginning after December 15, 2028, including interim periods within those annual reporting periods. Early adoption is permitted, and the standard may be applied on a modified prospective, modified retrospective, or full retrospective basis. The Company elected to early adopt ASU 2025-10 as of January 1, 2025 on a full retrospective basis and noted no impact to its operations, cash flows, or financial condition.
Recently Issued
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires entities to disclose additional information about specific expense categories in the notes to the financial statements. ASU 2024-03 is effective for annual periods beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. ASU 2024-03 may be applied retrospectively or prospectively. The Company is currently evaluating the effect of this update on its financial statements and related disclosures.
4. Prepaid Expenses and Other Current Assets
As of December 31, 2025 and 2024, prepaid expenses and other current assets consisted of the following (in thousands):
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Prepaid research and development expenses | $ | - | $ | 71 | ||||
| Prepaid employee benefits | 3 | 6 | ||||||
| Prepaid insurance | 3 | 3 | ||||||
| Other prepaid expenses | 2 | 21 | ||||||
| Income tax benefit receivable | - | 144 | ||||||
| Total | $ | 8 | $ | 245 | ||||
5. Accrued Expenses and Other Current Liabilities
As of December 31, 2025 and 2024, accrued expenses and other current liabilities consisted of the following (in thousands):
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Accrued research and development expenses | $ | 11 | $ | 32 | ||||
| Accrued professional expenses | 1 | 10 | ||||||
| Accrued personnel expenses | 445 | 11 | ||||||
| Accrued other expenses | - | 3 | ||||||
| Other current liabilities | 2 | 3 | ||||||
| Total | $ | 459 | $ | 59 | ||||
F-14
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. Grant Income
In November 2023, the Company entered into a grant agreement with the Kenneth Rainin Foundation under which the Company was awarded $0.3 million to reimburse specific research and development expenses incurred in support of a novel oral small-molecule program for ulcerative colitis. The grant funds were required to be distributed or committed within 12 months of the grant date, and the Company received the full $0.3 million during the year ended December 31, 2023. During the years ended December 31, 2023 and 2024, the Company incurred reimbursable research and development expenses of $0.1 million and $0.2 million, respectively, fully utilizing the grant proceeds. As of December 31, 2024, no deferred grant liability remained related to this grant.
In October 2024, the Company entered into a second grant agreement with the Kenneth Rainin Foundation under which the Company was awarded an additional $0.3 million under similar terms to reimburse research and development expenses associated with the same program. The Company received the full $0.3 million in grant funds during the year ended December 31, 2024. During the years ended December 31, 2024 and 2025, the Company incurred reimbursable research and development expenses of $0.3 million and $4 thousand, respectively. As of December 31, 2025, the full amount of the second grant had been utilized, and no deferred grant liability remained.
Reimbursements under both grant agreements are recorded as reductions of the related research and development expenses in the Company’s consolidated statements of operations and comprehensive loss. Any grant proceeds received in advance of eligible expenditures are recorded as a deferred grant liability in the consolidated balance sheets.
7. Convertible Preferred Stock
As of December 31, 2025 and 2024, the Company’s certificate of incorporation, as amended and restated (the “Amended and Restated Certificate of Incorporation”) authorized the Company to issue 19,057,182 shares of preferred stock, at $0.0001 par value per share.
Series A-1
On June 1, 2021, the Company entered into the Series A preferred stock purchase agreement (the “Series A Purchase Agreement”) with several investors in which the Company issued and sold 9,941,152 shares of Series A-1 convertible preferred stock (“Series A-1”, the “Series A Initial Issuance”), with a par value of $0.0001, at a purchase price of $0.50 per share for total proceeds of $4.9 million, net of issuance costs of $0.1 million. The Series A Purchase Agreement allows for one additional sale of up to 11,191,152 shares of Series A-1 (“Series A-1 Additional Issuance”) to one or more purchasers within 90 days of the Series A Initial Issuance. An additional 1,250,000 shares of Series A-1 were issued at $0.50 per share on August 30, 2021, as part of the Series A-1 Additional Issuance, for total proceeds of $0.6 million.
Series A-2
From March through June 2021, the Company issued convertible promissory notes (the “2021 Notes”) in the principal amount of $2.7 million. In June 2021, concurrently with the Series A Purchase Agreement, all of the outstanding principal plus $0.1 million of accrued interest relating to the 2021 Notes was automatically converted into 6,783,587 shares of Series A-2 convertible preferred stock (“Series A-2”), with a par value of $0.0001, at a purchase price of $0.40750 per share.
Series A-3
On August 2, 2023, the Company entered into the Series A-3 preferred stock purchase agreement (the “Series A-3 Purchase Agreement”) with several investors in which the Company issued and sold 1,055,262 shares of Series A-3 convertible preferred stock (“Series A-3”), with a par value of $0.0001, at a purchase price of $0.5510 per share for total proceeds of $0.6 million, net of issuance costs of $22 thousand.
F-15
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table presents information about the Series A-1, Series A-2, and Series A-3 (collectively the “Convertible Preferred Stock”) as of December 31, 2025 and 2024 (in thousands except share and per share amounts):
| December 31, 2025 | ||||||||||||||||||||
| Preferred Stock Authorized | Preferred Stock Issued and Outstanding | Carrying Value | Liquidation Value | Common Stock Issuable Upon Conversion | ||||||||||||||||
| Series A-1 Convertible Preferred Stock | 11,191,152 | 11,191,152 | $ | 5,542 | $ | 5,596 | 11,191,152 | |||||||||||||
| Series A-2 Convertible Preferred Stock | 6,783,587 | 6,783,587 | 2,764 | 2,764 | 6,783,587 | |||||||||||||||
| Series A-3 Convertible Preferred Stock | 1,082,443 | 1,055,262 | 559 | 581 | 1,055,262 | |||||||||||||||
| Total | 19,057,182 | 19,030,001 | $ | 8,865 | $ | 8,941 | 19,030,001 | |||||||||||||
| December 31, 2024 | ||||||||||||||||||||
| Preferred Stock Authorized | Preferred Stock Issued and Outstanding | Carrying Value | Liquidation Value | Common Stock Issuable Upon Conversion | ||||||||||||||||
| Series A-1 Convertible Preferred Stock | 11,191,152 | 11,191,152 | $ | 5,542 | $ | 5,596 | 11,191,152 | |||||||||||||
| Series A-2 Convertible Preferred Stock | 6,783,587 | 6,783,587 | 2,764 | 2,764 | 6,783,587 | |||||||||||||||
| Series A-3 Convertible Preferred Stock | 1,082,443 | 1,055,262 | 559 | 581 | 1,055,262 | |||||||||||||||
| Total | 19,057,182 | 19,030,001 | $ | 8,865 | $ | 8,941 | 19,030,001 | |||||||||||||
The following is a description of the rights of the holders of the Convertible Preferred Stock as of December 31, 2025:
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the affairs of the Company, including a deemed liquidation event, each holder of a share of the Convertible Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of common stock, an amount equal to the greater of the original issuance price plus any declared but unpaid dividends or the amount that would be payable if all classes of stock had converted to common.
In the event of a deemed liquidation event, if the assets of the Company available for distribution are insufficient to pay the holders of Convertible Preferred Stock in the full amount they are entitled, the holders of Convertible Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the number of preferred shares that they hold.
Each of the following events shall be considered a Deemed Liquidation Event (“Deemed Liquidation Event”); a merger, consolidation, the sale, lease, transfer, exclusive license or other disposition of all or substantially all of this Company’s assets/intellectual property or the sale or transfer of stock representing a more than 50% of the voting power of the voting securities of the Company.
F-16
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Redemption
The Convertible Preferred Stock do not contain any mandatory redemption features, except for the contingent redemption upon the occurrence of a Deemed Liquidation Event.
Conversion
Each share of Convertible Preferred Stock is convertible at the option of the holder, at any time after the date of issuance and without the payment of any additional consideration, into that number of shares of common stock as is determined by dividing the original issuance price of $0.50 per share for Series A-1, $0.4075 per share for Series A-2, and $0.5510 per share for Series A-3 by the conversion price in effect at the time of conversion. As of December 31, 2025 and 2024, the conversion prices were equal to the original issuance prices.
All outstanding shares of Convertible Preferred Stock are automatically convertible based upon either: (i) the written consent of holders of a majority of all outstanding preferred stock , voting as a single class and on an as converted basis, (ii) the closing of a sale of shares of common stock to the public in a firm commitment underwritten public offering resulting in at least $25.0 million of gross proceeds or market capitalization of the Company of at least $150.0 million, or (iii) the effectiveness of a registration statement in connection with a listing on a national securities exchange, provided that within 30 days the Company obtains an independent third party valuation demonstrating market capitalization of the Company of at least $150.0 million.
Voting Rights
The holders of Convertible Preferred Stock are entitled to the number of votes equal to the number of shares of common stock into which each share of preferred stock is convertible at the time of such vote. The holders of Convertible Preferred Stock vote together with the common stockholders as a single class.
Protective Rights
Holders of Convertible Preferred Stock are entitled to protective rights, which require the affirmative vote of a majority of the Convertible Preferred Stock stockholders for certain corporate actions, which include, but are not limited to the sale of the Company, its liquidation, the acquisition of assets or a business, and the authorization of additional shares of the Company’s capital.
Dividend Rights
The holders of Convertible Preferred Stock are entitled to receive, when and if declared by the board of directors, noncumulative dividends at the annual rate of 6 % of the original issuance price per share of the Convertible Preferred Stock, subject to certain adjustments. No dividends have been declared through December 31, 2025.
F-17
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. Common Stock
As of December 31, 2025 and 2024, the Company is authorized to issue up to 48,800,000 shares of common stock, with a $0.0001 par value per share.
The holders of common stock are entitled to one vote per share of common stock owned and are entitled to dividends, when and if declared by the Company’s board of directors. The voting, dividend, and liquidation rights of the holders of common stock are subject to and qualified by the rights of the Convertible Preferred Stock stockholders.
The Company has reserved shares of common stock for the conversion or exercise of the following securities:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Redeemable convertible preferred stock | 19,030,001 | 19,030,001 | ||||||
| Options to purchase common stock | 1,224,772 | 1,574,772 | ||||||
| Common stock reserved for future issuance under the 2017 Plan | 3,312,147 | 2,962,147 | ||||||
| Total | 23,566,920 | 23,566,920 | ||||||
9. Stock-based Compensation
2017 Equity Incentive Plan
The Company authorized the 2017 Equity Incentive Plan, as amended (the “2017 Plan”), which permits the grant of stock options and restricted common stock to its employees for up to 4,869,453 shares of common stock. All option awards are granted with an exercise price equal to or greater than the market price of the Company’s common stock at the date of grant. Option awards generally vest over four years, and the vested options are exercisable over a period no longer than 10 years after the grant date. Certain option and restricted common stock awards provide for accelerated vesting if there is a change in control as defined in the 2017 Plan. As of December 31, 2025, there were 3,312,147 options available for future grant under the 2017 Plan.
