PART
I
Unless
the context indicates otherwise, references in this Annual Report on Form 10-K to the “Company,” “Enveric,” “we,”
“us,” “our” and similar terms refer to Enveric Biosciences, Inc. and its subsidiaries. We were previously known
as AMERI Holdings, Inc. (“Ameri”). Following the completion of our offer to purchase all of the issued and outstanding shares
of Jay Pharma, Inc. on December 30, 2020, we changed the name of our company from AMERI Holdings, Inc. to Enveric Biosciences, Inc. For
more detail on the transaction with Jay Pharma, Inc. and related transactions, see the section titled “Explanatory Note”
above.
Item
1. Business
Company
Information
We
were incorporated under the laws of the State of Delaware in February 1994 as Spatializer Audio Laboratories, Inc., which was a shell
company immediately prior to the completion of a “reverse merger” transaction on May 26, 2015, whereby Ameri100 Acquisition,
Inc., a Delaware corporation and newly created, wholly owned subsidiary, was merged with and into Ameri and Partners Inc. (“Ameri
and Partners”), a Delaware corporation (the “2015 Merger”). As a result of the 2015 Merger, Ameri and Partners became
Ameri’s wholly owned subsidiary with Ameri and Partners’ former stockholders acquiring a majority of the outstanding shares
of Ameri common stock. The 2015 Merger was consummated under Delaware law pursuant to an Agreement of Merger and Plan of Reorganization,
dated as of May 26, 2015 (the “2015 Merger Agreement”), and in connection with the 2015 Merger, Ameri changed its name to
AMERI Holdings, Inc. Ameri did business under the brand name “Ameri100”. Ameri, along with its eleven operating subsidiaries,
provided SAP cloud, digital and enterprise services to clients worldwide.
The
Ameri business ceased to be part of the Company on December 30, 2020, pursuant to the Spin-Off. On December 30, 2020, we completed the
Offer and changed our name to “Enveric Biosciences, Inc.” Our principal corporate office is located at Enveric Biosciences,
Inc., 4851 Tamiami Trail N, Suite 200, telephone (239) 302-1707. Our internet address is https://www.enveric.com/, and the information
included in, or linked to our website is not part of this prospectus. We have included our website address in this prospectus solely
as a textual reference.
Business
Overview
We
are an early-development-stage biosciences company with an initial focus on developing innovative, evidence-based prescription
products and combination therapies containing cannabinoids to address unmet needs in cancer care. We seek to improve the lives
of patients suffering from cancer, initially by developing palliative and supportive care products for people suffering from certain
side effects of cancer and cancer treatment such as pain or skin irritation. We currently intend to offer such palliative and
supportive care products in the United States, following approval through established regulatory pathways.
We
are also aiming to advance a pipeline of novel cannabinoid combination therapies for hard-to-treat cancers, including glioblastoma multiforme
(GBM) and several other indications which are currently being researched.
We
intend to bring together leading oncology clinicians, researchers, academic and industry partners so as to develop both external proprietary
products and a robust internal pipeline of product candidates aimed at improving quality of life and outcomes for cancer patients. We
intend to evaluate options to out-license its proprietary technology as it moves along the regulatory pathway and evaluates the building
of a small, targeted selling organization and will potentially utilize a hybrid approach based on the product indication and the market
opportunity.
In
developing our product candidates, we intend to focus on cannabinoids derived from hemp, other botanical sources, and synthetic materials
containing no tetrahydrocannabinol (THC) in order to comply with U.S. federal regulations. Of the potential cannabinoids to be used in
therapeutic formulations, THC, which is responsible for the psychoactive properties of marijuana, can result in undesirable mood effects.
Cannabidiol (CBD) and cannabigerol (CBG), on the other hand, are not psychotropic and are therefore more attractive candidates for translation
into therapeutic practice. In the future, we may utilize cannabinoids that are derived from cannabis plants, which may contain THC; however,
we only intend to do so in jurisdictions where THC is legal. These product candidates will then be studied through a typical Food and
Drug Administration (“FDA”) drug approval process.
Strengths
We
believe that we offer the following key distinguishing characteristics:
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Unique
Dedication to Prescription Cancer Supportive Care. We believe that we are one of the only companies currently developing evidence-based
prescription-only therapies containing cannabinoids that are exclusively focused on the unique unmet needs of cancer patients. We
intend to develop such therapies by conforming its product candidates to GMP and obtaining FDA approval for such product candidates.
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Patient-Centric
Product Development. We are focusing on a patient-centric approach to our product development that will uniquely position us
to meet the needs of oncology patients.
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First
Mover Advantage. We believe we are among the first companies working towards creating a leading brand utilizing cannabinoids
in oncology supportive care. We seek to build upon our first mover advantage and expertise in cannabinoid research to accelerate
the discovery, development, and commercialization of therapies for persons affected by cancer that are safe, effective, and trusted
by patients and physicians globally.
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Collaboration
with Global Research Partner. We enjoy an exclusive license with our global cannabinoid research partner, Tikun Olam. We hold
exclusive global rights to Tikun Olam’s proprietary treatment database and cannabinoid derivatives for the development of oncology-focused
pharmaceutical products. We intend to leverage Tikun Olam’s large-scale human datasets and expand upon Tikun Olam’s existing
research by conducting new studies.
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Sophisticated
Leadership Team and Scientific Advisors. We have a world-class leadership team with extensive regulated pharmaceutical industry
backgrounds and deep expertise in oncology, skin and wound care, and clinical research. In addition, we closely collaborate with
a broad network of leading physicians and scientists at major institutions.
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Always
Seeking Growth and Enhancement Opportunities. We have identified a pathway to business growth and shareholder value creation
based on our planned development programs and eventually plan to leverage the credibility of that expertise into broader offerings.
We will continue to expand our opportunities to add assets that are complementary or accretive to our plans to serve patients through
acquisition and in-licensing.
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Go-to
Market Strategy and Business Approach
We
have a two-step go-to-market strategy:
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Skincare
Product Candidates: Develop product candidates that target skincare-related ailments common among cancer patients, such as radiodermatitis,
chemotherapy-induced neuropathy, pruritus, rashes, and dry skin.
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Combination
Therapy: Advance novel cannabinoid combination therapies for persons with cancer, starting with programs in glioblastoma multiforme
(GBM).
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We
believe that our existing approach to development, and a future ongoing emphasis on data collection, will differentiate us from our peers
and improve the quality of care we are able to provide.
Product
Candidates
Our
pipeline of product candidates and key ongoing development programs are shown in the tables below:
Product
Candidate
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Targeted
Indications
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Partner(s)
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Status
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Expected
Next Steps
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Cannabinoid-Infused
Topical Product
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Oncology-
related skincare conditions (e.g., radiodermatitis)
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U.S.-Based
Center of Excellence
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Research
& Development / Discovery
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IND
submission; Exploratory Phase 1/2 trial
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Cannabinoid
+ Chemotherapy Combination Therapy
Oral
synthetic CBD extract given alone or in combination with clomiphene, concurrently with dose-dense Temolozomide chemotherapy
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Glioblastoma
Multiforme
Recurrent
or progressive
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Dr.
Tali Siegal,
Rabin
Medical Center, Davidoff Institute of Oncology
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Research
& Development / Discovery
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Exploratory
Phase 1/2 trial
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Additional
Potential Development Programs
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Potential
Target Indications
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Cannabinoid
+ Chemotherapy Combination Therapy
Clomiphene
in combination with CBD in patients with selected locally advanced or metastatic breast cancer treated with standard adjuvant chemotherapy
regimens
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Breast
Cancer
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Market
Opportunity
Prevalence
According
to the U.S. Department of Health and Human Services, based on 2013-2015 data, approximately 38% of men and women will be diagnosed with
cancer at some point during their lifetime. In 2015, there were an estimated 15,112,098 people living with cancer in the U.S. The number
of new cases of cancer was 439 per 100,000 men and women per year.
Despite
widespread demand, the pharmaceutical market lacks products that address the unique supportive care needs of cancer patients. However,
we believe that research suggests that cannabis, as a palliative treatment for cancer patients, appears to be a well-tolerated option
to help patients cope with malignancy-related symptoms. For example, researchers from the Soroka Medical Center in Beersheba, Israel
analyzed data gathered at Tikun Olam’s central clinic from cancer patients to whom medical cannabis was given for palliative-care
purposes between March 2015 and February 2017 (Schleiderab, European Journal of Internal Medicine, 2018). The primary symptoms prior
to treatment reported among the patients to whom medical cannabis was given during the relevant timeframe were sleep problems (78.4%),
pain (77.7%), weakness (72.7%), nausea (64.6%), and lack of appetite (48.9%). Approximately 51% of the applicable patients reported an
8 out of 10 on the pain scale. Of the relevant patient population, 17% were given Tikun Olam’s cannabidiol-dominant strain “Avidekel,”
and after six months, 95.9% of patients reported improvement in their condition. Note, however, that these are anecdotal reports, which
may or may not be indicative of the results that we may see from clinical studies conducted pursuant to an IND.
According
to a separate survey of 237 oncologists, 80% of these oncologists discussed medical cannabinoids with patients where nearly half recommended
them clinically (Braun IM, J Clin Oncol, 2018). The same survey found that 67% of the oncologists viewed cannabinoids as a helpful adjunct
to standard pain management strategies, and 65% viewed cannabinoids as equally or more effective than standard treatments for anorexia
and cachexia.
Patient
Interest
Research
also shows that most cancer patients have a strong interest in learning about cannabinoids during treatment. According to the Washington
State Survey of Cancer Patients, 74% of surveyed patients wanted information from cancer care providers (Pergam SA, Cancer, 2017). The
same survey found that 66% of patients had used cannabis in the past, 24% used in the last year, and 21% used in the last month.
Moreover,
cancer patients tend to be heavy cannabis users. A survey of active cannabis users who have cancer (Pergam SA, Cancer, 2017) found that
74% used cannabis at least once a week, 56% used cannabis at least daily, and 31% used cannabis multiple times a day. Active users consumed
cannabis primarily for physical symptoms such as pain and nausea or for psychological reasons such as coping with stress, depression,
and sleep difficulty.
Lack
of Research
In
a 2017 report, the National Academy of Sciences noted that, although cannabis has both therapeutic value and public health risks, there
is a systemic lack of research aimed at properly evaluating cannabis-based therapies. The National Academy of Sciences offered recommendations
that included developing standards and benchmarks to guide cannabis research, addressing research gaps to evaluate the short- and long-term
health effects of cannabis use, improving surveillance capacity to ensure that sufficient data is available, and addressing regulatory
barriers to cannabis research and proposing strategies for supporting a comprehensive cannabis research agenda.
Critically,
only 30% of oncologists felt sufficiently informed to make recommendations regarding medical cannabis, suggesting a large unmet opportunity
to educate oncologists and provide research that supports the safety and efficacy of Enveric product candidates. Among the oncologists
who discussed medical cannabis with patients, 78% said that patients were the ones to express interest on most occasions.
Potential
for Premium Pricing
We
plan to conduct extensive clinical research in an effort to establish the safety of its prospective product candidates in cancer patients,
and, eventually, help to identify and/or develop cannabinoid medicines intended to reduce various unwanted side effects that commonly
affect cancer patients, target specific patient sequelae (e.g., cancer pain, anxiety, or nausea), and target specific side effects
to the skin as a result of radiation and chemotherapy treatments.
We
believe that prescription only medicines containing cannabinoids (including product with hemp-based ingredients) will carry a price premium.
Upon obtaining FDA approval for our product candidates, we are striving to distinguish ourselves from a rising tide of cannabis industry
participants by:
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Creating
product candidates specific to the side effects of cancer and cancer treatment, with a novel focus on skincare.
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Employing
evidence-based best practices specific to cancer patients.
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Generating
clinical research to support the safety and effectiveness of its product candidates in cancer patients.
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Leveraging
FDA approval, as most over-the-counter (“OTC”) products sold are not FDA approved.
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We
believe these will be an important differentiator for people with cancer and oncologists who are faced with high patient demand and in
still relatively novel, unproven field of medical cannabis. Accordingly, we anticipate eventually being able to charge a premium for
those of our prospective product candidates that are successfully commercialized. Further, more than one-third of cancer patients who
used medical cannabis were new users (K. Martell, Curr Oncol, 2018), suggesting the potential to establish strong brand loyalty from
cancer patients and oncologists.
Conditions
Currently Targeted by Enveric
Radiodermatitis
and Other Skin Conditions
Radiation
therapy is considered an essential component of cancer treatment, with nearly 50% of cancer patients undergoing radiation therapy at
some point during the course of their treatments. Radiodermatitis, or radiation-induced skin injury, is one of the most common adverse
effects of radiation therapy. Of those receiving radiation therapy, approximately 90% experience some form of radiodermatitis.
Dry
skin is another common adverse side effect of certain cancer therapies. For example, a recent study of patients being treated with chemotherapy
for breast cancer found that 57.9% of the patients reported dry skin. Rashes are the most common side effect from targeted cancer therapies
with some treatments. The incidence of rash varies based on the type of cancer and drug used. For instance, skin rash occurs in up to
90% of patients treated with Erbitux, while other drugs may only affect half of patients. Pruritus (itchy skin) is a common adverse side
effect of cancer therapies; a recent survey of 379 cancer survivors reported that 36% experienced pruritus during treatment.
To
address the unique skincare needs of persons with cancer, we are seeking to formulate a cannabinoid-based ointment or other topical drug
product for skincare conditions, such as radiodermatitis (among other conditions, as applicable).
Current
Standard of Care
The
current standard of care for radiodermatitis consists of a combination of preventative routines and symptomatic management based on dermatitis
grade. Preventative skin care routines generally involve keeping the area clean and dry while avoiding skin irritants and unnecessary
friction or skin stress (Salvo, Curr Onvol, 2010; Wong, Supp Care Canc, 2013). Applying lanolin-free moisturizer 2-3 times a day throughout
the duration of treatment is also recommended, with some evidence suggesting that topical corticosteroids used after radiotherapy sessions
may provide some benefit as well (Salvo, Curr Onvol, 2010; Wong, Supp Care Canc, 2013).
Despite
the use of these interventions, up to 85% of individuals will experience a moderate to severe skin reaction during their disease course
(Salvo, Curr Oncol, 2010). This highlights the need for better preventative strategies to reduce the incidence and severity of skin toxicity.
The incomplete success of therapies to date likely relates to the multiple toxic mechanisms of radiation, including direct DNA toxicity,
oxidative stress, and both acute and chronic inflammatory reactions. Therapies that can address multiple aspects of radiation toxicity
on the cellular level are likely to have the most success as prophylaxis and treatment for these patients.
Our
Current Development Plans
We
intend to develop products that address unmet medical needs in palliative and supportive care for cancer patients. The first product
will address radiodermatitis and will enter into clinical trials after an IND submission has been filed. We then intend to seek FDA approval
via the new-drug-application (NDA 505(b)(1)) pathway.
Glioblastoma
Multiforme (GBM)
Glioblastoma
multiforme (GBM) is a highly aggressive and almost universally fatal disease. Even with the most extensive surgical resections and the
most aggressive radiation and chemotherapy regimens, median overall survival is as low as 15- to 19-months (Stupp, NEJM, 2005). This
is likely due, in part, to an intrinsic propensity for treatment resistance and, as a result, the essentially unavoidable event of tumor
recurrence. The current prognosis for most patients necessitates significant advances in the standard of care to improve both overall
survival and patient quality of life.
We
believe that CBD has the potential to influence many of the key pathways involved in GBM pathogenesis, from tumor stemness and proliferation
to angiogenesis and local invasion. GBM tumors express CB2 receptors, through which CBD and other cannabinoids are thought to exert their
anti-cancer efforts (Ellert-Miklaszewska, Adv Exp Med Biol, 2013). The prospect of CBD used in combination with other pharmacologic interventions
holds promise for the treatment of GBM. The development of clinical trials to evaluate the efficacy of CBD combination therapies may
represent an important step towards improving the clinical outcomes in a population of patients with few other effective therapeutic
options.
According
to a study by Kenyon in 2018, seven out of seven patients with GBM experienced a positive clinical response, although four ultimately
succumbed to the disease. CBD was hypothesized to be able to reduce the growth and survival of GBM cell lines by disrupting the normal
function of the cell, or cell cycle arrest, and the induction of programmed cell death, or apoptosis (Marcu, Mol Cancer Ther, 2010).
Cannabinoids have been shown to promote cancer cell death through the overproduction of a lipid subset, called ceramides, as accumulation
of ceramides in GBM cells may prevent the cell from functioning normally. Additionally, the generation of unstable oxygen molecules,
or reactive oxygen species, can damage nearby molecules and trigger cell death (Dumitru, Front Mol Neurosci, 2018).
Enveric’s
Prospective Product Candidates
We
plan to evaluate a novel combination of CBD and an existing chemotherapeutic agent for treating GBM. We intend to use, as part of the
study, a patent pending formulation developed by a partnership of three Israeli universities led by the Weizmann Institute, and now owned
by Enveric.
Our
proposed clinical cancer study plan consists of a Phase 1/2 study in Israel of oral synthetic CBD extract, given alone or in combination
with clomiphene concurrently with dose-dense temolozomide chemotherapy for patients with recurrent or progressive GBM, designed as an
open label, two-arm, randomized prospective study. An initial dose limiting toxicity (DLT) cohort will be investigated in a phase 1 study
in order to rule out any toxicity related to the combination. If successful, recruitment would continue, and then 40 patients would be
randomized into two arms, with 20 patients in each arm: (i) synthetic CBD extract plus clomiphene and temolozomide, and (ii) synthetic
CBD extract plus temolozomide. The primary endpoints would be progression free survival. The progression of the disease would be determined
from a Response Assessment in Neuro-Oncology (RANO) and a tumor assessment based on MRI scans. Safety parameters would include serious
adverse events and other adverse events as reported by the patients and caregivers.
As
of the date of annual report, all pre-clinical studies, and the draft clinical study protocol related to our clinical cancer program,
have been completed. Dr. Tali Siegal has been selected as the primary investigator, and the protocol is currently under review by the
hospital’s internal review board (IRB). The Israeli Ministry of Health, Center for Cannabis (Yakar) has given preliminary approval,
and Enveric is currently awaiting its primary approval.
Neuropathy
We
intend to conduct a clinical study to validate the efficacy of topical cream or oral medication infused with high-potency CBD and/or
CBG to help prevent and treat the painful discomfort of chemotherapy-induced neuropathy.
Additional
Potential Development Projects
Supportive
Care Product Candidates
In
the future, we may also develop additional prescription medicines that are derived from natural sources that are targeted to major cancer
treatment side effects, including other skin conditions, cancer-related distress, chemotherapy-induced nausea and vomiting (CINV), lack
of appetite, pain, and insomnia.
For
many patients, the concept of palliative care often carries a negative connotation, conjuring ideas and fears of the end of life. However,
the purpose of palliative care is to improve the patient experience and reduce suffering in all areas of life, including physical, emotional,
psychological, and spiritual well-being. In fact, incorporating palliative care into cancer management has the potential to not only
improve quality of life, but may also prolong survival (Temei, NEJM, 2010; Ferrell, J Clin Oncol, 2017). We avoid the negative connotations
of palliative care by using the term “supportive care”.
The
physical ailments experienced by cancer patients vary widely based on the individual, the type and stage of cancer, and the choice of
therapy. Three of the most common and perhaps most debilitating complaints addressed by palliative care are chronic pain, chemotherapy-induced
nausea and vomiting, and severe body wasting (Reeve, JNCI, 2014). Although efforts have been made to ameliorate these symptoms, many
patients do not achieve adequate relief. The need for new therapeutics to improve these debilitating symptoms has gained increasing attention
in recent years.
Combination
Therapies
We
seek to advance novel treatment for cancer based on a combination of cannabidiol (CBD) and chemotherapeutic agents, including clomiphene,
an anti-estrogen binding site (AEBS) inhibitor, which can regulate cell growth, with a potential for activity in multiple cancer cell
lines, including breast cancer, pancreatic cancer, and acute myeloid leukemia.
Preclinical
data suggests that combination therapies may improve the activity of certain chemotherapies or dendritic cell-based cancer immunotherapies,
potentially enabling more potent or longer-lasting therapeutic effects. In multiple in vitro and in vivo models of solid
tumors and blood cancers, CBD has been shown to reduce tumor size, potential for invasion and metastasis, and development of new tumor-associated
blood vessels. In combination with CBD, clomiphene has been shown to reduce cell viability and increase rates of programmed cell death
in certain cancer cell lines, while also inhibiting tumor growth in vivo.
Because
cancer cells contain largely the same proteins and other targets as the healthy cells in the body, there are few cancer-specific druggable
targets; chemotherapies often simply target all rapidly proliferating cells in the body. While chemotherapy can be successful in suppressing
tumors, there are many side effects associated with use; side effects may increase with higher doses. The ability to provide the same
or greater therapeutic effect with a smaller overall dose of the chemotherapeutic agent may minimize the risk and severity of side effects
in subjects and allow for the treatment of certain patients with weakened immune systems.
Cannabinoid
Combination with AEBS Inhibitors
The
use of cannabis in cancer management has traditionally been relegated to symptomatic management, including as an analgesic, anti-emetic,
and appetite stimulant. However, more recently, mounting evidence has suggested a therapeutic, anti-tumor effect of certain naturally
occurring cannabinoids. Specifically, CBD has been shown to reduce tumor size, the potential for invasion and metastasis, and development
of new tumor-associated blood vessels in multiple in vitro and in vivo models of solid tumors and blood cancers (Ladin, Front Pharmacol,
2016; Massi, Br J Pharmacol, 2013).
There
is also evidence to suggest that CBD used in combination with traditional chemotherapies and a certain class of compounds, the cholesterol
epoxide hydrolase (ChEH) / antiestrogen binding site (AEBS) inhibitors, may be more efficacious than CBD alone (Scott, Int J Oncol, 2017).
AEBS regulates cholesterol metabolism and, consequently, cell growth (Payre, Mol Cancer Ther, 2008).
Two
AEBS inhibitors that we believe may be especially promising are clomiphene citrate and DPPE. Clomiphene is an estrogen modulator typically
used to treat infertility. However, in combination with CBD, clomiphene was recently shown to synergistically reduce cell viability and
increase rates of programmed cell death in certain cancer cell lines, while also inhibiting tumor growth in vivo (WO2017072773A1).
DPPE, on the other hand, is a tamoxifen derivative that is thought to sensitize cancer cells to the activities of chemotherapies. As
a tumor grows and mutates, cancer cells can become resistant to therapies in several ways – tumors can overexpress efflux pumps
that remove certain agents from the cell or can upregulate enzymes that metabolize and inactivate chemotherapies. DPPE was shown to potentiate
the toxicity of multiple chemotherapeutic drugs by both mechanisms (Georges, Biochemical Pharm, 2014; Brandes, Cancer Chemother Pharmacol,
2000).
Cannabinoid
Combination with Immunotherapies
Dendritic
cells (DCs) process antigen material and present it on the cell surface to the T-cells of the immune system. A range of cancer immunotherapies
involving DCs have been used to generate tumor-specific immune responses that have had variable success in clinical trials.
CBD
may cause DCs to increase their production of IL-12 p70, an interleukin-12 (IL-12) family cytokine that may heighten the immune system’s
response against certain cancers. IL-12 is closely linked to the activity of the immune system and is produced by DCs. IL-12 can bring
T-cells and natural killer cells out of dormancy so that a heightened immune response against tumors is possible. By aiding in the generation
of CD4+ (T helper cells), IL-12 also can also elicit a longer lasting and amplified anti-tumor response.