Stock Options
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. There were no options granted during the year ended December 31, 2025. The weighted-average assumptions used are noted in the following table:
| December 31, | ||||
| 2024 | ||||
| Fair value of common stock | $ | 0.26 | ||
| Risk-free interest rate | 4.00 | % | ||
| Expected term (in years) | 5.25 | |||
| Expected volatility | 103.77 | % | ||
| Expected dividend yield | 0.00 | % | ||
F-18
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
A summary of option activity under the 2017 Plan for the year ended December 31, 2025 is presented below:
| Number of Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||
| Outstanding at December 31, 2024 | 1,574,772 | $ | 0.24 | 4.76 | $ | 86 | ||||||||||
| Granted | - | $ | - | |||||||||||||
| Exercised | - | $ | - | |||||||||||||
| Cancelled or forfeited | (350,000 | ) | $ | 0.26 | ||||||||||||
| Outstanding at December 31, 2025 | 1,224,772 | $ | 0.23 | 6.12 | $ | 86 | ||||||||||
| Vested and expected to vest as of December 31, 2025 | 1,224,772 | $ | 0.23 | 6.12 | $ | 86 | ||||||||||
| Vested and exercisable as of December 31, 2025 | 1,122,721 | $ | 0.21 | 5.97 | $ | 85 | ||||||||||
The weighted-average grant date fair value of options granted during the year ended December 31, 2024 was $0.21.
Restricted Common Stock
From 2017 through 2020, certain of the Company’s founders and consultants were granted shares of restricted common stock in exchange for the payment of the fair value of the restricted stock granted, accordingly the grant date fair value of the restricted common stock was zero. The awards typically vest ratably over a four-year period with 25% of the awards subject to a cliff vest after 1 year of grant or ratably over a four-year period with 25% of the awards vesting immediately. The restricted stock was fully vested in September 2024. There was no stock-based compensation expense recognized for restricted stock awards for the years ended December 31, 2025 and 2024.
Stock-Based Compensation Expense
Stock-based compensation recognized was classified in the consolidated statements of operations and comprehensive loss as follows (in thousands):
| Year Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Research and development | $ | 4 | $ | 4 | ||||
| General and administrative | 6 | 9 | ||||||
| Total | $ | 10 | $ | 13 | ||||
As of December 31, 2025, there was $13 thousand of unrecognized stock-based compensation expense, which is expected to be recognized over a weighted-average period of approximately 4 months.
F-19
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. Income Taxes
The components of net loss before income tax expense are as follows (in thousands):
| Year Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Loss from continuing operations before income tax expense (benefit) | ||||||||
| U.S. Federal | $ | (573 | ) | $ | (994 | ) | ||
| Foreign | (171 | ) | (646 | ) | ||||
| Total | $ | (744 | ) | $ | (1,640 | ) | ||
Azora Therapeutics Australia PTY LTD filed a final tax return for the taxable year ended December 31, 2025 and has ceased operations, which accounts for a majority of the movement between tax years 2025 and 2024. The reconciliation of the Company’s statutory tax rate and effective tax rate is as follows (in thousands):
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Amount | Percent | Amount | Percent | |||||||||||||
| Pretax loss | $ | (744 | ) | $ | (1,640 | ) | ||||||||||
| US federal statutory tax rate | (156 | ) | 21.0 | % | (344 | ) | 21.0 | % | ||||||||
| Foreign tax effects: | ||||||||||||||||
| Australia: | ||||||||||||||||
| Research and development incentive income | - | 0.0 | % | (46 | ) | 2.8 | % | |||||||||
| Research and development accounting expenditure add-back | - | 0.0 | % | 106 | (6.5 | %) | ||||||||||
| Changes in valuation allowance | (233 | ) | 31.3 | % | 133 | (8.1 | %) | |||||||||
| Foreign net operating loss write-off | 284 | (38.2 | %) | - | 0.0 | % | ||||||||||
| Foreign rate differential | (15 | ) | 2.0 | % | (57 | ) | 3.5 | % | ||||||||
| Tax credits: | ||||||||||||||||
| Federal research and development credit | (39 | ) | 5.2 | % | (56 | ) | 3.4 | % | ||||||||
| Changes in valuation allowance | 211 | (28.4 | %) | 170 | (10.4 | %) | ||||||||||
| Unrealized gain/(loss) | (53 | ) | 7.1 | % | 94 | (5.7 | %) | |||||||||
| Other nontaxable or nondeductible items | 1 | (0.1 | %) | - | 0.0 | % | ||||||||||
| $ | - | (0.0 | %) | $ | - | 0.0 | % | |||||||||
The Company’s effective tax rate differs from the statutory rate primarily due to continued losses and the maintenance of a full valuation allowance on deferred tax assets, resulting in zero income tax expense for the year.
F-20
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
| Year Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Deferred tax assets | ||||||||
| Other | $ | 31 | $ | 28 | ||||
| Organizational costs | 2 | 2 | ||||||
| Capitalized research and development | 231 | 311 | ||||||
| Accrued expenses | 124 | 3 | ||||||
| Net operating loss | 834 | 909 | ||||||
| Tax credits | 246 | 207 | ||||||
| Total deferred tax assets | 1,468 | 1,460 | ||||||
| Valuation allowance | (1,468 | ) | (1,460 | ) | ||||
| Total deferred tax assets, net of valuation allowance | $ | - | $ | - | ||||
As of December 31, 2025 and 2024, the Company had $2.3 million and $1.7 million, respectively, of U.S. federal net operating loss carryforwards, which have an unlimited carryforward period. As of December 31, 2025 and 2024, the Company had $4.9 million and $4.5 million, respectively, of state net operating loss carryforwards, which begin to expire in 2039.
As of December 31, 2025 and 2024, the Company had $0.2 million and $0.1 million, respectively, of U.S. federal research and development tax credits that begin to expire in 2039. As of December 31, 2025 and 2024, the Company had $0.1 million and $0.1 million, respectively, of state research and development tax credits that can be carried forward indefinitely.
The future realization of the tax benefits from existing temporary differences and tax attributes ultimately depends on the existence of sufficient taxable income. The Company assesses the realizability of its deferred tax assets at each balance sheet date. In assessing the realization of its deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers the projected future taxable income, expected reversal of existing deferred tax liabilities, and tax planning strategies in making this assessment. After consideration of all available evidence, both positive and negative, the Company determined that it is not more likely than not that its net deferred tax assets will be realized in the foreseeable future. As a result, the Company increased its valuation allowance by less than $0.1 million as of December 31, 2025.
The Company provides for U.S. Federal, state, and applicable foreign income and withholding taxes on the financial reporting basis over the tax basis of its foreign subsidiary investment because the Company has the intentions and ability to indefinitely reinvest the undistributed earnings of its foreign subsidiaries. As a result, deferred taxes have not been recorded for the outside basis differences in its foreign subsidiary as of December 31, 2025 to the extent such differences are expected to result in future taxable income upon repatriation. The Company reviews its ability and intentions to indefinitely reinvest its foreign earnings at each balance sheet.
The future realization of the Company’s net operating loss carryforwards and other tax attributes may also be limited by the change in ownership rules under the U.S. Internal Revenue Code Section 382. Under Section 382, if a corporation undergoes an ownership change (as defined), the corporation’s ability to utilize its net operating loss carryforwards and other tax attributes to offset income may be limited. The Company has not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes.
F-21
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company accounts for uncertainty in income taxes in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed as the amount of benefit to recognize in the consolidated financial statements. The amount of benefit that may be used is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate, as well as the related net interest and penalties. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense within its consolidated statements of operations. As of December 31, 2025 and 2024, the Company has not identified any material uncertain tax positions.
The Company files income tax returns in the US and Australia as these are the major jurisdictions subject to tax examination by local tax authorities. Azora Therapeutics Australia PTY LTD is under audit by the Australian Taxation Office (ATO) for its refundable research and development credit. The Company does not believe the ATO’s preliminary position will result in material payments, accruals, or deviation from its tax positions. Because the offset is refundable regardless of the entity’s tax position, it is accounted for as income rather than as an income tax benefit. As a result, the research and development tax offset that is under audit by the ATO is not an income tax matter and is not governed by ASC Topic 740, Income Taxes.
The Company is not aware of any issues under review that could result in material payments, accruals, or deviation from its tax positions. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by local tax authorities to the extent utilized in a future period.
11. Commitments and Contingencies
Legal Proceedings
The Company is not currently a party to and is not aware of any legal proceedings.
Other Contracts
The Company is party to various contracts with contract research organizations and contract manufacturers that generally provide for termination on notice, with the exact amounts in the event of termination to be based on the timing of the termination and the terms of the agreement.
There are no contractual obligations arising from these arrangements as of December 31, 2025.
F-22
AZORA THERAPEUTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Indemnification Agreements
As permitted under Delaware law, the Company indemnifies its officers, directors, and employees for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification is for the officer’s or director’s lifetime. Further, in the ordinary course of business the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date however, the Company has not incurred any material costs as a result of such indemnifications nor experienced any losses related to them. As of December 31, 2025 and 2024, the Company was not aware of any claims under indemnification arrangements and does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible; therefore, no related reserves were established.
12. Related Parties
The Company’s Chief Executive Officer and Chief Operating Officer are members of the Company’s board of directors and together with their immediate families, hold approximately 36% and 25%, respectively, of the Company’s outstanding equity at December 31, 2025, and approximately 30% and 19%, respectively, of the Company’s outstanding equity at December 31, 2024. As a result of their ownership interests and management roles, the Chief Executive Officer and Chief Operating Officer have significant influence over the Company’s management, operations, and strategic direction, including matters subject to board of director approval.
No material related party transactions requiring disclosure occurred during the years ended December 31, 2025 and 2024.
13. Subsequent Events
The Company evaluated subsequent events through August 10, 2026 the date these financial statements were issued, for events requiring recording or disclosure in the financial statements for the year ended December 31, 2025. Except as noted below and in Note 1, the Company concluded that no subsequent events have occurred that require disclosure.