Injected
IL-12 has presented challenges in terms of its toxicity and dosage control and there is a need for generating heightened levels of IL-12,
particularly in immunocompromised patients. Preclinical research suggests that CBD may induce DCs to increase their production of IL-12
p70.
Intellectual
Property
We
are a party to certain license agreements as described below, and going forward it intends to both develop intellectual property and
license intellectual property from pharmaceutical and biotechnology companies and research institutions which would cover research stage
and clinical stage assets to build a pipeline of product candidates.
Tikun
Olam In-License
We
hold limited rights to several plant patent applications as an in-licensee of Tikun Olam.
Tikun
Olam employs evidence-based medicine and other best practices, and its products have been studied in numerous medical trials. Tikun Olam’s
patient databases include 12,000+ persons treated across a variety of conditions, with a primary focus on cancer care.
We
hold limited rights to use the data included in the Tikun Olam patient database.
Diverse
Biotech, Inc. In-License
We
hold limited rights to patent applications owned by Diverse Biotech, Inc. for the use of cannabinoids with five existing, standard-of-care
drugs via Diverse Biotech’s patent pending conjugate drug delivery platform. Our rights extend to all fields of use. We plan to
engage in targeted research and development to apply such conjugates to alleviate the side effects that cancer patients experience, with
the goal of achieving novel therapeutic outcomes for patients.
The
Diverse Biotech, Inc. patent application portfolio includes two patent applications licensed to us. Those two patent applications disclose
conjugate chemistry that combines cannabinoids with existing drugs in conjugate form that we believe will provide differentiation in
use and efficacy from combination therapy of drugs and cannabinoids.
Our
Patents and Patent Applications
We
own full rights to several families of patent applications covering the use of CBD in combination with current cancer treatments, both
broadly, as well as for specific cancer types, including the following:
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Combination
Therapy (WO2017072773 and national phase filings in the U.S. and other countries/regions): Combinations of compositions comprising
CBD and a therapeutic pharmaceutical cancer agents (ChEH/AEBS inhibitors, naphthoquinone or derivatives) for the treatment of cancer.
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Combination
Therapy (EP 18165731.3 and WO2019/193112 and national patent filings in the U.S. and other countries/regions): Relates to regimes
of drug administration and drug combinations that include a cannabinoid for use in the treatment of breast cancer, including triple-negative
breast cancer.
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Cannabinoids
in Combination with Chemotherapy (WO2021/028646): Relates to regimes of drug administration and cannabinoid administration for
treatment of bladder, brain and spinal cord, colorectal, head and neck, lung, lymphoma, neuroendocrine, oesophageal, ovarian, pancreatic
and prostate cancer.
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Exclusive
Supply Agreement
On
February 22, 2021, we entered into an exclusive supply agreement (the “Development and Clinical Supply Agreement”)
with PureForm Global, Inc. (“PureForm”), a biotechnology company focused on the research, development and commercialization
of synthesized CBD and other cannabinoids not derived from hemp or cannabis, for use in development and commercialization of products
for cancer supportive/palliative care associated with radiodermatitis, chemotherapy induced peripheral neuropathy, and glioblastoma.
Pursuant to the Development and Clinical Supply Agreement, PureForm will be the exclusive provider of synthetic cannabidiol (“API”)
for Enveric’s development plans for cancer treatment and supportive care. Under the terms of the Development and Clinical
Supply Agreement, PureForm has granted Enveric the exclusive right to purchase API and related products for cancer treatment
and supporting care.
Research
& Development
In
view of the urgent need for new and more effective oncology drugs, we intend to combine innovative science and accelerated clinical development
to create and develop novel therapies using cannabinoid-based medications and similar compounds. Our past research and development efforts
were limited to investigative work surrounding cannabinoids, including creating and developing novel formulations, and evaluating potential
opportunities to license technologies from pharmaceutical companies and leading research institutions. Our principal research efforts
to date have been with Soroka Medical Center, MSKCC, Tikun Olam and St. George’s University of London.
Clinical
Studies
We
are currently assembling a team of principal investigators with of clinical experience across multiple cancer types to be responsible
for the management, monitoring, and integrity of the clinical research. The following studies are being evaluated for potential advancement:
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Radiodermatitis:
A Phase 1/2 evaluating a CBD-infused formulation for skin.
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Recurrent
or Progressive Glioblastoma Multiforme: A Phase 1/2 study of oral CBD extract in combination with Clomiphene or oral CBD extract
alone given concurrently with dose-dense Temolozomide to patients with recurrent or progressive glioblastoma.
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We
plan to submit INDs and, eventually, NDAs to seek FDA approval in connection with the Radiodermatitis and Recurrent or Progressive Glioblastoma
Multiforme product candidates. The selection, timing, duration, and design of any prospective studies are subject to approval and finalization.
Scientific
Advisory Board
We
have established a scientific advisory board and regularly seeks advice and input from these experienced clinical leaders on matters
related to its research and development programs. The members of our scientific advisory board consist of experts across a range of key
disciplines relevant to its programs. We intend to continue to leverage the broad expertise of its advisors by seeking their counsel
on important topics relating to its product development and clinical development programs.
Our
scientific advisors are not our employees and have commitments to, or consulting or advisory contracts with, other entities that may
limit their availability to us. In addition, its scientific advisors may have arrangements with other companies to assist those companies
in developing products or technologies that may compete with us. All of our scientific advisors are affiliated with other entities and
devote a limited portion of their time to us.
Enveric’s
current scientific advisors are set forth in the table below:
Name
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Title
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Specialization
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Michael
J. Zelefsky, M.D. (Chair)
|
|
Vice
Chair, Department of Radiation Oncology, Chief, Brachytherapy Service, Memorial Sloan Kettering Cancer Center
|
|
Clinical
Research
|
Angus
Dagleish, M.D.
|
|
Professor,
St. George’s University of London
|
|
Oncology
Research
|
James
Perry, M.D.
|
|
Neuro-Oncologist,
Sunnybrook Research Institute; Professor, University of Toronto
|
|
Clinical
Research
|
Zvi
Vogel, Ph.D.
|
|
Professor,
Neurobiology, Weizmann Institute
|
|
Oncology
Research, Patent Contributor
|
Michael
J. Zelefsky, M.D. has served as a Scientific Advisor of Enveric since April 2019. Dr. Zelefsky, is a board-certified radiation
oncologist and co-leader of Memorial Sloan Kettering’s Genitourinary Disease Management Team, a multidisciplinary group
of physicians who work together to treat patients with urologic malignancies. Dr. Zelefsky is Chief of Memorial Sloan Kettering’s
Brachytherapy Service. The prostate brachytherapy program at Memorial Sloan Kettering, which Dr. Zelefsky helped develop and enhance
since joining the staff in 1990, is known for its depth of experience and cutting-edge approach in treating men with prostate
cancer. Dr. Zelefsky was instrumental in pioneering the use of IMRT (intensity-modulated radiation therapy, which is computer-guided
delivery of high doses of radiation directly to the tumor) and IGRT (image-guided radiotherapy, radiation beams targeted precisely
to the tumor) for treating men with prostate cancer. Dr. Zelefsky is Editor-in-Chief of Brachytherapy, a medical journal that
addresses all aspects of this sub-specialty, and Chairman of the National Patterns of Care Study for Genitourinary Cancers. He
is also a past president of the American Brachytherapy Society. For his work in this field, Dr. Zelefsky has been honored to receive
several awards including the Boyer Award for Excellence in Clinical research, the Outstanding Teaching Award in the Department
of Radiation Oncology at Memorial Sloan Kettering, the 2009 Henschke Medal (the highest award of the American Brachytherapy Society
for achievements in Brachytherapy), and the 2009 Emanuel Van Descheuren Award for Excellence in Translational Research.
Angus
Dalgleish, M.D. has served as a Scientific Advisor of Enveric since January 2019. Dr. Dalgleish, is an oncologist practicing
in the United Kingdom at St. George’s University of London. Dr. Dalgleish divides his time between clinical practice and
research, and also serves as an advisor to several biopharmaceutical companies. Dr. Dalgleish has been a Professor of Medical
Oncology at St. George’s University of London and Consultant Physician at St. George’s Hospital since 1991. He has
served as the President of the Clinical Immunology and Allergy Section of the Royal Society of Medicine and is a Fellow of The
Royal College of Physicians. Dr. Dalgleish studied Medicine at University College London, where he obtained an MBBS and a BSc
in Anatomy.
James
Perry, M.D. has served as a Scientific Advisor of Enveric since April 2019. Dr. James Perry is a neuro-oncologist at Sunnybrook’s
Odette Cancer Centre and Hurvitz Brain Sciences Program. Dr. Perry is also a Professor of medicine at the University of Toronto
and the central nervous system cancers lead at Cancer Care Ontario. Dr. Perry is a clinician-investigator interested in the design,
conduct and analysis of clinical trials testing innovative therapies for primary brain tumours. His research unit is focused on
outcomes research. He is the chair of the Canadian Brain Tumour Consortium (CBTC), a national not-for-profit investigator network.
Zvi
Vogel, Ph.D. has served as a Scientific Advisor of Enveric since February 2018. Professor Vogel is currently a Professor Emeritus
at the Weizmann Institute of science serving as the Head of the Adelson Center for the Biology of Addictive Diseases at Tel-Aviv
University. Professor Vogel previously served as the Chairman of the Department of Neurobiology at the Weizmann Institute. He
has published more than 170 scientific manuscripts. Professor Vogel earned a M.Sc in Biochemistry and a Ph.D. from the Weizmann
Institute of Science. He performed his post-doctorate studies at the National Institutes of Health (Bethesda, MD) in the Laboratory
of Marshall Nirenberg, a Nobel Prize winner.
Academic
and Industry Partners
We
have also established relationships with certain academic and industry partners, whom we believe have the potential to accelerate product
development, market entry, data collection, analysis and advancement of clinical trials.
Our
current academic and industry partners are set forth in the table below:
Name
|
|
Description
|
Tikun
Olam Ltd.
|
|
Tikun
Olam Ltd. brings proprietary products and data, clinical research experience, and access to resources in Israel.
|
St.
George’s University of London
|
|
St.
George’s University of London brings research capabilities and relevant domain expertise in cancer and cannabinoids.
|
The
Soroka Medical Cancer Center
|
|
The
Soroka Medical Cancer Center brings clinical research capabilities and extensive patient access.
|
Competition
The
biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition, and a strong
emphasis on proprietary products. While we believe that our scientific knowledge and technology and development experience
provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical,
specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies, and public and private research
institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and
new therapies that may become available in the future.
In
GBM, we believe that only one drug product (Epidiolex, developed by GW Pharmaceuticals) is a potential late-stage competitor.
Other than Epidiolex, we are aware of exploratory research into the effects of cannabinoid drug formulations. We are also aware
of discovery research within the pharmaceutical industry into synthetic agonists and antagonists of CB1 and CB2 receptors, as
well as companies that supply synthetic cannabinoids and cannabis extracts to researchers for pre-clinical and clinical investigation,
and various companies that cultivate cannabis plants with a view to supplying herbal cannabis or nonpharmaceutical cannabis-based
formulations to patients. These therapies have not been approved by the FDA. In addition, Lutris Pharma has a topical B-Raf
Inhibitor in Phase ½ studies that is intended to treat radiation dermatitis, which is also a potential competitor.
Patients
suffering from GBM in the U.S. are treated with a variety of FDA-approved products, including, but not limited to, Bevacizumab, Carmustine
Implant, Lomustine, and Temozolomide. Our potential competitors regarding the GBM product candidate include pharmaceutical and biopharmaceutical
companies such as Pfizer, Genentech, Arbor Pharmaceuticals, Next Source Pharmaceuticals, and Merck, among others, depending on when the
candidate is approved for commercialization, if ever (and what, if any, new therapies are approved in the interim). Such competitors
may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting
clinical trials, obtaining regulatory approvals, and marketing approved medicines than we do. These competitors also compete with us
in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration
for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
With
respect to CBD, a number of nonapproved and non-standardized CBD preparations derived from crude herbal cannabis have been made
available in limited quantities by producers of “medical marijuana” in the U.S. We do not believe prescription cannabinoids
are the same as distributing or legalizing crude herbal cannabis, or preparations derived from crude herbal cannabis, and therefore
we do not believe they are competitive with, crude herbal cannabis. We believe that only a cannabinoid medication, one that is
standardized in composition, formulation and dose, administered by means of an appropriate delivery system, and tested in properly
controlled pre-clinical and clinical studies, can meet the standards of regulatory authorities around the world, including those
of the FDA. We also believe that these regulatory processes provide important protections for patients, and that any cannabinoid
medication must be subjected to, and satisfy, such rigorous scrutiny.
Our
commercial opportunities could be reduced or eliminated if its competitors develop and commercialize medicines that are safer, more effective,
have fewer or less severe side effects, are more convenient or are less expensive than any product candidates that we may develop. Our
competitors also may obtain approval from the FDA or other regulatory agencies for their medicines more rapidly than us, which could
result in our competitors establishing a strong market position before we are able to enter the market.
Government
Regulation and Product Approvals
Pharmaceutical
companies are subject to extensive regulation by the federal government, principally by the FDA under the Federal Food, Drug and Cosmetic
Act, or the FDCA, and, to a lesser extent, by state and local governments. Before our prescription products may be marketed in the U.S.,
they must be approved by the FDA for commercial distribution. Certain OTC products must comply with applicable FDA regulations, known
as OTC Monographs, in order to be marketed, but do not have the benefit of FDA review and approval before marketing. We are also subject
to regulation under federal, state and local laws, including requirements regarding occupational safety, laboratory practices, environmental
protection and hazardous substance control, and may be subject to other present and future local, state, federal and foreign regulations.
We cannot predict the extent to which we may be affected by legislative and other regulatory developments concerning our products and
the healthcare industry in general.
The
FDCA and other federal and state statutes and regulations govern the testing, manufacture, quality control, export and import, labeling,
storage, record keeping, approval, pricing, advertising, promotion, sale and distribution of pharmaceutical products. Noncompliance with
applicable requirements both before and after approval, can subject us, our third party manufacturers and other collaborative partners
to administrative and judicial sanctions, such as, among other things, warning letters, fines and other monetary payments, recall or
seizure of products, criminal proceedings, suspension or withdrawal of regulatory approvals, interruption or cessation of clinical trials,
total or partial suspension of production or distribution, injunctions, limitations on or the limitation of claims we can make for our
products, and refusal of the government to enter into supply contracts for distribution directly by governmental agencies, or delay in
approving or refusal to approve new drug applications. The FDA also has the authority to revoke or withhold approvals of new drug applications.
FDA
approval is required before any “new drug,” can be marketed. Our products are new drugs and require prior FDA approval. Such
approval must be based on extensive information and data submitted in a NDA, including, but not limited to, adequate and well controlled
laboratory and clinical investigations to demonstrate the safety and effectiveness of the drug product for its intended use(s) as well
as the manufacturing suitability of the product. In addition to providing required safety and effectiveness data for FDA approval, a
drug manufacturer’s practices and procedures must comply with current Good Manufacturing Practices (“cGMPs”), which
apply to manufacturing, receiving, holding and shipping, and include, among other things, demonstration of product purity, consistent
manufacturing and quality and at least six months of data supporting product expiration dating based on clinical registration batches.
Accordingly, manufacturers must continue to expend time, money and effort in all applicable areas relating to quality assurance and regulatory
compliance, including production and quality control to comply with cGMPs. Failure to so comply risks delays in approval of drug products
and possible FDA enforcement actions, such as an injunction against shipment of products, the seizure of non-complying products, criminal
prosecution and/or any of the other possible consequences described above. We are subject to periodic inspection by the FDA and the Drug
Enforcement Administration (“DEA”), which inspections may or may not be announced in advance.
FDA
New Drug Approval Process
In
the U.S., pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDCA,
and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage,
recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import
and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative
or judicial sanctions, such as imposition of clinical holds, FDA refusal to approve pending new drug applications (“NDA”),
warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals
of government contracts, restitution, disgorgement, civil penalties and criminal prosecution.
Pharmaceutical
product development in the U.S. typically involves pre-clinical laboratory and animal tests and the submission to the FDA of an Investigational
New Drug applications (“IND”), which must become effective before clinical testing may commence. For commercial approval,
the sponsor must submit adequate tests by all methods reasonably applicable to show that the drug is safe for use under the conditions
prescribed, recommended or suggested in the proposed labeling. The sponsor must also submit substantial evidence, generally consisting
of adequate, well-controlled clinical trials to establish that the drug will have the effect it purports or is represented to have under
the conditions of use prescribed, recommended or suggested in the proposed labeling. In certain cases, the FDA may determine that a drug
is effective based on one clinical study plus confirmatory evidence. Satisfaction of FDA pre-market approval requirements typically takes
many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.
Pre-clinical
tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics
and potential safety and efficacy of the product. The conduct of the pre-clinical tests must comply with federal regulations and requirements,
including the FDA’s good laboratory practices regulations and the U.S. Department of Agriculture’s (USDA’s) regulations
implementing the Animal Welfare Act. The results of pre-clinical testing are submitted to the FDA as part of an IND along with other
information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term
pre-clinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.
A
30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA
has not imposed a clinical hold on the IND or otherwise commented or questioned the IND within this 30-day period, the clinical trial
proposed in the IND may begin.
Clinical
trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified
investigator. Clinical trials must be conducted: (i) in compliance with federal regulations, (ii) in compliance with GCP, an international
standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors,
and (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness
criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the
FDA as part of the IND.
The
FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time or impose other sanctions if it believes that
the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical
trial patients. The trial protocol and informed consent information for patients in clinical trials must also be submitted to an institutional
review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently,
for failure to comply with the IRB’s requirements or may impose other conditions.
Clinical
trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In general,
in Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics,
pharmacological actions, side effects associated with increasing doses and, if possible, early evidence on effectiveness. Phase 2 usually
involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance
and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and
an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical
efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to
evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most
cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. The FDA may,
however, determine that a drug is effective based on one clinical study plus confirmatory evidence. Only a small percentage of investigational
drugs complete all three phases and obtain marketing approval. In some cases, the FDA may require post-market studies, known as Phase
4 studies, to be conducted as a condition of approval in order to gather additional information on the drug’s effect in various
populations and any side effects associated with long-term use. Depending on the risks posed by the drugs, other post-market requirements
may be imposed.
After
completion of the required clinical testing, an NDA is prepared and submitted to the FDA. The FDA approval of the NDA is required before
marketing of the product may begin in the U.S. The NDA must include the results of all pre-clinical, clinical, and other testing and
a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting
an NDA is substantial. Under federal law, the submission of most NDAs is additionally subject to a substantial application user fee.
The
FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s
threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the
FDA begins an in-depth review. Under the statute and implementing regulations, the FDA has 180 days (the initial review cycle) from the
date of filing to issue either an approval letter or a complete response letter, unless the review period is adjusted by mutual agreement
between the FDA and the applicant or as a result of the applicant submitting a major amendment. In practice, the performance goals established
pursuant to the Prescription Drug User Fee Act have effectively extended the initial review cycle beyond 180 days. The FDA’s current
performance goals call for the FDA to complete review of 90 percent of standard (non-priority) NDAs within 10 months of receipt and within
six months for priority NDAs, but two additional months are added to standard and priority NDAs for a new molecular entity (NME).
The
FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to
an advisory committee, which is typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation
as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally
follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance
with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve
the product unless compliance with current GMP is satisfactory and the NDA contains data that provide substantial evidence that the drug
is safe and effective in the indication studied.
After
the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete
response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information,
in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction
in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing 90 percent of resubmissions within
two to six months depending on the type of information included.
An
approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition
of NDA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug
outweigh the potential risks. REMS can include medication guides, communication plans for health care professionals, and elements to
assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing,
dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially
affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and
surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory
standards is not maintained or problems are identified following initial marketing.
Disclosure
of Clinical Trial Information
Sponsors
of clinical trials of certain FDA-regulated products, including prescription drugs, are required to register and disclose certain clinical
trial information on a public website maintained by the U.S. National Institutes of Health. Information related to the product, patient
population, phase of investigation, study sites and investigator, and other aspects of the clinical trial is made public as part of the
registration. Sponsors are also obligated to disclose the results of these trials after completion. Disclosure of the results of these
trials can be delayed for up to two years if the sponsor certifies that it is seeking approval of an unapproved product or that it will
file an application for approval of a new indication for an approved product within one year. Competitors may use this publicly available
information to gain knowledge regarding the design and progress of our development programs.
Special
Protocol Assessment
A
company may reach an agreement with the FDA under the Special Protocol Assessment, or “SPA”, process as to the required design
and size of clinical trials intended to form the primary basis of an efficacy claim. According to its performance goals, the FDA is supposed
to evaluate the protocol within 45 days of the request to assess whether the proposed trial is adequate, and that evaluation may result
in discussions and a request for additional information. A SPA request must be made before the proposed trial begins, and all open issues
must be resolved before the trial begins. If a written agreement is reached, it will be documented and made part of the administrative
record. Under the FDCA and FDA guidance implementing the statutory requirement, an SPA is generally binding upon the FDA except in limited
circumstances, such as if the FDA identifies a substantial scientific issue essential to determining safety or efficacy after the study
begins, public health concerns emerge that were unrecognized at the time of the protocol assessment, the sponsor and the FDA agree to
the change in writing, or if the study sponsor fails to follow the protocol that was agreed upon with the FDA.
Advertising
and Promotion
Pre-approval
promotion of investigational drug candidates is prohibited by the FDA. Therefore, sponsors must ensure that any pre-approval communications
disseminated about its drug candidates do not state or imply that such candidates have been proven safe or effective for the applicable
use(s) or that they have been approved for commercialization in the United States. Further, once an NDA for a given candidate is approved,
if ever, the product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval
marketing and promotion of drugs.
Drugs
may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of
the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities,
require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new
indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions
in reviewing NDA supplements as it does in reviewing NDAs.
Adverse
Event Reporting and GMP Compliance
Adverse
event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing
testing, known as Phase 4 testing, may require under a REMS special communication regarding the safety of the drug or heightened surveillance
to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or
use of the product. In addition, quality-control, drug manufacture, packaging, and labeling procedures must continue to conform to GMP,
after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and
certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the
agency inspects manufacturing facilities to assess compliance with GMP. Accordingly, manufacturers must continue to expend time, money
and effort in the areas of production and quality control to maintain compliance with GMP. Regulatory authorities may withdraw product
approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial
marketing or if previously unrecognized problems are subsequently discovered.
Pediatric
Exclusivity and Pediatric Use
The
Best Pharmaceuticals for Children Act, or “BPCA”, provides NDA holders a six-month period of exclusivity attached to any
other exclusivity listed with the FDA — patent or non-patent — for a drug, if certain conditions
are met. Conditions for pediatric exclusivity include a determination by the FDA that information relating to the use of a new drug in
the pediatric population may produce health benefits in that population; a written request by the FDA for pediatric studies; and agreement
by the applicant to perform the requested studies and the submission to the FDA, completion of the studies in accordance with the written
request, and the acceptance by the FDA, of the reports of the requested studies within the statutory time frame. Applications under the
BPCA are treated as priority applications.
In
addition, under the Pediatric Research Equity Act, or “PREA”, NDAs or supplements to NDAs must contain data to assess the
safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration
for each pediatric subpopulation for which the drug is safe and effective, unless the sponsor has received a deferral or waiver from
the FDA. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has
been granted. The sponsor or the FDA may request a deferral of pediatric studies for some or all of the pediatric subpopulations. A deferral
may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric studies
are complete or that additional safety or effectiveness data need to be collected before the pediatric studies begin. Under PREA, the
FDA must send a noncompliance letter requesting a response within 45 days to any sponsor that fails to submit the required assessment,
keep a deferral current or fails to submit a request for approval of a pediatric formulation.