2026 Convertible Promissory Notes
Beginning in March 2026, the Company issued convertible promissory notes (the “ 2026 Notes”) to various investors for a total principal amount of $4.0 million with a stated interest rate of 8.0% per annum and a maturity date of March 16, 2028. In May 2026, the Company completed the final closing of the 2026 Notes on the same terms as the initial issuances of the 2026 Notes for an aggregate principal amount of $1.5 million. These Notes were subsequently extinguished as a part of the PIPE Financing discussed in Note 1.
F-23
Exhibit 99.4
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Condensed Consolidated Financial Statements: | |
| Condensed Consolidated Balance Sheets | F-2 |
| Condensed Consolidated Statements of Operations and Comprehensive Loss | F-3 |
| Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit | F-4 |
| Condensed Consolidated Statements of Cash Flows | F-5 |
| Notes to Condensed Consolidated Financial Statements | F-6 |
F-1
AZORA THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 4,216 | $ | 282 | ||||
| Prepaid expenses and other current assets | 11 | 8 | ||||||
| Total current assets | 4,227 | 290 | ||||||
| Other noncurrent assets | 7 | 7 | ||||||
| Total assets | $ | 4,234 | $ | 297 | ||||
| Liabilities, convertible preferred stock and stockholders’ deficit | ||||||||
| Current liabilites: | ||||||||
| Accounts payable | $ | 27 | $ | 26 | ||||
| Accrued expenses and other current liabilities | 594 | 459 | ||||||
| Total current liabilities | 621 | 485 | ||||||
| Convertible promissory notes, includes related party amounts of $0.1 million as of March 31, 2026 | 4,011 | - | ||||||
| Total liabilities | $ | 4,632 | $ | 485 | ||||
| Commitments and contingencies (Note 11) | ||||||||
| Series A-1 convertible preferred stock, $0.0001 par value, 11,191,152 shares authorized as of March 31, 2026 and December 31, 2025; 11,191,152 shares issued and outstanding as of March 31, 2026 and December 31, 2025; liquidation value of $5,596 as of March 31, 2026 and December 31, 2025. | 5,542 | 5,542 | ||||||
| Series A-2 convertible preferred stock, $0.0001 par value, 6,783,587 shares authorized as of March 31, 2026 and December 31, 2025; 6,783,587 shares issued and outstanding as of March 31, 2026 and December 31, 2025; liquidation value of $2,764 as of March 31, 2026 and December 31, 2025. | 2,764 | 2,764 | ||||||
| Series A-3 convertible preferred stock, $0.0001 par value, 1,082,443 shares authorized as of March 31, 2026 and December 31, 2025; 1,055,262 shares issued and outstanding as of March 31, 2026 and December 31, 2025; liquidation value of $581 as of March 31, 2026 and December 31, 2025. | 559 | 559 | ||||||
| Total convertible preferred stock | 8,865 | 8,865 | ||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $0.0001 par value, 48,800,000 shares authorized as of March 31, 2026 and December 31, 2025; 22,857,534 shares issued and outstanding as of March 31, 2026 and December 31, 2025. | 2 | 2 | ||||||
| Additional paid-in capital | 109 | 107 | ||||||
| Accumulated deficit | (9,575 | ) | (9,363 | ) | ||||
| Accumulated other comprehensive income | 201 | 201 | ||||||
| Total stockholders’ deficit | (9,263 | ) | (9,053 | ) | ||||
| Total liabilities, convertible preferred stock and stockholders’ deficit | $ | 4,234 | $ | 297 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-2
AZORA THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands)
| Three
months ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Operating expenses: | ||||||||
| Research and development | $ | 15 | $ | 234 | ||||
| General and administrative | 185 | 178 | ||||||
| Total operating expenses | 200 | 412 | ||||||
| Loss from operations | (200 | ) | (412 | ) | ||||
| Other income (expense), net: | ||||||||
| Change in fair value of convertible promissory notes | (11 | ) | - | |||||
| Other income (expense), net | (1 | ) | 27 | |||||
| Total other income (expense), net | (12 | ) | 27 | |||||
| Net loss | $ | (212 | ) | $ | (385 | ) | ||
| Other comprehensive loss | ||||||||
| Foreign currency translation adjustment, net of taxes | - | (31 | ) | |||||
| Total other comprehensive loss | - | (31 | ) | |||||
| Total comprehensive loss | $ | (212 | ) | $ | (416 | ) | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
AZORA THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(in thousands, except share and per share amounts)
| Convertible Preferred Stock | Additional | Accumulated Other | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Series A-1 | Series A-2 | Series A-3 | Common Stock | Paid-In | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) |
Deficit | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | 11,191,152 | $ | 5,542 | 6,783,587 | $ | 2,764 | 1,055,262 | $ | 559 | 22,857,534 | $ | 2 | $ | 107 | $ | (9,363 | ) | $ | 201 | $ | (9,053 | ) | ||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | - | - | 2 | - | - | 2 | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (212 | ) | - | (212 | ) | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2026 | 11,191,152 | $ | 5,542 | 6,783,587 | $ | 2,764 | 1,055,262 | $ | 559 | 22,857,534 | $ | 2 | $ | 109 | $ | (9,575 | ) | $ | 201 | $ | (9,263 | ) | ||||||||||||||||||||||||||
| Convertible Preferred Stock | Additional | Accumulated Other | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Series A-1 | Series A-2 | Series A-3 | Common Stock | Paid-In | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | 11,191,152 | $ | 5,542 | 6,783,587 | $ | 2,764 | 1,055,262 | $ | 559 | 22,857,534 | $ | 2 | $ | 97 | $ | (8,619 | ) | $ | 456 | $ | (8,064 | ) | ||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | - | - | 3 | - | - | 3 | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | - | - | (31 | ) | (31 | ) | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (385 | ) | - | (385 | ) | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | 11,191,152 | $ | 5,542 | 6,783,587 | $ | 2,764 | 1,055,262 | $ | 559 | 22,857,534 | $ | 2 | $ | 100 | $ | (9,004 | ) | $ | 425 | $ | (8,477 | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
AZORA THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Three
months ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (212 | ) | $ | (385 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation expense | 2 | 3 | ||||||
| Change in fair value of convertible promissory notes | 11 | - | ||||||
| Realized and unrealized foreign exchange gain (loss) | - | (29 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | (3 | ) | 57 | |||||
| Other noncurrent assets | - | (7 | ) | |||||
| Accounts payable | 2 | (15 | ) | |||||
| Deferred grant liability | - | (4 | ) | |||||
| Accrued expenses | 134 | 133 | ||||||
| Net cash used in operating activities | (66 | ) | (247 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of convertible notes | 4,000 | - | ||||||
| Net cash provided by financing activities | 4,000 | - | ||||||
| Effect of exchange rate changes on cash | - | (5 | ) | |||||
| Net increase (decrease) in cash | 3,934 | (252 | ) | |||||
| Cash at beginning of period | 282 | 675 | ||||||
| Cash at end of period | $ | 4,216 | $ | 423 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-5
AZORA THERAPEUTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Basis of Presentation
Azora Therapeutics, Inc. (collectively with its wholly owned subsidiary, Azora Therapeutics Australia PTY LTD, the “Company”) was originally incorporated on May 4, 2017 under the laws of the state of Delaware under the name Meya Pharmaceuticals, Inc. In March 2019, Meya Pharmaceuticals, Inc. changed its name to Azora Therapeutics, Inc. The Company is a biopharmaceutical company focused on developing aryl hydrocarbon receptor agonists to treat autoimmune diseases. The Company’s small molecule formulations are designed to rebalance the body’s natural immune response mechanisms in order to treat serious inflammatory diseases.
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements as of and for the year ended December 31, 2025, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s condensed consolidated balance sheet as of March 31, 2026, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2026 and 2025, condensed consolidated statements of shareholders’ deficit for the three months ended March 31, 2026 and 2025 and the condensed consolidated statements of cash flows for the three months ended March 31, 2026 and 2025.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the accompanying notes for the year ended December 31, 2025. The condensed consolidated balance sheet data as of December 31, 2025 presented for comparative purposes was derived from the Company’s audited consolidated financial statements but does not include all disclosures required by U.S. GAAP and Article 8 of Regulation S-X. The results for the three months ended March 31, 2026 and 2025 are not necessarily indicative of results to be expected for the year ending December 31, 2026, any other interim periods, or any future year or period.
The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2025. Since the date of the audited consolidated financial statements for the year ended December 31, 2025, there have been no changes to its significant accounting policies except as noted below.
Merger and Financing
On June 11, 2026, Adial Pharmaceuticals, Inc. (“Adial” or the “Acquirer”) completed the acquisition of the Company pursuant to a merger agreement, with Azora surviving as a wholly owned subsidiary of Adial. At closing, in exchange for all shares of capital stock of the Company, Adial issued 437,421 shares of common stock and 12,930.617 shares of Series A Non-Voting Convertible Preferred Stock, each convertible into 1,000 shares of common stock, subject to certain conditions, including stockholder approval. The Company’s outstanding stock options were assumed and converted into options to purchase an aggregate of 1,177,782 shares of Adial’s common stock, also subject to stockholder approval.
F-6
AZORA THERAPEUTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Concurrently with the Closing, Adial entered into the Purchase Agreement with certain purchasers (the “PIPE Investors”), pursuant to which Adial agreed to issue Initial Closing Pre-Funded Warrants, Milestone Pre-Funded Warrants, and Milestone Incentive Warrants in a private placement financing (the “PIPE Financing”). At the Initial Closing on June 12, 2026, Adial issued Initial Closing Pre-Funded Warrants to purchase an aggregate of 9,749,345 shares of its common stock at a price of $2.7489 per Initial Closing Pre-Funded Warrant (the “Purchase Price”), for gross proceeds of approximately $26.8 million. The PIPE Investors may also participate in a future Milestone Closing, pursuant to which Adial may issue Milestone Pre-Funded Warrants to purchase up to an aggregate of 9,749,345 shares of its common stock and Milestone Incentive Warrants to purchase up to an aggregate of 9,749,345 shares of its common stock upon the occurrence of specified milestone events, resulting in aggregate additional proceeds to Adial of up to approximately $26.8 million.
Each Pre-Funded Warrant has an exercise price of $0.001 per share, does not expire until exercised in full, and is exercisable upon receipt of stockholder approval, subject to certain beneficial ownership limitations. The Milestone Incentive Warrants have an exercise price equal to the Purchase Price, expire five years from issuance, and are subject to substantially similar stockholder approval and beneficial ownership provisions.
In connection with the Merger, Adial also facilitated the extinguishment of $5.5 million of Azora convertible promissory notes through exchange agreements, whereby noteholders received pre-funded warrants to purchase 2,031,603 shares of common stock and may participate in future milestone financings on similar terms as PIPE Investors. The former noteholders are also entitled to participate in Milestone Closings to purchase Milestone Pre-Funded Warrants and Milestone Incentive Warrants to purchase up to an aggregate of 2,031,603 shares of Adial common stock, each on substantially the same terms as the PIPE Investors.
Liquidity and Going Concern
The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the condensed consolidated financial statements are available to be issued.
To date, the Company has funded its operations primarily with proceeds from the issuance and sale of convertible preferred stock and convertible promissory notes and the receipt of grant funding. As of March 31, 2026, the Company has raised an aggregate of $13.4 million in net proceeds through the sale of convertible preferred stock and convertible promissory notes and the receipt of grant funding. The Company has incurred annual net operating losses in every year since inception, including net losses of $0.2 million and $0.4 million for the three months ended March 31, 2026 and 2025, respectively. As of March 31, 2026, the Company had cash of $4.2 million and an accumulated deficit of $9.6 million. The Company expects its operating losses to continue into the foreseeable future as it continues to pursue its research and development efforts.
The Company’s ability to continue as a going concern is dependent upon the ability to raise additional debt or equity capital. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to the Company. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Based upon the Company’s current plans, management believes there currently is insufficient financial resources to fund the Company’s operations for at least twelve months from the date these condensed consolidated financial statements are available to be issued. As such, there is substantial doubt about the Company’s ability to continue as a going concern. To address the Company’s capital needs, the Company will continue to actively pursue additional equity or debt financing. Adequate financing opportunities might not be available to the Company, when and if needed, on acceptable terms or at all. If the Company is unable to obtain additional financing in sufficient amounts or on acceptable terms under such circumstances, the Company’s operating results and prospects will be adversely affected. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
F-7
AZORA THERAPEUTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement (“ASC 820”) identifies fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In determining fair value, the use of various valuation approaches, including market, income, and cost approaches, is permitted.
A fair value hierarchy has been established based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from sources independent of the reporting entity and unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.
As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:
| ● | Level 1 – Quoted market prices in active markets; |
| ● | Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
| ● | Level 3 – Unobservable inputs in which there is little or no market data. |
To the extent that the valuation is based on inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
During the three months ended March 31, 2026, the Company issued convertible promissory notes, which are measured at fair value on the issuance date, with changes in fair value recognized in other income (expense), net on the condensed consolidated statements of operations and comprehensive loss. The carrying amounts of the Company’s cash, prepaid expenses and other current assets, other non-current assets, accounts payable, and accrued expenses approximate their fair values due to their short-term nature.
Change in Fair Value of Convertible Notes
Beginning in March 2026, the Company began issuing convertible promissory notes to investors. The Company has elected to apply the fair value measurement option and recognized the convertible promissory notes at fair value with changes in fair value recognized on the condensed consolidated statements of operations and comprehensive loss. The fair value option may be applied instrument by instrument, but it is irrevocable. As a result of applying the fair value option, costs incurred upon issuance of the convertible promissory notes were recorded as an expense on the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2026. Accrued interest related to the convertible promissory notes has been included within the change in fair value of convertible notes line within other income (expense), net on the condensed consolidated statements of operations and comprehensive loss.
F-8
AZORA THERAPEUTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Recent Accounting Pronouncements
Recently Issued
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires entities to disclose additional information about specific expense categories in the notes to the financial statements. ASU 2024-03 is effective for annual periods beginning after March 15, 2026 and for interim periods within fiscal years beginning after March 15, 2027. Early adoption is permitted. ASU 2024-03 may be applied retrospectively or prospectively. The Company is currently evaluating the effect of this update on its financial statements and related disclosures.
4. Fair Value Measurements
The following table presents information about the Company’s financial liabilities measured at fair value on a recurring basis at March 31, 2026 (in thousands):
| Fair value measurements | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Financial liabilities: | ||||||||||||||||
| Convertible promissory notes | $ | - | $ | - | $ | 4,011 | $ | 4,011 | ||||||||
| Total financial liabilities | $ | - | $ | - | $ | 4,011 | $ | 4,011 | ||||||||
As of December 31, 2025, there were no financial assets and liabilities measured at fair value. During the three months ended March 31, 2026 and 2025, there were no transfers between levels.
2026 Notes
Beginning in March 2026, the Company issued convertible promissory notes (the “2026 Notes”) to various investors for a total principal amount of $4.0 million with a stated interest rate of 8.0% per annum and a maturity date of March 16, 2028. In May 2026, the Company completed the final closing of the 2026 Notes on the same terms as the initial issuances of the 2026 Notes for an aggregate principal amount of $1.5 million.
Upon a qualified financing, which is an event in which the Company issues and sells its convertible preferred stock to investors with total gross proceeds equal to at least $50.0 million, the outstanding principal and accrued interest of the 2026 Notes will automatically convert into the equity securities sold in such a financing at the conversion price then in effect. The 2026 Notes were subsequently extinguished as a part of the PIPE Financing discussed in Note 1.
The 2026 Notes are classified as a liability on the Company’s condensed consolidated balance sheets and the Company elected to record the 2026 Notes at fair value upon issuance and to subsequently remeasure the fair value at every reporting date. The fair value of the 2026 Notes is an estimate based on significant inputs not observable in the market, representing a Level 3 measurement within the fair value hierarchy. The Company records any change in fair value to the 2026 Notes within the change in fair value of convertible notes line in other income (expense), net on the condensed consolidated statements of operations and comprehensive loss.
The Company recorded accrued interest of $11 thousand as a change in fair value of the 2026 Notes for the three months ended March 31, 2026. Since the 2026 Notes were issued shortly prior to March 31, 2026 and there were no inflection points for the Company or other significant economic fluctuations, the Company has determined that the only change in fair value during the period is attributable to the accrual of contractual interest.
F-9
AZORA THERAPEUTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The table below presents changes in the 2026 Notes liability during the three months ended March 31, 2026:
| Convertible
Promissory Notes | ||||
| Balance as of December 31, 2025 | $ | - | ||
| Issuance of convertible promissory notes | 4,000 | |||
| Change in fair value of convertible promissory notes | 11 | |||
| Balance as of March 31, 2026 | $ | 4,011 | ||
5. Prepaid Expenses and Other Current Assets
As of March 31, 2026 and December 31, 2025, prepaid expenses and other current assets consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Prepaid research and development expenses | $ | 2 | - | |||||
| Prepaid employee benefits | 3 | 3 | ||||||
| Prepaid insurance | 1 | 3 | ||||||
| Other prepaid expenses | 5 | 2 | ||||||
| Total | $ | 11 | $ | 8 | ||||
6. Accrued Expenses and Other Current Liabilities
As of March 31, 2026 and December 31, 2025, accrued expenses and other current liabilities consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Accrued research and development expenses | $ | 2 | $ | 11 | ||||
| Accrued professional expenses | 26 | 1 | ||||||
| Accrued personnel expenses | 558 | 445 | ||||||
| Accrued other expenses | 1 | - | ||||||
| Other current liabilities | 7 | 2 | ||||||
| Total | $ | 594 | $ | 459 | ||||
7. Grant Income
In October 2024, the Company entered into a grant agreement with the Kenneth Rainin Foundation under which the Company was awarded $0.3 million to reimburse specific research and development expenses incurred in support of a novel oral small-molecule program for ulcerative colitis. The grant funds were required to be distributed or committed within 12 months of the grant date, and the Company received the full $0.3 million in grant funds in October 2024. During the three months ended March 31, 2025, the Company incurred reimbursable research and development expenses of $4 thousand. As of March 31, 2025, the full amount of the second grant had been utilized, and no deferred grant liability remained.
Reimbursements under the grant agreement are recorded as reductions of the related research and development expenses in the Company’s condensed consolidated statements of operations and comprehensive loss. Any grant proceeds received in advance of eligible expenditures are recorded as a deferred grant liability in the condensed consolidated balance sheets.
F-10
AZORA THERAPEUTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Convertible Preferred Stock
As of March 31, 2026 and December 31, 2025, the Company’s certificate of incorporation, as amended and restated (the “Amended and Restated Certificate of Incorporation”) authorized the Company to issue 19,057,182 shares of preferred stock, at $0.0001 par value per share.
Series A-1
On June 1, 2021, the Company entered into the Series A preferred stock purchase agreement (the “Series A Purchase Agreement”) with several investors in which the Company issued and sold 9,941,152 shares of Series A-1 convertible preferred stock (“Series A-1”, the “Series A Initial Issuance”), with a par value of $0.0001, at a purchase price of $0.50 per share for total proceeds of $4.9 million, net of issuance costs of $0.1 million. The Series A Purchase Agreement allows for one additional sale of up to 11,191,152 shares of Series A-1 (“Series A-1 Additional Issuance”) to one or more purchasers within 90 days of the Series A Initial Issuance. An additional 1,250,000 shares of Series A-1 were issued at $0.50 per share on August 30, 2021, as part of the Series A-1 Additional Issuance, for total proceeds of $0.6 million.
Series A-2
From March through June 2021, the Company issued convertible promissory notes (the “2021 Notes”) in the principal amount of $2.7 million. In June 2021, concurrently with the Series A Purchase Agreement, all of the outstanding principal plus $0.1 million of accrued interest relating to the 2021 Notes was automatically converted into 6,783,587 shares of Series A-2 convertible preferred stock (“Series A-2”), with a par value of $0.0001, at a purchase price of $0.40750 per share.
Series A-3
On August 2, 2023, the Company entered into the Series A-3 preferred stock purchase agreement (the “Series A-3 Purchase Agreement”) with several investors in which the Company issued and sold 1,055,262 shares of Series A-3 convertible preferred stock (“Series A-3”), with a par value of $0.0001, at a purchase price of $0.5510 per share for total proceeds of $0.6 million, net of issuance costs of $22 thousand.