Controlled
Substances
The
federal Controlled Substances Act of 1970, or “CSA”, and its implementing regulations establish a “closed system”
of regulations for controlled substances. The CSA imposes registration, security, recordkeeping and reporting, storage, manufacturing,
distribution, importation and other requirements under the oversight of the DEA. The DEA is the federal agency responsible for regulating
controlled substances, and requires those individuals or entities that manufacture, import, export, distribute, research, or dispense
controlled substances to comply with the regulatory requirements in order to prevent the diversion of controlled substances to illicit
channels of commerce.
The
DEA categorizes controlled substances into one of five schedules — Schedule I, II, III, IV or V — with
varying qualifications for listing in each schedule. Schedule I substances by definition have a high potential for abuse, have no currently
accepted medical use in treatment in the U.S., and lack accepted safety for use under medical supervision. Marijuana is currently a Schedule
I controlled substance, which means that no preclinical or clinical studies of product candidates containing marijuana may be conducted
in the United States without the required DEA registration(s) and related approvals, as applicable. Pharmaceutical products having a
currently accepted medical use that are otherwise approved for marketing may be listed as Schedule II, III, IV or V substances, with
Schedule II substances presenting the highest potential for abuse and physical or psychological dependence, and Schedule V substances
presenting the lowest relative potential for abuse and dependence.
Facilities
that manufacture, distribute, import, or export any controlled substance must register annually with the DEA. The DEA registration is
specific to the particular location, activity(ies) and controlled substance schedule(s). For example, separate registrations are required
for importation and manufacturing activities, and each registration authorizes which schedules of controlled substances the registrant
may handle. However, certain coincidental activities are permitted without obtaining a separate DEA registration, such as distribution
of controlled substances by the manufacturer that produces them.
The
DEA inspects all manufacturing facilities to review security, recordkeeping, reporting, and handling prior to issuing a controlled substance
registration. The specific security requirements vary by the type of business activity and the schedule and quantity of controlled substances
handled. The most stringent requirements apply to manufacturers of Schedules I and Schedule II substances. Required security measures
commonly include background checks on employees and physical control of controlled substances through storage in approved vaults, safes
and cages, and through use of alarm systems and surveillance cameras. An application for a manufacturing registration as a bulk manufacturer
(not a dosage form manufacturer or a repacker/relabeler) for a Schedule I or II substance must be published in the Federal Register,
and is open for 60 days to permit interested persons to submit comments, objections or requests for a hearing. A copy of the notice of
the Federal Register publication is simultaneously forwarded by DEA to all those registered, or applicants for registration, as bulk
manufacturers of that substance. Once registered, manufacturing facilities must maintain records documenting the manufacture, receipt
and distribution of all controlled substances. Manufacturers must submit periodic reports to the DEA of the distribution of Schedules
I and II controlled substances, Schedule III narcotic substances, and other designated substances. Registrants must also report any controlled
substance thefts or significant losses, and must obtain authorization to destroy or dispose of controlled substances. As with applications
for registration as a bulk manufacturer, an application for an importer registration for a Schedule I or II substance must also be published
in the Federal Register, which remains open for 30 days for comments. Imports of Schedules I and II controlled substances for commercial
purposes are generally restricted to substances not already available from a domestic supplier or where there is not adequate competition
among domestic suppliers. In addition to an importer or exporter registration, importers and exporters must obtain a permit for every
import or export of a Schedules I and II substance or Schedules III, IV and V narcotic, and submit import or export declarations for
Schedules III, IV and V non-narcotics. In some cases, Schedule III non-narcotic substances may be subject to the import/export permit
requirement, if necessary to ensure that the U.S. complies with its obligations under international drug control treaties.
For
drugs manufactured in the U.S., the DEA establishes annually an aggregate quota for the amount of substances within Schedules I and II
that may be manufactured or produced in the U.S. based on the DEA’s estimate of the quantity needed to meet legitimate medical,
scientific, research and industrial needs. This limited aggregate amount of cannabis that the DEA allows to be produced in the U.S. each
year is allocated among individual companies, which, in turn, must annually apply to the DEA for individual manufacturing and procurement
quotas. The quotas apply equally to the manufacturing of the active pharmaceutical ingredient and production of dosage forms. The DEA
may adjust aggregate production quotas a few times per year, and individual manufacturing or procurement quotas from time to time during
the year, although the DEA has substantial discretion in whether or not to make such adjustments for individual companies.
The
states also maintain separate controlled substance laws and regulations, including licensing, recordkeeping, security, distribution,
and dispensing requirements. State Authorities, including Boards of Pharmacy, regulate use of controlled substances in each state. Failure
to maintain compliance with applicable requirements, particularly as manifested in the loss or diversion of controlled substances, can
result in enforcement action that could have a material adverse effect on our business, operations and financial condition. The DEA may
seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances,
violations could lead to criminal prosecution.
Europe/Rest
of World Government Regulation
In
addition to regulations in the U.S., we are and will be subject, either directly or through our distribution partners, to a variety of
regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales (including pricing and reimbursement)
and distribution of our product candidates, if approved.
Whether
or not we obtain FDA approval for a product, it must obtain the requisite approvals from regulatory authorities in non-U.S. countries
prior to the commencement of clinical trials or marketing of the product in those countries.
In
the European Union, medicinal products are subject to extensive pre- and post-marketing regulation by regulatory authorities at both
the European Union and national levels. Additional rules also apply at the national level to the manufacture, import, export, storage,
distribution and sale of controlled substances. In many European Union member states the regulatory authority responsible for medicinal
products is also responsible for controlled substances. Responsibility is, however, split in some member states, such as the U.K. Generally,
any company manufacturing or distributing a medicinal product containing a controlled substance in the European Union will need to hold
a controlled substances license from the competent national authority and will be subject to specific record-keeping and security obligations.
Separate import or export certificates are required for each shipment into or out of the member state.
Clinical
Trials and Marketing Approval
Certain
countries outside of the U.S. have a process that requires the submission of a clinical trial application much like an IND prior to the
commencement of human clinical trials. In Europe, for example, a clinical trial application, or “CTA”, must be submitted
to the competent national health authority and to independent ethics committees in each country in which a company intends to conduct
clinical trials. Once the CTA is approved in accordance with a country’s requirements and a company has received favorable ethics
committee approval, clinical trial development may proceed in that country.
The
requirements and process governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary from country to
country, even though there is already some degree of legal harmonization in the European Union member states resulting from the national
implementation of underlying European Union legislation. In all cases, the clinical trials must be conducted in accordance with the International
Conference on Harmonization, or “ICH”, guidelines on GCP and other applicable regulatory requirements.
To
obtain regulatory approval to place a drug on the market in European Union countries, Enveric must submit a marketing authorization application.
This application is similar to the NDA in the U.S., with the exception of, among other things, country-specific document requirements.
All application procedures require an application in the common technical document, or CTD, format, which includes the submission of
detailed information about the manufacturing and quality of the product, and nonclinical and clinical trial information. Drugs can be
authorized in the European Union by using (i) the centralized authorization procedure, (ii) the mutual recognition procedure, (iii) the
decentralized procedure, or (iv) national authorization procedures.
The
European Commission created the centralized procedure for the approval of human drugs to facilitate marketing authorizations that are
valid throughout the European Union and, by extension (after national implementing decisions) in Iceland, Liechtenstein and Norway, which,
together with the European Union. member states, comprise the European Economic Area, or “EEA”. Applicants file marketing
authorization applications with the EMA, where they are reviewed by a relevant scientific committee, in most cases the Committee for
Medicinal Products for Human Use (the “CHMP”). The EMA forwards CHMP opinions to the European Commission, which uses them
as the basis for deciding whether to grant a marketing authorization. This procedure results in a single marketing authorization granted
by the European Commission that is valid across the European Union, as well as in Iceland, Liechtenstein and Norway. The centralized
procedure is compulsory for human drugs that are: (i) derived from biotechnology processes, such as genetic engineering, (ii) contain
a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative diseases,
autoimmune and other immune dysfunctions and viral diseases, (iii) officially designated “orphan drugs” (drugs used for rare
human diseases), and (iv) advanced-therapy medicines, such as gene-therapy, somatic cell-therapy or tissue-engineered medicines. The
centralized procedure may at the voluntary request of the applicant also be used for human drugs that do not fall within the above-mentioned
categories if the CHMP agrees that the human drug (a) contains a new active substance not yet approved on November 20, 2005; (b) constitutes
a significant therapeutic, scientific or technical innovation, or (c) authorization under the centralized procedure is in the interests
of patients at the European Union level.
Under
the centralized procedure in the European Union, the maximum time frame for the evaluation of a marketing authorization application by
the EMA is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response
to questions asked by the CHMP), with adoption of the actual marketing authorization by the European Commission thereafter.
Accelerated
evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest
from the point of view of therapeutic innovation, defined by three cumulative criteria: the seriousness of the disease to be treated;
the absence of an appropriate alternative therapeutic approach, and anticipation of exceptional high therapeutic benefit. In this circumstance,
EMA ensures that the evaluation for the opinion of the CHMP is completed within 150 days and the opinion issued thereafter.
For
those medicinal products for which the centralized procedure is not available, the applicant must submit marketing authorization applications
to the national medicines regulators through one of three procedures: (i) the mutual recognition procedure (which must be used if the
product has already been authorized in at least one other European Union member state, and in which the European Union member states
are required to grant an authorization recognizing the existing authorization in the other European Union member state, unless they identify
a serious risk to public health), (ii) the decentralized procedure (in which applications are submitted simultaneously in two or more
European Union member states), or (iii) national authorization procedures (which results in a marketing authorization in a single European
Union member state).
Mutual
Recognition Procedure
The
mutual recognition procedure, or “MRP”, for the approval of human drugs is an alternative approach to facilitate individual
national marketing authorizations within the European Union. Basically, the MRP may be applied for all human drugs for which the centralized
procedure is not obligatory. The MRP is applicable to the majority of conventional medicinal products, and must be used if the product
has already been authorized in one or more member states.
The
characteristic of the MRP is that the procedure builds on an already-existing marketing authorization in a member state of the European
Union that is used as a reference in order to obtain marketing authorizations in other European Union member states. In the MRP, a marketing
authorization for a drug already exists in one or more member states of the European Union and subsequently marketing authorization applications
are made in other European Union member states by referring to the initial marketing authorization. The member state in which the marketing
authorization was first granted will then act as the reference member state. The member states where the marketing authorization is subsequently
applied for act as concerned member states. The concerned member states are required to grant an authorization recognizing the existing
authorization in the reference member state, unless they identify a serious risk to public health.
The
MRP is based on the principle of the mutual recognition by European Union member states of their respective national marketing authorizations.
Based on a marketing authorization in the reference member state, the applicant may apply for marketing authorizations in other member
states. In such case, the reference member state shall update its existing assessment report about the drug in 90 days. After the assessment
is completed, copies of the report are sent to all member states, together with the approved summary of product characteristics, labeling
and package leaflet. The concerned member states then have 90 days to recognize the decision of the reference member state and the summary
of product characteristics, labeling and package leaflet. National marketing authorizations shall be granted within 30 days after acknowledgement
of the agreement.
Should
any Member State refuse to recognize the marketing authorization by the reference member state, on the grounds of potential serious risk
to public health, the issue will be referred to a coordination group. Within a time frame of 60 days, member states shall, within the
coordination group, make all efforts to reach a consensus. If this fails, the procedure is submitted to an EMA scientific committee for
arbitration. The opinion of this EMA Committee is then forwarded to the European Commission, for the start of the decision-making process.