The following table presents information about the Series A-1, Series A-2, and Series A-3 (collectively the “Convertible Preferred Stock”) as of March 31, 2026 and December 31, 2025 (in thousands except share and per share amounts):
| Preferred
Stock Authorized | Preferred
Stock Issued and Outstanding | Carrying Value | Liquidation
Value | Common
Stock Issuable Upon Conversion | ||||||||||||||||
| Series A-1 Convertible Preferred Stock | 11,191,152 | 11,191,152 | $ | 5,542 | $ | 5,596 | 11,191,152 | |||||||||||||
| Series A-2 Convertible Preferred Stock | 6,783,587 | 6,783,587 | 2,764 | 2,764 | 6,783,587 | |||||||||||||||
| Series A-3 Convertible Preferred Stock | 1,082,443 | 1,055,262 | 559 | 581 | 1,055,262 | |||||||||||||||
| Total | 19,057,182 | 19,030,001 | $ | 8,865 | $ | 8,941 | 19,030,001 | |||||||||||||
The following is a description of the rights of the holders of the Convertible Preferred Stock as of March 31, 2026:
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the affairs of the Company, including a deemed liquidation event, each holder of a share of the Convertible Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of common stock, an amount equal to the greater of the original issuance price plus any declared but unpaid dividends or the amount that would be payable if all classes of stock had converted to common.
F-11
AZORA THERAPEUTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the event of a deemed liquidation event, if the assets of the Company available for distribution are insufficient to pay the holders of Convertible Preferred Stock in the full amount they are entitled, the holders of Convertible Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the number of preferred shares that they hold.
Each of the following events shall be considered a Deemed Liquidation Event (“Deemed Liquidation Event”); a merger, consolidation, the sale, lease, transfer, exclusive license or other disposition of all or substantially all of this Company’s assets/intellectual property or the sale or transfer of stock representing a more than 50% of the voting power of the voting securities of the Company.
Redemption
The Convertible Preferred Stock do not contain any mandatory redemption features, except for the contingent redemption upon the occurrence of a Deemed Liquidation Event.
Conversion
Each share of Convertible Preferred Stock is convertible at the option of the holder, at any time after the date of issuance and without the payment of any additional consideration, into that number of shares of common stock as is determined by dividing the original issuance price of $0.50 per share for Series A-1, $0.4075 per share for Series A-2, and $0.5510 per share for Series A-3 by the conversion price in effect at the time of conversion. As of March 31, 2026 and December 31, 2025, the conversion prices were equal to the original issuance prices.
All outstanding shares of Convertible Preferred Stock are automatically convertible based upon either: (i) the written consent of holders of a majority of all outstanding preferred stock , voting as a single class and on an as converted basis, (ii) the closing of a sale of shares of common stock to the public in a firm commitment underwritten public offering resulting in at least $25.0 million of gross proceeds or market capitalization of the Company of at least $150.0 million, or (iii) the effectiveness of a registration statement in connection with a listing on a national securities exchange, provided that within 30 days the Company obtains an independent third party valuation demonstrating market capitalization of the Company of at least $150.0 million.
Voting Rights
The holders of Convertible Preferred Stock are entitled to the number of votes equal to the number of shares of common stock into which each share of preferred stock is convertible at the time of such vote. The holders of Convertible Preferred Stock vote together with the common stockholders as a single class.
Protective Rights
Holders of Convertible Preferred Stock are entitled to protective rights, which require the affirmative vote of a majority of the Convertible Preferred Stock stockholders for certain corporate actions, which include, but are not limited to the sale of the Company, its liquidation, the acquisition of assets or a business, and the authorization of additional shares of the Company’s capital.
Dividend Rights
The holders of Convertible Preferred Stock are entitled to receive, when and if declared by the board of directors, noncumulative dividends at the annual rate of 6% of the original issuance price per share of the Convertible Preferred Stock, subject to certain adjustments. No dividends have been declared through March 31, 2026.
F-12
AZORA THERAPEUTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Common Stock
As of March 31, 2026 and December 31, 2025, the Company is authorized to issue up to 48,800,000 shares of common stock, with a $0.0001 par value per share.
The holders of common stock are entitled to one vote per share of common stock owned and are entitled to dividends, when and if declared by the Company’s board of directors. The voting, dividend, and liquidation rights of the holders of common stock are subject to and qualified by the rights of the Convertible Preferred Stock stockholders.
The Company has reserved shares of common stock for the conversion or exercise of the following securities:
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Redeemable convertible preferred stock | 19,030,001 | 19,030,001 | ||||||
| Options to purchase common stock | 1,224,772 | 1,224,772 | ||||||
| Common stock reserved for future issuance under the 2017 Plan | 3,312,147 | 3,312,147 | ||||||
| Total | 23,566,920 | 23,566,920 | ||||||
10. Stock-based Compensation
2017 Equity Incentive Plan
The Company authorized the 2017 Equity Incentive Plan, as amended (the “2017 Plan”), which permits the grant of stock options and restricted common stock to its employees for up to 4,869,453 shares of common stock. All option awards are granted with an exercise price equal to or greater than the market price of the Company’s common stock at the date of grant. Option awards generally vest over four years, and the vested options are exercisable over a period no longer than 10 years after the grant date. Certain option and restricted common stock awards provide for accelerated vesting if there is a change in control as defined in the 2017 Plan. As of March 31, 2026, there were 3,312,147 options available for future grant under the 2017 Plan.
Stock Options
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. There were no options granted during either of the three months ended March 31, 2026 or 2025.
A summary of option activity under the 2017 Plan for the three months ended March 31, 2026 is presented below:
| Number of Shares | Weighted-Average
Exercise Price | Weighted-Average
Remaining Contractual Term (in years) | Aggregate
Intrinsic Value (in thousands) | |||||||||||||
| Outstanding at December 31, 2025 | 1,224,772 | $ | 0.23 | 6.12 | $ | 86 | ||||||||||
| Granted | - | $ | - | |||||||||||||
| Exercised | - | $ | - | |||||||||||||
| Cancelled or forfeited | - | $ | - | |||||||||||||
| Outstanding at March 31, 2026 | 1,224,772 | $ | 0.23 | 5.94 | $ | 9 | ||||||||||
| Vested and expected to vest as of March 31, 2026 | 1,224,772 | $ | 0.23 | 5.94 | $ | 9 | ||||||||||
| Vested and exercisable as of March 31, 2026 | 1,142,531 | $ | 0.22 | 5.81 | $ | 9 | ||||||||||
Stock-Based Compensation Expense
Stock-based compensation expense was immaterial for the three months ended March 31, 2026 and 2025. Unrecognized stock-based compensation expense as of March 31, 2026 was immaterial.
F-13
AZORA THERAPEUTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. Commitments and Contingencies
Legal Proceedings
The Company is not currently a party to and is not aware of any legal proceedings.
Other Contracts
The Company is party to various contracts with contract research organizations and contract manufacturers that generally provide for termination on notice, with the exact amounts in the event of termination to be based on the timing of the termination and the terms of the agreement.
There are no contractual obligations arising from these arrangements as of March 31, 2026 and December 31, 2025.
Indemnification Agreements
As permitted under Delaware law, the Company indemnifies its officers, directors, and employees for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification is for the officer’s or director’s lifetime. Further, in the ordinary course of business the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date however, the Company has not incurred any material costs as a result of such indemnifications nor experienced any losses related to them. As of March 31, 2026 and December 31, 2025, the Company was not aware of any claims under indemnification arrangements and does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible; therefore, no related reserves were established.
12. Related Parties
The Company’s Chief Executive Officer and Chief Operating Officer are members of the Company’s board of directors and together with their immediate families, hold approximately 36% and 25%, respectively, of the Company’s outstanding equity at both March 31, 2026 and December 31, 2025. As a result of their ownership interests and management roles, the Chief Executive Officer and Chief Operating Officer have significant influence over the Company’s management, operations, and strategic direction, including matters subject to board of director approval.
In addition, in March 2026, the Company issued 2026 Notes to the Company’s former Chief Financial Officer and to a family member of the Company’s Chief Executive Officer in an aggregate principal amount of $0.1 million. The 2026 Notes issued to related parties were issued on the same terms as those offered to unaffiliated investors.
13. Subsequent Events
The Company evaluated subsequent events through August 10, 2026, the date these financial statements were issued, for events requiring recording or disclosure in the financial statements for the three months ended March 31, 2026. Except as noted below and in Note 1, the Company concluded that no subsequent events have occurred that require disclosure.
Stock Option Grants
In April 2026, the Company issued options to purchase 2,465,610 shares of common stock with an exercise price of $0.20 per share. 523,595 of the options issued vest fully upon the occurrence of merger or similar transaction and the remaining options issued vest over a four-year term. The aggregate grant date fair value of the options issued in April 2026 was $0.4 million.
F-14
Exhibit 99.5
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Introduction
On June 11, 2026, Adial Pharmaceuticals, Inc. (“Adial” or the “Company”) acquired Azora Therapeutics, Inc. (“Azora”), a Delaware corporation and biopharmaceutical company developing treatments for serious inflammatory diseases (the “Acquisition”), in accordance with the terms of an Agreement and Plan of Merger, dated June 11, 2026 (the “Merger Agreement”), by and among Adial, Adial Merger Sub, Inc. (“First Merger Sub”), Adial Second Merger Sub, LLC (“Second Merger Sub”) and Azora. Pursuant to the merger agreement, First Merger Sub merged with and into Azora, with Azora surviving as a wholly owned subsidiary of Adial (the “First Merger”).
Immediately following the First Merger, Azora merged with and into Second Merger Sub, with Second Merger Sub surviving as a wholly owned subsidiary of Adial and the Second Merger Sub changing its name to “Azora Therapeutics, LLC” (the “Second Merger” and, together with the First Merger, the “Merger”). At closing of the Merger, Adial issued to former Azora stockholders 437,421 shares of Adial common stock and 12,930.617 shares of Series A Non-Voting Convertible Preferred Stock. Each share of Series A Non-Voting Convertible Preferred Stock is convertible into 1,000 shares of Adial common stock, subject to the terms and limitations set forth in the applicable certificate of designation and related transaction documents. Azora outstanding options to purchase Azora common stock were converted into options to purchase 1,177,782 shares of Adial Common Stock. The Acquisition was completed on June 11, 2026 (the “Closing”).
On June 11, 2026, in connection with and as a condition to closing of the Merger, Adial entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the purchasers named therein (the “PIPE Investors”), pursuant to which Adial issued and sold to the PIPE Investors, in a private placement transaction, at the initial closing on June 12, 2026 (the “Initial PIPE Closing”) pre-funded warrants (the “Initial Closing Pre-Funded Warrants”) to purchase up to an aggregate of 9,749,345 shares of Adial common stock, at a price of $2.7489 per Initial Closing Pre-Funded Warrant, for an aggregate purchase price of $26.8 million. In addition, Adial agreed to issue and sell to the PIPE Investors at one or more subsequent closings (each, a “Milestone Closing”), pre-funded warrants (“Milestone Pre-Funded Warrants”) to purchase up to an aggregate of 9,749,345 shares of Adial common stock and incentive warrants (“Milestone Incentive Warrants” and together with the Milestone Pre-Funded Warrants, the “Milestone Warrants”) to purchase up to an aggregate of 9,749,345 shares of Adial common stock, at a combined purchase price equal to $2.7489 per Milestone Warrants, for an aggregate purchase price of up to $26.8 million. The issuance and sale of Initial Closing Pre-Funded Warrants and Milestone Warrants pursuant to the Purchase Agreement are collectively referred to as the “Financing.”
Pursuant to the terms of the Merger Agreement, upon the closing of the Merger, Adial agreed to guarantee the payment of $5.5 million in principal amount of certain amended and restated convertible promissory notes issued by Azora (the “Azora Notes”) to certain individuals (collectively, the “Former Azora Noteholders”). On June 11, 2026, Adial entered into exchange agreements (the “Exchange Agreements”) with the Former Azora Noteholders to extinguish the payment guaranty and retire the Azora Notes in exchange for the issuance to the Former Azora Noteholders of Initial Closing Pre-Funded Warrants to purchase an aggregate of 2,031,603 shares of Adial common stock (the “Azora Note Exchange”). As a result of the Azora Note Exchange, all such Azora Notes have been deemed to be repaid in full and all outstanding obligations thereunder have been extinguished. Pursuant to the Exchange Agreements, the Former Azora Noteholders are entitled to participate in Milestone Closings to purchase Milestone Pre-Funded Warrants to purchase up to an aggregate of 2,031,603 shares of Adial common stock and Milestone Incentive Warrants to purchase up to an aggregate of 2,031,603 shares of Adial common stock, at a combined price of $2.7489, on substantially the same terms as the PIPE Investors under the Purchase Agreement, for an aggregate purchase price of up to $5.6 million.
The Azora Note Exchange, together with the Merger and the Financing, are referred to as the “Transactions.”
On June 11, 2026, Adial publicly announced the Transactions and filed a Current Report on Form 8-K attaching the Merger Agreement, the Purchase Agreement, the Exchange Agreement and related transaction documents. In that announcement, the Company stated that, following the Merger, the combined company would advance Azora’s colon-targeted AhR program through key clinical milestones in ulcerative colitis, including the opening of an IND, a Phase 1a SAD/MAD study and Phase 1b proof-of-concept studies in ulcerative colitis patients. The Company expects to file an IND in the first half of 2027, followed by a Phase 1a initiation and a proof-of-concept readout in ulcerative colitis in the first half of 2028.
Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined financial information has been prepared by Adial in accordance with Regulation S-X Article 11, Pro Forma Financial Information, as amended by the final rule, Amendments to Financial Disclosures About Acquired and Disposed Business, as adopted by the SEC on May 20, 2020 (“Article 11”). The following unaudited pro forma condensed combined financial information gives effect to the Acquisition of Azora and the other related Transactions.
The unaudited pro forma condensed combined balance sheet as of March 31, 2026 combines the historical balance sheet of Adial as of March 31, 2026 and the historical balance sheet of Azora as of March 31, 2026 and depicts the accounting for the Acquisition, the concurrent Financing, and Transactions (“pro forma balance sheet transaction accounting adjustments”). The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2026 and for the year ended December 31, 2025 combine the historical results of Adial and Azora and depict the pro forma balance sheet transaction accounting adjustments for the Acquisition and Transactions assuming that those adjustments were made as of January 1, 2025 (“pro forma statements of operations transaction accounting adjustments”). Collectively, pro forma balance sheet transaction accounting adjustments and pro forma statements of operations transaction accounting adjustments are referred to as “transaction accounting adjustments.” These unaudited pro forma condensed combined financial information for the three months ended March 31, 2026 and year ended December 31, 2025 and related notes have been derived from and should be read in conjunction with:
| ● | the historical audited consolidated financial statements of Adial and the related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Adial’s annual report on Form 10-K for the fiscal year ended December 31, 2025, as filed with the SEC on March 5, 2026 and incorporated herein by reference; |
| ● | the historical unaudited interim financial statements of Adial and the related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Adial’s quarterly report in Form 10-Q for the three months ended and as of March 31, 2026, as filed with the SEC on May 8, 2026 and incorporated by herein reference; |
| ● | the historical audited financial statements of Azora as of and for the year ended December 31, 2025, as filed with the SEC as Exhibit 99.3 to Adial’s Form 8-K/A filed on August 10, 2026 and incorporated herein by reference; and |
| ● | the historical unaudited interim financial statements of Azora and the related notes as of and for the quarter ended March 31, 2026, as filed with the SEC as Exhibit 99.4 to Adial’s Form 8-K/A filed on August 10, 2026 and incorporated herein by reference. |
Azora’s historical financial information has been incorporated by reference for purposes of preparing the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined financial information is provided for illustrative purposes only, does not necessarily reflect what the actual consolidated results of operations and financial position would have been had the Acquisition occurred on the dates assumed and may not be useful in predicting the future consolidated results of operations or financial position. The unaudited pro forma condensed combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may result from the Acquisition.
The transaction accounting adjustments to the unaudited pro forma condensed combined financial information are based on the assumptions described in the accompanying notes. The unaudited pro forma condensed combined financial information is not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had Adial and Azora been a combined organization during the specified periods.
2
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2026
(in thousands of dollars)
| Historical | PIPE | Transaction Accounting | Pro Forma | |||||||||||||||||||
| Adial | Azora | Financing | Adjustments | Combined | ||||||||||||||||||
| Assets | ||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 4,584 | $ | 4,216 | $ | 24,325 | 3(a) | $ | 1,500 | 6(a) | $ | 32,499 | ||||||||||
| (2,134 | ) | 6(b) | ||||||||||||||||||||
| 885 | 6(c) | |||||||||||||||||||||
| (877 | ) | 6(d) | ||||||||||||||||||||
| Prepaid expenses and other current assets | 219 | 11 | - | - | 230 | |||||||||||||||||
| Total current assets | 4,803 | 4,227 | 24,325 | (626 | ) | 32,729 | ||||||||||||||||
| Equity method investments | 422 | - | - | - | 422 | |||||||||||||||||
| Intangible assets | 3 | - | - | 44,107 | 6(e) | 3 | ||||||||||||||||
| (44,107 | ) | 6(f) | ||||||||||||||||||||
| Other assets | - | 7 | - | - | 7 | |||||||||||||||||
| Total assets | $ | 5,228 | $ | 4,234 | $ | 24,325 | $ | (626 | ) | $ | 33,161 | |||||||||||
| Liabilities and stockholders' equity | ||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||
| Accounts payable | 574 | $ | 27 | $ | - | $ | - | $ | 601 | |||||||||||||
| Accrued expenses and other current liabilities | 936 | 594 | - | - | 1,530 | |||||||||||||||||
| Total current liabilities | 1,510 | 621 | - | - | 2,131 | |||||||||||||||||
| PIPE warrant liability | - | - | 32,092 | 3(a) | - | 32,092 | ||||||||||||||||
| Convertible promissory notes | - | 4,011 | (5,585 | ) | 3(a) | 1,574 | 6(a) | - | ||||||||||||||
| Total liabilities | 1,510 | 4,632 | 26,507 | 1,574 | 34,223 | |||||||||||||||||
| Adial Preferred Stock | - | - | - | 38,533 | 6(e) | 38,533 | ||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||||||||
| Adial common stock | 2 | - | - | 1 | 6(c) | 3 | ||||||||||||||||
| Azora common and preferred stock | - | 8,867 | - | (8,867 | ) | 6(e) | - | |||||||||||||||
| Additional paid-in capital | 95,711 | 109 | 5,939 | 3(a) | 884 | 6(c) | 105,633 | |||||||||||||||
| (109 | ) | 6(e) | - | |||||||||||||||||||
| 1,664 | 6(e) | |||||||||||||||||||||
| 1,304 | 6(e) | |||||||||||||||||||||
| 131 | 6(d) | |||||||||||||||||||||
| Accumulated other comprehensive income | - | 201 | - | (201 | ) | 6(e) | - | |||||||||||||||
| Accumulated deficit | (91,995 | ) | (9,575 | ) | (8,121 | ) | 3(a) | (74 | ) | 6(a) | (145,231 | ) | ||||||||||
| (2,134 | ) | 6(b) | ||||||||||||||||||||
| (1,008 | ) | 6(d) | ||||||||||||||||||||
| 11,783 | 6(e) | |||||||||||||||||||||
| (44,107 | ) | 6(f) | ||||||||||||||||||||
| Total stockholders’ equity | 3,718 | (398 | ) | (2,182 | ) | (40,733 | ) | (39,595 | ) | |||||||||||||
| Total liabilities, convertible preferred stock and stockholders' equity | $ | 5,228 | $ | 4,234 | $ | 24,325 | $ | (626 | ) | $ | 33,161 | |||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2026
(in thousands of dollars, except shares and per share amounts)
| Historical | Transaction Accounting | Pro Forma | |||||||||||||||||
| Adial | Azora | Adjustments | Combined | ||||||||||||||||
| Operating expenses: | |||||||||||||||||||
| Research and development | $ | 433 | $ | 15 | $ | - | $ | 448 | |||||||||||
| General and administrative | 1,569 | 185 | - | 1,754 | |||||||||||||||
| Total operating expenses | 2,002 | 200 | - | 2,202 | |||||||||||||||
| Loss from operations | (2,002 | ) | (200 | ) | - | (2,202 | ) | ||||||||||||
| Other income (expense), net: | |||||||||||||||||||
| Interest income | 47 | - | - | 47 | |||||||||||||||
| Change in fair value of convertible promissory notes | - | (11 | ) | 11 | 7(c) | - | |||||||||||||
| Other expense, net | - | (1 | ) | - | (1 | ) | |||||||||||||
| Net income (loss) before income taxes | (1,955 | ) | (212 | ) | 11 | (2,156 | ) | ||||||||||||
| Losses from investments in equity method investees, net of tax | (68 | ) | - | - | (68 | ) | |||||||||||||
| Net loss | (2,023 | ) | (212 | ) | 11 | (2,224 | ) | ||||||||||||
| Net loss attributable to common stockholders | $ | (2,023 | ) | $ | (212 | ) | $ | 11 | $ | (2,224 | ) | ||||||||
| Net loss per share attributable to common stockholders — basic and diluted | $ | (1.48 | ) | $ | (0.15 | ) | 7(f) | ||||||||||||
| Weighted average common shares outstanding — basic and diluted | 1,370,109 | 14,738,147 | 7(f) | ||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
4
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2025
(in thousands of dollars, except shares and per share amounts)
| Historical | PIPE | Transaction Accounting | Pro Forma | ||||||||||||||||||||||
| Adial | Azora | Financing | Adjustments | Combined | |||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||
| Research and development | $ | 2,620 | $ | 340 | $ | - | $ | - | $ | 2,960 | |||||||||||||||
| General and administrative | 5,180 | 660 | - | 4,609 | 7(a) | 11,457 | |||||||||||||||||||
| - | 1,008 | 7(d) | |||||||||||||||||||||||
| Total operating expenses | 7,800 | 1,000 | - | 5,617 | 14,417 | ||||||||||||||||||||
| Loss from operations | (7,800 | ) | (1,000 | ) | - | (5,617 | ) | (14,417 | ) | ||||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||||
| Interest income | 150 | 1 | - | - | 151 | ||||||||||||||||||||
| Acquired in-process research and development | - | - | - | (44,107 | ) | 7(b) | (44,107 | ) | |||||||||||||||||
| Loss on settlement of convertible notes | - | - | (6,054 | ) | 7(e) | - | (6,054 | ) | |||||||||||||||||
| Other expense, net | 165 | 255 | - | - | 420 | ||||||||||||||||||||
| Net income (loss) before income taxes | (7,485 | ) | (744 | ) | (6,054 | ) | (49,724 | ) | (64,007 | ) | |||||||||||||||
| Losses from investments in equity method investees, net of tax | (492 | ) | - | - | (492 | ) | |||||||||||||||||||
| Net loss | (7,977 | ) | (744 | ) | (6,054 | ) | (49,724 | ) | (64,499 | ) | |||||||||||||||
| Foreign currency translation adjustment, net of taxes | (255 | ) | - | (255 | ) | ||||||||||||||||||||
| Total other comprehensive income (loss) | - | (255 | ) | - | - | (255 | ) | ||||||||||||||||||
| Total comprehensive loss | $ | (7,977 | ) | $ | (999 | ) | $ | (6,054 | ) | $ | (49,724 | ) | $ | (64,754 | ) | ||||||||||
| Net loss attributable to common stockholders | $ | (7,977 | ) | $ | (744 | ) | $ | (6,054 | ) | $ | (49,724 | ) | $ | (64,499 | ) | ||||||||||
| Net loss per share attributable to common stockholders — basic and diluted | $ | (11.93 | ) | $ | (4.60 | ) | 7(f) | ||||||||||||||||||
| Weighted average common shares outstanding — basic and diluted | 668,630 | 14,036,668 | 7(f) | ||||||||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
5
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Description of the Acquisition
On June 11, 2026, Adial, First Merger Sub, Second Merger Sub and Azora entered into the merger agreement, pursuant to which Adial acquired Azora. Pursuant to the merger agreement, First Merger Sub merged with and into Azora, with Azora surviving as a wholly owned subsidiary of Adial. Immediately following the First Merger, Azora merged with and into Second Merger Sub, with Second Merger Sub surviving as a wholly owned subsidiary of Adial and the Second Merger Sub changing its name to “Azora Therapeutics, LLC”. The transaction was structured as a merger intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.