As in the centralized procedure, this process entails consulting various European Commission Directorates General and the Standing Committee
on Human Medicinal Products.
Data
Exclusivity
In
the European Union, marketing authorization applications for generic medicinal products do not need to include the results of pre-clinical
and clinical trials, but instead can refer to the data included in the marketing authorization of a reference product for which regulatory
data exclusivity has expired. If a marketing authorization is granted for a medicinal product containing a new active substance, that
product benefits from eight years of data exclusivity, during which generic marketing authorization applications referring to the data
of that product may not be accepted by the regulatory authorities, and a further two years of market exclusivity, during which such generic
products may not be placed on the market. The two-year period may be extended to three years if during the first eight years a new therapeutic
indication with significant clinical benefit over existing therapies is approved.
Orphan
Medicinal Products
The
EMA’s Committee for Orphan Medicinal Products (“COMP”) may recommend orphan medicinal product designation to promote
the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating
conditions affecting not more than 5 in 10,000 persons in the European Union. Additionally, designation is granted for products intended
for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without
incentives, it is unlikely that sales of the product in the European Union would be sufficient to justify the necessary investment in
developing the medicinal product. The COMP may only recommend orphan medicinal product designation when the product in question offers
a significant clinical benefit over existing approved products for the relevant indication. Following a positive opinion by the COMP,
the European Commission adopts a decision granting orphan status. The COMP will reassess orphan status in parallel with EMA review of
a marketing authorization application and orphan status may be withdrawn at that stage if it no longer fulfills the orphan criteria (for
instance because in the meantime a new product was approved for the indication and no convincing data are available to demonstrate a
significant benefit over that product). Orphan medicinal product designation entitles a party to financial incentives such as reduction
of fees or fee waivers and ten years of market exclusivity is granted following marketing authorization. During this period, the competent
authorities may not accept or approve any similar medicinal product, unless it offers a significant clinical benefit. This period may
be reduced to six years if the orphan medicinal product designation criteria are no longer met, including where it is shown that the
product is sufficiently profitable not to justify maintenance of market exclusivity.
Pediatric
Development
In
the European Union, companies developing a new medicinal product must agree to a Pediatric Investigation Plan, or “PIP”,
with the EMA and must conduct pediatric clinical trials in accordance with that PIP unless a waiver applies, for example, because the
relevant disease or condition occurs only in adults. The marketing authorization application for the product must include the results
of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies, or a deferral has been granted, in which
case the pediatric clinical trials must be completed at a later date. Products that are granted a marketing authorization on the basis
of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six-month extension of the protection under
a supplementary protection certificate (if the product covered by it qualifies for one at the time of approval). This pediatric reward
is subject to specific conditions and is not automatically available when data in compliance with the PIP are developed and submitted.
If
we fail to comply with applicable foreign regulatory requirements, it may be subject to, among other things, fines, suspension of clinical
trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
In
addition, most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic
control of narcotic substances, including cannabis extracts. Countries may interpret and implement their treaty obligations in a way
that creates a legal obstacle to us obtaining marketing approval for our product candidates in those countries. These countries may not
be willing or able to amend or otherwise modify their laws and regulations to permit our product candidates to be marketed, or achieving
such amendments to the laws and regulations may take a prolonged period of time. In that case, we would be unable to market our product
candidates in those countries in the near future or perhaps at all.
Employees
We
continue to build on our leadership expertise. We employ two full-time and one part-time employee. We also work with scientific
advisors, consultants and service providers, mainly through academic institutions and contract research organizations.
We
have never had a work stoppage and none of its employees are covered by collective bargaining agreements or represented by a labor union.
We believe that we have good relationships with our employees.
Legal
Proceedings
From
time to time, we may be a party to litigation that arises in the ordinary course of its business. Other than as described below,
we do not have any pending litigation that, separately or in the aggregate, would, in the opinion of management, have a material
adverse effect on its results of operations, financial condition or cash flows.
On
January 21, 2021, we received a stockholder litigation demand letter from the law firm of Purcell Julie & Lefkowitz LLP,
on behalf of James Self, a purported stockholder of our Company. The letter demands that we (i) deem ineffective the December
30, 2020 amendment to its Amended and Restated Certificate of Incorporation in which we effected a reverse stock split due to
the manner in which non-votes by brokers were tabulated, (ii) seek appropriate relief for damages allegedly suffered by the
company and its stockholders or seek a valid stockholder approval of the amendment and reverse stock split, and (iii) adopt
adequate internal controls to prevent a recurrence of the alleged misconduct. We dispute that the amendment was ineffective
or that there were any inadequate internal controls related to the same. However, to eliminate any questions about the
amendment, we intend to seek to ratify the amendment at a special stockholders’ meeting pursuant to Section 204 of the
Delaware General Corporation Law. This special stockholders’ meeting is scheduled to occur on May 14, 2021.
Item
1A. Risk Factors
Risks
Related to Our Business
We
are dependent on the success of our prospective product candidates, which are in early stages of development, and there can be no assurances
that any such prospects will reach a particular stage in development, receive regulatory approval or be successfully commercialized.
Our
success will depend on our ability to successfully develop and commercialize our prospective product candidates through our development
programs. We intend to develop at least three product candidates by undergoing the long, costly clinical-trial process for each candidate
under an Investigational New Drug Application (“IND”) and, eventually, obtaining FDA approval under a New Drug Application
(“NDA”) before proceeding to market. In order to proceed with development of our pharmaceutical product candidates under
the NDA pathway, we must obtain the FDA’s approval of our IND application and conduct preclinical and clinical trials in compliance
with the applicable IND regulations, clinical-study protocols, and other applicable regulations and related requirements. We may never
be able to develop products which are commercially viable or receive regulatory approval in the U.S. or elsewhere. There can be no assurance
that the FDA or any other regulatory authority will approve of our current or future product candidates.
In
the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or “FDCA,” and implementing regulations.
Drugs are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and
the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial
time and financial resources. The process required by the FDA before a new drug or biological product may be marketed in the United States
generally involves the following:
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Completion
of preclinical laboratory tests, animal studies, and formulation studies according to Good Laboratory Practices and other applicable
regulations;
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Submission
to the FDA of an IND, which must become effective before human clinical trials may begin in the United States;
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Performance
of adequate and well-controlled human clinical trials according to the FDA’s current good clinical practices, or GCPs, which
sufficiently demonstrate the safety and efficacy of the proposed drug or biologic for its intended uses;
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Submission
to the FDA of a New Drug Application, or an NDA, for a new drug product;
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Satisfactory
completion of an FDA inspection of the manufacturing facility or facilities where the drug or biologic is to be produced to assess
compliance with the FDA’s current good manufacturing practice standards, or cGMP, to assure that the facilities, methods and
controls are adequate to preserve the drug’s or biologic’s identity, strength, quality and purity;
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Potential
FDA audit of the nonclinical and clinical trial sites that generated the data in support of the NDA or biologics license application;
and
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FDA
review and, potentially, approval of the NDA.
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The
lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require
the expenditure of substantial resources. There can be no certainty that approvals will be granted.
We
may encounter difficulties that may delay, suspend or scale back our efforts to advance additional early research programs through preclinical
development and IND application filings and into clinical development.
We
intend to advance early research programs through preclinical development and to file an IND application for human clinical trials
evaluating the prospective product candidates in our pipeline. The preparation and submission of IND applications requires rigorous
and time-consuming preclinical testing, the results of which must be sufficiently documented to establish, among other things,
the toxicity, safety, manufacturing, chemistry and clinical protocol of the product candidates. We may experience unforeseen difficulties
that could delay or otherwise prevent us from successfully executing our current development strategy. In addition, our
ability to complete and file certain IND applications may depend on the support of our partners and the timely performance of
their obligations under relevant collaboration agreements. If our relevant partners are not able to perform such obligations,
or if they otherwise delay the progress, we may not be able to prepare and file the intended IND applications on a timely
basis or at all. Any delay, suspension or reduction of our efforts to pursue our preclinical and IND strategy could have a material
adverse effect on our business and cause our share price to decline.
The
novel coronavirus could adversely impact our business, including our current plans for product development, as well as any currently
ongoing preclinical studies and clinical trials and any future studies or other development or commercialization activities.
Since
COVID-19 was initially reported to have surfaced in Wuhan, China in December 2019, it has spread globally, including countries
in which we are currently, or plans to, conduct preclinical or clinical studies or other development activities. There
is significant uncertainty as to the likely effects of this pandemic. As the ongoing COVID-19 pandemic continues, we will likely
experience disruptions that could severely impact our business, including, but not limited to, our current or future preclinical
studies, clinical trials, regulatory progress, or any other development or commercialization activities, including (among others):
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delays
or difficulties in enrolling patients in clinical trials;
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delays
or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
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diversion
of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial
sites and hospital staff supporting the conduct of our clinical trials;
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interruption
of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by
federal or state governments, employers and others;
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limitations
in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees
or their families or the desire of employees to avoid contact with large groups of people;
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delays
in receiving approval from local regulatory authorities to initiate our planned clinical trials;
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delays
in clinical sites receiving the supplies and materials needed to conduct our clinical trials;
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interruption
in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our clinical
trials;
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changes
in local regulations as part of a response to the COVID-19 outbreak which may require us to change the ways in which our clinical
trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;
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delays
in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations
in employee resources or forced furlough of government employees;
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delay
in the timing of interactions with the FDA due to absenteeism by federal employees or by the diversion of their efforts and attention
to approval of other therapeutics or other activities related to COVID-19; and
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refusal
of the FDA to accept data from clinical trials in affected geographies outside the United States.
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In
addition, the COVID-19 pandemic could disrupt our operations due to absenteeism by infected or ill members of management or other employees,
or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our
office or laboratory facilities, or due to quarantines. COVID-19 could also impact members of our board of directors, resulting in absenteeism
from meetings of the directors or committees of directors, and making it more difficult to convene the quorums of the full board of directors
or our committees needed to conduct meetings for the management of our affairs.
The
global COVID-19 pandemic continues to rapidly evolve. The extent to which COVID-19 may impact our business, preclinical studies and clinical
trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic
spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries,
business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain
and treat the disease.
We
have significant and increasing liquidity needs and may require additional funding.
Research
and development, management and administrative expenses and cash used for operations will continue to be significant and may increase
substantially in the future in connection with new and continued research and development initiatives and our pursuit of IND authorization(s)
for some or all of our product candidates, as is required to initiate clinical trials in human subjects in the United States. We will
need to raise additional capital to fund our operations, continue to conduct clinical trials to support potential regulatory approval
of marketing applications, and to fund commercialization of our current and future product candidates.
The
amount and timing of our future funding requirements will depend on many factors, including, but not limited to:
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the
scope, number, initiation, progress, timing, costs, design, duration, delays (if any), and results of preclinical and clinical studies
for our current or future product candidates;
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the
outcome, timing and cost of regulatory reviews, approvals or other actions to meet regulatory requirements established by the FDA,
and comparable foreign regulatory authorities;
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the
timing and amount of revenue generated or received, including any revenue from grants or other sources;
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the
rate of progress and cost of our clinical trials and other product development programs;
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costs
of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights associated with our current
and future product candidates;
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the
effect of competing technological and market developments;
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personnel,
facilities and equipment requirements; and
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the
terms and timing of any additional collaborative, licensing, co-promotion or other arrangements that we may establish.
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While
we expect to fund our future capital requirements from financing arrangements, we cannot assure you that any such financing arrangements
will be available to it on favorable terms, or at all. Further, even if we can raise funds from financing arrangements, the amounts raised
may not be sufficient to meet our future capital requirements.
We
depend on our current key personnel and our ability to attract and retain employees.
Our
future growth and success depends on our ability to recruit, retain, manage and motivate our employees. We are highly dependent on our
current management and scientific personnel, including David Johnson, Avani Kanubaddi, and Dr. Robert Wilkins. The inability to hire
or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results.