Upon Closing on June 11, 2026, the following was effected:
| ● | Adial acquired all outstanding equity interests of Azora pursuant to the merger agreement, and Azora became a wholly owned subsidiary of Adial. |
| ● | Outstanding Azora equity awards were assumed by Adial and converted into Adial equity awards treated in accordance with the merger agreement and related transaction documents, including any applicable cancellation, conversion, replacement, or settlement provisions. |
2. Historical Azora
At Closing, the merger consideration issued to former Azora stockholders consisted of shares 437,421 of Adial common stock and 12,930.617 shares of Series A Non-Voting Convertible Preferred Stock. Each share of Series A Non-Voting Convertible Preferred Stock is convertible into 1,000 shares of Adial common stock, subject to the terms and limitations set forth in the applicable certificate of designation and related transaction documents. Adial also assumed Azora options to purchase 1,177,782 shares of Adial common stock. The issuance of Adial securities in connection with the merger is reflected in the unaudited pro forma condensed combined financial information based on preliminary estimates and the terms of the merger agreement.
3. Concurrent Private Placement
In connection with and as a condition to closing of the Merger, Adial entered into a securities purchase agreement and related registration rights arrangement with the purchasers in the private placement. At the initial PIPE closing on June 12, 2026, pre-funded warrants Initial Closing Pre-Funded Warrants to purchase up to an aggregate of 9,749,345 shares of Adial common stock were issued to the PIPE Investors, for gross cash proceeds of approximately $26.8 million.
Pursuant to the terms of the Merger Agreement, upon the closing of the Merger, Adial agreed to guaranty the payment of $5.5 million in principal amount to the Former Azora Noteholders. On June 11, 2026, Adial entered into exchange agreements with the Former Azora Noteholders to extinguish the payment guarantee and retire the Azora Notes in exchange for the issuance to the Former Azora Noteholders of Initial Closing Pre-Funded Warrants to purchase an aggregate of 2,031,603 shares of Adial common stock. As a result of the Azora Note Exchange, all the Azora Notes have been deemed to be repaid in full and all outstanding obligations thereunder have been extinguished.
The pro forma financial information reflects the effects of the initial financing and related transaction accounting adjustments based on the terms available as of the Initial PIPE Closing.
The private placement and Exchange Agreement also provides for up to approximately $32.0 million in additional gross proceeds upon Phase 1 clinical study initiation, for the potential issuance to the PIPE Investors and Former Azora Noteholders of additional pre-funded warrants to purchase up to 11,780,948 shares of Adial common stock and common warrants to purchase up to 11,780,948 shares of Adial common stock at a combined purchase price of $2.7489 for each pre-funded warrant and accompanying common warrant sold at milestone closings. The additional warrants to be issued in such milestone closings are classified as a liability because the number of warrants ultimately issuable is not fixed, it depends on the extent to which each holder has exercised its Initial Closing Pre-Funded Warrants prior to the related milestone closing, causing the instrument to fail the fixed-for-fixed criterion under Accounting Standards Codification Topic 815-40, and precluding equity classification. Accordingly, the additional warrant rights are recorded as a liability at fair value upon issuance, with subsequent changes in fair value recognized in earnings each reporting period.
| a) | To reflect the initial closing of the concurrent private placement entered into in connection with the Merger, including approximately $26.8 million in upfront gross proceeds from the issuance of pre-funded warrants to purchase 9,749,345 shares of Adial common stock at a purchase price of $2.7489 per pre-funded warrant, less issuance costs of approximately $2.5 million, and the exchange of the total outstanding principal and accrued interest of approximately $5.6 million of Azora notes assumed in the Acquisition for the issuance of pre-funded warrants to purchase 2,031,603 shares of Adial common stock. The adjustment records the loss of $6.1 million associated with the extinguishment of the Azora notes and the recognition of equity classified pre-funded warrants of $6.1 million and liability classified rights issued in exchange for the notes extinguishment. The adjustment records the proceeds from the initial PIPE Closing, net of placement agent fees and other offering expenses, and reflects the classification of the pre-funded warrants of $0.3 million as additional paid-in capital equity and related financing instruments as derivative liabilities of $32.1 million with allocated transaction costs of approximately $2.5 million included in accumulated deficit in accordance with applicable accounting guidance. The potential additional $32.0 million milestone tranche, including additional pre-funded warrants and common warrants issuable upon Phase 1 clinical study initiation, is not reflected in the unaudited pro forma condensed combined financial information because the milestone condition had not been satisfied as of the Closing. |
6
(in thousands)
| Gross proceeds from financing | $ | 26,800 | ||
| Payment of cash transaction costs | (2,475 | ) | ||
| Pro forma adjustment, net cash | $ | 24,325 |
4. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial information has been prepared by management in accordance with Article 11, of Regulation S-X and is presented in USD. The adjustments presented in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an understanding of the combined company after the consummation of the Acquisition, the concurrent private placement, and other related Transactions.
In accordance with Accounting Standards Codification Topic 810, Consolidation ("ASC 810"), upon initially consolidating a variable interest entity ("VIE") that does not meet the definition of a business, the assets acquired and liabilities assumed are recognized and measured on a basis consistent with the acquisition method of accounting for asset acquisitions. Under this guidance, the assets and liabilities are recognized and measured based on their fair values, and no goodwill is recorded or recognized. Acquired IPR&D that has no future alternative use is expensed at the time of acquisition.
The unaudited pro forma condensed combined financial information reflects certain adjustments to align Azora’s historical financial information with Adial’s presentation and accounting policies, as applicable. These adjustments reflect Adial’s best estimates based on the information currently available.
The unaudited pro forma condensed combined balance sheet reflects adjustments that depict the accounting for the Acquisition, the Financing, and the Transactions. The unaudited pro forma condensed combined statements of operations reflect adjustments that give effect to Adial’s results of operations as if those adjustments for the Acquisition, the Financing and the Transactions were made as of the beginning of January 1, 2025. The unaudited pro forma condensed combined financial statements have been prepared based on the Company’s and Azora’s historical financial information, giving effect to the Acquisition and related adjustments described in these notes to show how the Acquisition might have affected the historical financial statements if it had been completed on January 1, 2025 for the purposes of the unaudited pro forma condensed combined statements of operations, and as of December 31, 2025, for purposes of the unaudited pro forma condensed combined balance sheet.
The unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Acquisition and the Transactions. In addition, the income tax effects of the transaction accounting adjustments are not expected to be meaningful given the combined entity incurred significant losses during the historical periods presented, and therefore, no income tax adjustments are included in the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined financial information constitutes forward-looking information, is subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated and should be read in conjunction with the accompanying notes thereto.
The transaction accounting adjustments are preliminary and are based upon available information and certain assumptions which management believes are reasonable under the circumstances and which are described in the accompanying notes to the unaudited pro forma condensed combined financial information. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information. The final accounting treatment and related allocation will be determined when the final consideration has been determined, detailed valuations and any other studies and calculations deemed necessary have been completed. Therefore, the actual amounts recorded as of the completion of the Acquisition may also differ materially from the information presented in this unaudited condensed combined pro forma information as a result of, among other factors, changes in Azora’s assets and liabilities that occurred prior to the Closing.
5. Accounting Treatment for the Acquisition
The Acquisition is accounted for using the asset acquisition method in accordance with GAAP because substantially all of the fair value is concentrated in an in-process research and development (“IPR&D”) asset, an intangible asset. Under this method of accounting, no goodwill is recognized. Upon consummation of the Acquisition, Adial owns 100% of Azora and is treated as the accounting acquiror.
Cash, working capital and other nominal assets and liabilities of Azora are accounted for at their fair values. The remaining fair value of consideration transferred is allocated to the IPR&D, based on the preliminary fair value allocated to Azora’s AT177 program, which was determined using the consideration transferred in the Acquisition as a proxy for fair value. The consideration transferred represented a reasonable measure of the fair value of the acquired IPR&D because it was negotiated in an arm’s-length transaction between willing market participants and substantially all of the acquired value was attributable to the AT177 program. After recognizing the fair value of Azora’s remaining identifiable net assets, which approximated their carrying values at Closing, the residual fair value of the consideration transferred was allocated to the acquired IPR&D asset.
Pursuant to the merger agreement, Adial acquired Azora and Azora became a wholly owned subsidiary of Adial at Closing. The consideration transferred and related transaction accounting adjustments are reflected in the unaudited pro forma condensed combined financial information based on preliminary estimates and the terms of the merger agreement and related transaction documents.
7
6. Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet
The adjustments and notes included in the unaudited pro forma condensed combined balance sheet as of March 31, 2026, based on preliminary estimates that could change materially as additional information is obtained, are as follows:
Balance Sheet Pro forma Transaction Accounting Adjustments:
Azora pro forma transaction accounting adjustments:
| a) | To reflect the issuance of $1.5 million of Azora notes in May and the extinguishment of Azora outstanding notes and related accrued interest assumed in the Acquisition, including amounts exchanged into securities issued in the initial private placement, as applicable. |
| b) | To reflect Acquisition-related transaction costs incurred by Azora related to the completion of the merger that were not reflected in the historical financial statements, including legal, advisory, audit and other professional fees, as applicable. |
Adial pro forma transaction accounting adjustments:
| c) | To reflect Adial’s issuance of 544,454 shares of common stock under its ATM program for net proceeds of $0.9 million, and the grant of 134,815 restricted stock awards to certain officers, employees and directors and options to purchase 9,185 shares of common stock at an exercise price of $1.64 per share. |
| d) | To reflect incremental compensation expense related to severance payments recorded in general and administrative expenses of $0.9 million and stock based compensation expense recorded in general and administrative expenses of $0.1 million, related to accelerated vesting of 43,835 restricted stock units and 4,478 stock options and post termination exercise period extensions upon a qualified terminations, resulting from approval from the Adial Board that will be incurred upon the closing of the Merger. |
Acquisition accounting adjustments:
| e) | To reflect the asset acquisition and the resulting elimination of the equity of Azora and record the Acquisition of Azora (in thousands). |
| Investment in Subsidiary | Adial Series A Preferred Stock | Azora Preferred Stock and Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total | ||||||||||||||||||||||
| Elimination of Azora’s historical equity balances as of March 31, 2026 | $ | — | $ | — | $ | (8,867 | ) | $ | (109 | ) | $ | (201 | ) | $ | 9,575 | $ | 398 | |||||||||||
| Exchange of Azora options for stock options of the Company | — | — | — | 1,664 | — | — | 1,664 | |||||||||||||||||||||
| Issuance of Adial Common Stock | — | — | — | 1,304 | — | — | 1,304 | |||||||||||||||||||||
| Expensing of Company transaction costs and FV convertible notes | — | — | — | — | — | 2,208 | 2,208 | |||||||||||||||||||||
| Issuance of Adial Series A Preferred Stock | — | 38,533 | — | — | — | — | 38,533 | |||||||||||||||||||||
| Investment in subsidiary | (44,107 | ) | — | — | — | — | — | (44,107 | ) | |||||||||||||||||||
| Pro forma adjustments | $ | (44,107 | ) | $ | 38,533 | $ | (8,867 | ) | $ | 2,859 | $ | (201 | ) | $ | 11,783 | $ | — | |||||||||||
In accordance with GAAP, Adial recognized the effects of the Acquisition based on the consideration transferred and the preliminary fair value of Azora’s identifiable assets and liabilities at Closing, including the acquired IPR&D asset related to AT177.
The fair value of the remaining net assets of Azora approximated their carrying values at the time of Closing. The fair value of acquired IPR&D is determined primarily using the consideration transferred in the Acquisition as a proxy for fair value. The consideration transferred represented a reasonable measure of the fair value of the acquired IPR&D because it was negotiated in an arm’s-length transaction between willing market participants and substantially all of the acquired value was attributable to the AT177 program The preliminary estimate of fair value of acquired IPR&D may differ from the final amount calculated after completing detailed valuation procedures, and any difference could have a material effect on the accompanying unaudited pro forma condensed combined financial information.
| f) | To reflect the immediate expensing of acquired IPR&D with no alternative future use upon consummation of the Acquisition. The adjustment is based on the preliminary fair value allocated to Azora’s AT177 program, which was determined using the consideration transferred in the Acquisition as a proxy for fair value. The consideration transferred represented a reasonable measure of the fair value of the acquired IPR&D because it was negotiated in an arm’s-length transaction between willing market participants and substantially all of the acquired value was attributable to the AT177 program. After recognizing the fair value of Azora’s remaining identifiable net assets, which approximated their carrying values at Closing, the residual fair value of the consideration transferred was allocated to the acquired IPR&D asset. The amount allocated to the IPR&D asset was expensed upon acquisition as the asset has no alternative future use. The adjustment is recorded as an increase to acquired in-process research and development expense with a corresponding reduction to the intangible asset recognized in acquisition accounting. |
8
7. Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations
The adjustments included in the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2026 and for the year ended December 31, 2025 reflect the Acquisition, the initial private placement, the extinguishment of Azora notes, and related transaction accounting adjustments as if such transactions had occurred as of the beginning of the earliest period presented, as follows:
Pro forma notes:
Given that Adial has reported net losses and applied a full valuation allowance for the reporting periods presented in the unaudited pro forma condensed combined financial information, management assumed an effective income tax rate of 0%. No income tax benefit has been recorded for the immediate expensing of acquired IPR&D or other transaction accounting adjustments because no incremental realizable tax benefit is expected. Accordingly, no tax-related adjustments have been reflected in the unaudited pro forma condensed combined financial information.
Pro forma Transaction Accounting Adjustments:
| a) | To reflect Adial and Azora estimated acquisition-related advisory, legal, audit, regulatory and other professional fees related to the private placement that were not recorded in its historical financial statements. These costs are presented as nonrecurring transaction costs in the pro forma statements of operations and are assumed to have been incurred as of January 1, 2025. |
| b) | To reflect the immediate expensing of acquired IPR&D with no alternative future use upon consummation of the Acquisition. The adjustment is based on the preliminary fair value allocated to Azora’s AT177 program, which was determined using the consideration transferred in the Acquisition as a proxy for fair value. The consideration transferred represented a reasonable measure of the fair value of the acquired IPR&D because it was negotiated in an arm’s-length transaction between willing market participants and substantially all of the acquired value was attributable to the AT177 program. After recognizing the fair value of Azora’s remaining identifiable net assets, which approximated their carrying values at Closing, the residual fair value of the consideration transferred was allocated to the acquired IPR&D asset. The amount allocated to the IPR&D asset was expensed upon acquisition as the asset has no alternative future use. The adjustment is recorded as an increase to acquired in-process research and development expense with a corresponding reduction to the intangible asset recognized in acquisition accounting. |
| c) | To eliminate historical fair value changes associated with Azora convertible notes that were exchanged into Adial pre-funded warrants and liability classified rights in connection with the Acquisition and initial private placement, as if such exchange occurred at January 1, 2026. |
| d) | To reflect incremental compensation expense related to severance payments recorded in general and administrative expenses of $0.9 million and stock based compensation expense recorded in general and administrative expenses of $0.1 million, related to accelerated vesting of 43,835 restricted stock units and 4,478 stock options and post termination exercise period extensions upon a qualified terminations, resulting from approval from the Adial Board that will be incurred upon the closing of the Merger. | |
| e) | To recognize the loss of $6.1 million associated with the extinguishment of the Azora convertible notes that were exchanges for Adial pre-funded warrants and liability classified rights in connection with the Acquisition and initial private placement, as if such extinguishment occurred at January 1, 2025. | |
| f) | The pro forma combined basic and diluted net loss per share has been adjusted to reflect the Acquisition and the Transactions, including the issuance of Adial common stock and Series A Non-Voting Convertible Preferred Stock as merger consideration to former Azora stockholders and the issuance of pre-funded warrants in the initial private placement, as if such transactions had occurred as of January 1, 2025. The table below assumes conversion of the Series A Non-Voting Convertible Preferred Stock into Adial common stock and the exercise of June Prefunded Warrants into Adial common stock. For periods in which Adial, Azora, or the combined company reported a net loss, diluted loss per share is the same as basic loss per share because potential dilutive shares are not assumed to have been issued when their effect would be anti-dilutive. |
9
| For the Three Months Ended March 31, 2026 | For the Year Ended December 31, 2025 | |||||||
| Basic and Diluted | Basic and Diluted | |||||||
| (in thousands, except shares and per share amounts) | ||||||||
| Pro forma net loss | $ | (2,224 | ) | $ | (64,499 | ) | ||
| Weighted average shares of common stock outstanding | 1,370,109 | 668,630 | ||||||
| Conversion of Azora common shares into Adial common shares | 437,421 | 437,421 | ||||||
| Conversion of Azora preferred stock into Adial common shares | 12,930,617 | 12,930,617 | ||||||
| Pre-Funded Warrants issued in connection with the PIPE Financing | 11,780,948 | 11,780,948 | ||||||
| Pro forma weighted average number of common stock | 14,738,147 | 14,036,668 | ||||||
| Pro forma net loss per share | $ | (0.15 | ) | $ | (4.60 | ) | ||
The following table reflects the outstanding dilutive potential shares that are excluded from the calculation of diluted net loss per share due to their anti-dilutive effect.
| For the Three Months Ended March 31, 2026 | For the Year Ended December 31, 2025 | |||||||
| Adial warrants to purchase common stock | 1,240,480 | 1,240,480 | ||||||
| Adial options to purchase Adial common stock | 47,220 | 47,220 | ||||||
| Adial unvested restricted stock | - | 1,449 | ||||||
| Liability warrant rights issued in connection with the PIPE Financing | 23,561,896 | 23,561,896 | ||||||
| Assumed Azora Options to be issued to Azora Option holders in connection with the Acquisition | 1,177,782 | 1,177,782 | ||||||
| 26,027,378 | 26,028,827 | |||||||
10