Due to the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified
scientific, technical and managerial personnel. The competition for qualified personnel in the pharmaceutical field is intense and we
may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable
replacement personnel.
There
has been limited study on the effects of medical cannabinoids, and future clinical research studies may lead to conclusions that dispute
or conflict with our understanding and belief regarding the medical benefits, viability, safety, efficacy, dosing, and social acceptance
of cannabinoids.
Research
relating to the medical benefits, viability, safety, efficacy, and dosing of cannabinoids remains in relatively early stages. There have
been few clinical trials on the benefits of cannabinoids conducted by us or by others. Future research and clinical trials may draw opposing
conclusions to statements contained in the articles, reports and studies We have relied on, or could reach different or negative conclusions
regarding the medical benefits, viability, safety, efficacy, dosing or other facts and perceptions related to cannabinoids, which could
adversely affect social acceptance of cannabinoids and the demand for our product candidates.
We
expect to face intense competition, often from companies with greater resources and experience than us.
The
pharmaceutical industry is highly competitive and subject to rapid change. The industry continues to expand and evolve as an increasing
number of competitors and potential competitors enter the market. Many of these competitors and potential competitors have substantially
greater financial, technological, managerial and research and development resources and experience than us. Some of these competitors
and potential competitors have more experience than us in the development of pharmaceutical products, including validation procedures
and regulatory matters. In addition, our future product candidates, if successfully developed, will compete with product offerings from
large and well-established companies that have greater marketing and sales experience and capabilities than us or our collaboration partners
have. Other companies with greater resources than we may announce similar plans in the future. In addition, there are other non-FDA approved
CBD preparations being made available from other companies, which might attempt to compete with our future product candidates. If we
are unable to compete successfully, our commercial opportunities will be reduced and our business, results of operations and financial
conditions may be materially harmed.
Our
current and future preclinical and clinical studies may be conducted outside the United States, and the FDA may not accept data from
such studies to support any NDAs we may submit after completing the applicable developmental and regulatory prerequisites.
We
are conducting, or may conduct, preclinical and/or clinical studies outside the United States. For example, we have conducted preclinical
studies in Israel, and plan to conduct clinical studies for one or more product candidates in Israel or other non-U.S. countries. To
the extent we do not conduct these clinical trials under an IND, the FDA may not accept data from such trials. Although the FDA may accept
data from clinical trials conducted outside the United States that are not conducted under an IND, the FDA’s acceptance of these
data is subject to certain conditions. For example, the clinical trial must be well designed and conducted and performed by qualified
investigators in accordance with ethical principles and all applicable FDA regulations. The trial population must also adequately represent
the intended U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems
clinically meaningful. In general, the patient population for any clinical trials conducted outside of the United States must be representative
of the population for whom we intend to market the product candidate in the United States, if approved. In addition, while these clinical
trials are subject to the applicable local laws, FDA acceptance of the data will be dependent upon our ability to verify the data and
our determination that the trials also complied with all applicable U.S. laws and regulations. We cannot guarantee that the FDA will
accept data from trials conducted outside of the United States. If the FDA does not accept the data from such clinical trials, we would
likely result in the need for additional trials and the completion of additional regulatory steps, which would be costly and time-consuming
and could delay or permanently halt our development of our product candidates.
Because
the results of preclinical studies and earlier clinical trials are not necessarily predictive of future results, we may not have favorable
results in our planned and future clinical trials.
Successful
development of therapeutic products is highly uncertain and is dependent on numerous factors, many of which are beyond our control. Product
candidates that appear promising in the early phases of development may fail to reach the market for several reasons including:
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preclinical
study results that may show the product to be less effective than desired (e.g., the study failed to meet our primary objectives)
or to have harmful or problematic side effects;
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failure
to receive the necessary regulatory approvals or a delay in receiving such approvals. Among other things, such delays may be caused
by slow enrollment in clinical studies, length of time to achieve study endpoints, additional time requirements for data analysis
or an IND and later NDA, preparation, discussions with the FDA, an FDA request for additional preclinical or clinical data or unexpected
safety or manufacturing issues;
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manufacturing
costs, pricing, or reimbursement issues or other factors that make the product not economical; and
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the
proprietary rights of others and their competing products and technologies that may prevent the product from being commercialized.
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Any
positive results from our preclinical testing of our prospective product candidates may not necessarily be predictive of the results
from planned or future clinical trials for such product candidates. Many companies in the pharmaceutical and biotechnology industries
have suffered significant setbacks in clinical trials after achieving positive results in preclinical and early clinical development,
and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical
findings while clinical trials were underway or safety or efficacy observations in clinical trials, including adverse events. Moreover,
our interpretation of clinical data or our conclusions based on the preclinical in vitro and in vivo models may prove inaccurate, as
preclinical and clinical data can be susceptible to varying interpretations and analyses, and many companies that believed their product
candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or other regulatory approvals.
If we fail to produce positive results in our planned clinical trial for our product candidates for the treatment of GBM, or our future
clinical trials, the development timeline and regulatory approval and commercialization prospects for such product candidates, and, correspondingly,
our business and financial prospects, would be materially adversely affected.
Business
interruptions could delay us in the process of developing our product candidates.
Loss
of our stored materials or facilities through fire, theft, or other causes could have an adverse effect on our ability to continue product
development activities and to conduct our business. Even if we obtain insurance coverage to compensate us for such business interruptions,
such coverage may prove insufficient to fully compensate us for the damage to our business resulting from any significant property or
casualty loss.
Our
employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and legal requirements.
We
are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with
FDA, SEC or Office of Inspector General regulations, or regulations of any other applicable regulatory authority, failure to provide
accurate information to the FDA or the SEC, comply with applicable manufacturing standards, other federal, state or foreign laws and
regulations, report information or data accurately or disclose unauthorized activities. Employee misconduct could also involve the improper
use of confidential or protected information, including information obtained in the course of clinical trials, or illegal pre-approval
promotion of drug candidates, which could result in government investigations, enforcement actions and serious harm to our reputation.
We have adopted a Corporate Code of Conduct and Ethics and Whistleblower Policy, but employee misconduct is not always possible to identify
and deter. The precautions we take to detect and prevent these prohibited activities may not be effective in controlling unknown or unmanaged
risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance
with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending our Company or asserting
our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
Our
proprietary information, or that of our customers, suppliers and business partners, may be lost or we may suffer security breaches.
In
the ordinary course of our business, we expect to collect and store sensitive data, including valuable and commercially sensitive intellectual
property, clinical trial data, our proprietary business information and that of our future customers, suppliers and business partners,
and personally identifiable information of our customers, clinical trial subjects and employees, patients, in our data centers and on
our networks. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security
measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance
or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed,
lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under
laws that protect the privacy of personal information, regulatory penalties, disrupt our operations, damage our reputation, and cause
a loss of confidence in our products and our ability to conduct clinical trials, which could adversely affect our business and reputation
and lead to delays in gaining regulatory approvals for our future product candidates. Although we may obtain business interruption insurance
coverage in the future, our insurance might not cover all losses from any future breaches of our systems.
Failure
of our information technology systems, including cybersecurity attacks or other data security incidents, could significantly disrupt
the operation of our business.
Our
business depends on the use of information technologies. Our ability to execute our business plan and to comply with regulators’
requirements with respect to data control and data integrity, depends, in part, on the uninterrupted performance of our information
technology systems, or IT systems and the IT systems supplied by third-party service providers. Our IT systems are vulnerable
to damage from a variety of sources, including telecommunications or network failures, malicious human acts, natural disasters
and more sophisticated and targeted cyber-related attacks that pose a risk to the security of our information systems and networks
and the confidentiality, availability and integrity of data and information. A successful cybersecurity attack or other data security
incident could result in the misappropriation and/or loss of confidential or personal information, create system interruptions,
or deploy malicious software that attacks our systems. It is also possible that a cybersecurity attack might not be noticed for
some period of time. In addition, sustained or repeated system failures or problems arising during the upgrade of any of our IT
systems that interrupt our ability to generate and maintain data could adversely affect our ability to operate our business. The
occurrence of a cybersecurity attack or incident could result in business interruptions from the disruption of our IT systems,
or negative publicity resulting in reputational damage with our shareholders and other stakeholders and/or increased costs to
prevent, respond to or mitigate cybersecurity events. In addition, the unauthorized dissemination of sensitive personal information
or proprietary or confidential information could expose us or other third-parties to regulatory fines or penalties, litigation
and potential liability, or otherwise harm our business.
Security
breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent it from accessing
critical information or expose it to liability, which could adversely affect our business and its reputation.
In
the ordinary course of our business, we expect to collect and store sensitive data, including legally protected patient health
information, credit card information, personally identifiable information about our employees, intellectual property, and
proprietary business information. We expect to manage and maintain its applications and data utilizing on-site systems. These
applications and data encompass a wide variety of business-critical information including research and development information,
commercial information and business and financial information.
The
secure processing, storage, maintenance and transmission of this critical information is vital to our operations and business
strategy, and we devote significant resources to protecting such information. Although we take measures to protect sensitive
information from unauthorized access or disclosure, our information technology and infrastructure may be vulnerable to attacks
by hackers, or viruses, breaches or interruptions due to employee error, malfeasance or other disruptions, or lapses in compliance
with privacy and security mandates. Any such virus, breach or interruption could compromise our networks and the information stored
there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. In the future, any such access, disclosure
or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal
information, such as the Health Insurance Portability and Accountability Act and European Union General Data Protection Regulation,
government enforcement actions and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations,
including our ability to process samples, provide test results, share and monitor safety data, bill payors or patients, provide
customer support services, conduct research and development activities, process and prepare company financial information, manage
various general and administrative aspects of our business and may damage our reputation, any of which could adversely affect
our business, financial condition and results of operations.
Our
operating results may vary significantly in future periods.
We
are in the early stages of product development and expects to focus substantial efforts for, at least, the next several years on preclinical
and clinical trials and other research and development activities. We have not obtained regulatory approval for any product candidates.
Our revenues, expenses and operating results are likely to fluctuate significantly in the future. We expect to incur substantial additional
operating expenses over the next several years as our research, development, and preclinical and clinical study activities increase.
Our financial results are unpredictable and may fluctuate, for among other reasons, due to:
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the
scope, number, progress, duration, endpoints, cost, results, and timing of our preclinical testing and clinical studies of current
or potential future product candidates
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our
ability to obtain additional funding to develop product candidates; and
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delays
in the commencement, enrollment and timing of clinical studies.
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high portion of our costs are predetermined on an annual basis, due in part to our significant research and development costs. Thus,
small declines in revenue could disproportionately affect financial results in a quarter.
Risks
Related to Regulatory Matters
Our
prospective products will be subject to the various federal and state laws and regulations relating to health and safety.
We
are in the process of developing investigational new drugs for which we intend to pursue FDA approval via the New Drug Application (“NDA”)
process. In these product candidates, cannabinoid(s) will be the active pharmaceutical ingredient.
In
connection with our development and future commercialization (if applicable) of the above-described prospective products, we and each
contemplated product candidate are subject to the Federal Food Drug and Cosmetic Act (FDCA). The FDCA is intended to assure the consumer,
in part, that drugs and devices are safe and effective for their intended uses and that all labeling and packaging is truthful, informative,
and not deceptive. The FDCA and FDA regulations define the term “drug,” in part, by reference to its intended use, as “articles
intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease” and “articles (other than food)
intended to affect the structure or any function of the body of man or other animals.” Therefore, almost any ingested or topical
or injectable product that, through its label or labeling (including internet websites, promotional pamphlets, and other marketing material),
that is claimed to be beneficial for such uses will be regulated by FDA as a drug. The definition also includes components of drugs,
such as active pharmaceutical ingredients. Drugs must generally either receive premarket approval by FDA through the NDA process or conform
to a “monograph” for a particular drug category, as established by FDA’s Over-the-Counter (OTC) Drug Review. If the
FDA does not award premarket approval for our product candidates through the NDA process, this could have a material adverse effect on
our business, financial condition and results of operations.
Clinical
trials are expensive, time-consuming, uncertain and susceptible to change, delay or termination. The results of clinical trials are open
to differing interpretations.
We
currently have two potential product candidates that are in preclinical development as an investigational
combination therapy for GBM and other forms of cancer and intends to pursue preclinical and clinical development for other prospective
candidates as well, including, but not limited to, a candidate targeting radiodermatitis. After completing the requisite preclinical
testing, IND submission, internal review board (“IRB”) review, and any other applicable early-development obligations,
we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates. Clinical testing is
expensive, time consuming, and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned
or completed on schedule, or at all. Failures in connection with one or more clinical trials can occur at any stage of testing.
Regulatory
agencies may analyze or interpret the results of clinical trials differently than us. Even if the results of our clinical trials are
favorable, the clinical trials for a number of our product candidates are expected to continue for several years and may take significantly
longer to complete. Events that may prevent successful or timely completion of clinical development include:
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delays
in reaching a consensus with regulatory authorities on trial design;
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delays
in reaching agreement on acceptable terms with prospective contract research organization (“CRO”) and clinical trial
sites;
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delays
in opening clinical trial sites or obtaining required IRB or independent ethics committee approval at each clinical trial site;
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actual
or perceived lack of effectiveness of any product candidate during clinical trials;
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discovery
of serious or unexpected toxicities or side effects experienced by trial participants or other safety issues, such as drug interactions,
including those which cause confounding changes to the levels of other concomitant medications;
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slower
than expected rates of subject recruitment and enrollment rates in clinical trials;
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difficulty
in retaining subjects for the entire duration of applicable clinical studies (as study subjects may withdraw at any time due to adverse
side effects from the therapy, insufficient efficacy, fatigue with the clinical trial process or for any other reason;
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delays
or inability in manufacturing or obtaining sufficient quantities of materials for use in clinical trials due to regulatory and manufacturing
constraints;
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inadequacy
of or changes in our manufacturing process or product candidate formulation;
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delays
in obtaining regulatory authorization s, such as INDs and any others that must be obtained, maintained, and/or satisfied to commence
a clinical trial, including “clinical holds” or delays requiring suspension or termination of a trial by a regulatory
agency, such as the FDA, before or after a trial is commenced;
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changes
in applicable regulatory policies and regulation, including changes to requirements imposed on the extent, nature or timing of studies;
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delays
or failure in reaching agreement on acceptable terms in clinical trial contracts or protocols with prospective clinical trial sites;
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uncertainty
regarding proper dosing;
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delay
or failure to supply product for use in clinical trials which conforms to regulatory specification;
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unfavorable
results from ongoing pre-clinical studies and clinical trials;
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failure
of our CROs, or other third-party contractors to comply with all contractual requirements or to perform their services in a timely
or acceptable manner;
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failure
by us, our employees, our CROs or their employees to comply with all applicable FDA or other regulatory requirements relating to
the conduct of clinical trials;
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scheduling
conflicts with participating clinicians and clinical institutions;
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failure
to design appropriate clinical trial protocols;
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regulatory
concerns with cannabinoid products, generally, and the potential for abuse;
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insufficient
data to support regulatory approval;
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inability
or unwillingness of medical investigators to follow our clinical protocols; or
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difficulty
in maintaining contact with patients during or after treatment, which may result in incomplete data.
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Any
of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
Any
failure by us to comply with existing regulations could harm our reputation and operating results.
We
are subject to extensive regulation by U.S. federal and state and foreign governments in each of the U.S., European and Canadian markets,
in which we plan to sell our product candidates. We must adhere to all regulatory requirements, including FDA’s Good Laboratory
Practice (“GLP”), GCP, and GMP requirements, pharmacovigilance requirements, advertising and promotion restrictions, reporting
and recordkeeping requirements, and their European equivalents. If we or our suppliers fail to comply with applicable regulations, including
FDA pre-or post-approval requirements, then the FDA or other foreign regulatory authorities could sanction our Company. Even if a drug
is approved by the FDA or other competent authorities, regulatory authorities may impose significant restrictions on a product’s
indicated uses or marketing or impose ongoing requirements for potentially costly post-marketing trials. Any of our product candidates
which may be approved in the U.S. will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage,
distribution, import, export, advertising, promotion, sampling, recordkeeping and submission of safety and other post-market information,
including both federal and state requirements. In addition, manufacturers and manufacturers’ facilities are required to comply
with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to GMP. As such, we and
our contract manufacturers (in the event contract manufacturers are appointed in the future) are subject to continual review and periodic
inspections to assess compliance with GMP. Accordingly, we and others with whom we work will have to spend time, money and effort in
all areas of regulatory compliance, including manufacturing, production, quality control and quality assurance. We will also be required
to report certain adverse reactions and production problems, if any, to the FDA, and to comply with requirements concerning advertising
and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory
restrictions and must be consistent with the information in the product’s approved label. Similar restrictions and requirements
exist in the European Union and other markets where we operate.
If
a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency,
or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of the product,
it may impose restrictions on that product or on us, including requiring withdrawal of the product from the market. If we fail to comply
with applicable regulatory requirements, a regulatory agency or enforcement authority may:
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issue
warning letters;
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impose
civil or criminal penalties;
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suspend
regulatory approval;
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suspend
any of our ongoing clinical trials;
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refuse
to approve pending applications or supplements to approved applications submitted by us;
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impose
restrictions on our operations, including by requiring us to enter in to a Corporate Integrity Agreement or closing our contract
manufacturers’ facilities, if any; or
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seize
or detain products or require a product recall.
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We
may be subject to federal, state and foreign healthcare laws and regulations and implementation of or changes to such healthcare laws
and regulations could adversely affect our business and results of operations.
If
we successfully complete the requisite preclinical and clinical testing, make the required regulatory submissions and obtain any corresponding
authorizations or licenses (as applicable), fulfill all other applicable development-related regulatory obligations, and, eventually,
obtain FDA approval to market one or more of our current or future product candidates in the United States, we may be subject to certain
healthcare laws and regulations. In both the U.S. and certain foreign jurisdictions, there have been a number of legislative and regulatory
proposals to change the healthcare system in ways that could impact our ability to sell our future product candidates. If we are found
to be in violation of any of these laws or any other federal, state or foreign regulations, we may be subject to administrative, civil
and/or criminal penalties, damages, fines, individual imprisonment, exclusion from federal health care programs and the restructuring
of our operations. Any of these could have a material adverse effect on our business and financial results. Since many of these laws
have not been fully interpreted by the courts, there is an increased risk that we may be found in violation of one or more of their provisions.
Any action against us for violation of these laws, even if we are ultimately successful in our defense, will cause us to incur significant
legal expenses and divert our management’s attention away from the operation of our business. In addition, in many foreign countries,
particularly the countries of the European Union, the pricing of prescription drugs is subject to government control.
In
some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing
drug pricing vary widely from country to country. For example, some European Union jurisdictions operate positive and negative list systems
under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some
of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate
to currently available therapies. Other member states allow companies to fix their own prices for medicines but monitor and control company
profits. Such differences in national pricing regimes may create price differentials between European Union member states. There can
be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable
reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price
structures of the U.S. In the European Union, the downward pressure on healthcare costs in general, particularly prescription medicines,
has become intense. As a result, barriers to entry of new products are becoming increasingly high and patients are unlikely to use a
drug product that is not reimbursed by their government.
We
may face competition from lower-priced products in foreign countries that have placed price controls on pharmaceutical products. In addition,
the importation of foreign products may compete with any future product that we may market, which could negatively impact our profitability.
Specifically
in the U.S., we expect that the 2010 Affordable Care Act (“ACA”), as well as other healthcare reform measures that may be
adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we may receive
for any approved product. There have been judicial challenges to certain aspects of the ACA and numerous legislative attempts to repeal
and/or replace the ACA in whole or in part, and we expect there will be additional challenges and amendments to the ACA in the future.
At this time, the full effect that the ACA will have on our business in the future remains unclear. An expansion in the government’s
role in the U.S. healthcare industry may cause general downward pressure on the prices of prescription drug products, lower reimbursements
or any other product for which we obtain regulatory approval, reduce product utilization and adversely affect our business and results
of operations. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments
from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate
revenue, attain profitability, or commercialize any of our future product candidates for which we may receive regulatory approval.
There
is a high rate of failure for drug candidates proceeding through clinical trials.
We
have no products on the market, and our new potential cannabinoid-based drug product candidates are currently either in preclinical development
or the research and discovery phase. Accordingly, none of our prospective products or investigational candidates have ever been tested
in a human subject. Our ability to achieve and sustain profitability with respect to our product candidates in which cannabinoids are
featured as the active pharmaceutical ingredient depends on obtaining regulatory approvals for and, if approved, successfully commercializing
our product candidates, either alone or with third parties. Before obtaining regulatory approval for the commercial distribution of our
product candidates, we or an existing or future collaborator must conduct extensive preclinical tests and clinical trials to demonstrate
the safety, purity and potency of our product candidates.
Generally,
there is a high rate of failure for drug candidates proceeding through clinical trials. We may suffer significant setbacks in our clinical
trials similar to the experience of a number of other companies in the pharmaceutical and biotechnology industries, even after receiving
promising results in earlier trials. Further, even if we view the results of a clinical trial to be positive, the FDA or other regulatory
authorities may disagree with our interpretation of the data. In the event that we obtain negative results from clinical trials for product
candidates or other problems related to potential chemistry, manufacturing and control issues or other hurdles occur and our future product
candidates are not approved, we may not be able to generate sufficient revenue or obtain financing to continue our operations, our ability
to execute on our current business plan may be materially impaired, and our reputation in the industry and in the investment community
might be significantly damaged. In addition, our inability to properly design, commence and complete clinical trials may negatively impact
the timing and results of our clinical trials and ability to seek approvals for our drug candidates.
The
testing, marketing and manufacturing of any new drug product for use in the United States will require approval from the FDA. We cannot
predict with any certainty the amount of time necessary to obtain such FDA approval and whether any such approval will ultimately be
granted. Preclinical and clinical trials may reveal that one or more products are ineffective or unsafe, in which event further development
of such products could be seriously delayed or terminated. Moreover, obtaining approval for certain products may require testing on human
subjects of substances whose effects on humans are not fully understood or documented. Delays in obtaining FDA or any other necessary
regulatory approvals of any proposed drug and failure to receive such approvals would have an adverse effect on the drug’s potential
commercial success and on our business, prospects, financial condition and results of operations. In addition, it is possible that a
proposed drug may be found to be ineffective or unsafe due to conditions or facts that arise after development has been completed and
regulatory approvals have been obtained. In this event, we may be required to withdraw such proposed drug from the market. To the extent
that our success will depend on any regulatory approvals from government authorities outside of the United States that perform roles
similar to that of the FDA, uncertainties similar to those stated above will also exist.
Serious
adverse events or other safety risks could require us to abandon development and preclude, delay or limit approval of our prospective
products or current or future product candidates, limit the scope of any approved label or market acceptance, or cause the recall or
loss of marketing approval of products that are already marketed.
If
any of our prospective products or current or future product candidates, prior to or after any approval for commercial sale, cause serious
or unexpected side effects, or are associated with other safety risks such as misuse, abuse or diversion, a number of potentially significant
negative consequences could result, including:
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regulatory
authorities may interrupt, delay or halt clinical trials;
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regulatory
authorities may deny regulatory approval of our future product candidates;
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regulatory
authorities may require certain labeling statements, such as warnings or contraindications or limitations on the indications for
use, and/or impose restrictions on distribution in the form of a Risk Evaluation and Mitigation Strategy (“REMS”) in
connection with approval or post-approval;
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regulatory
authorities may withdraw their approval, require more onerous labeling statements, impose a more restrictive REMS, or require it
to recall any product that is approved;
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we
may be required to change the way the product is administered or conduct additional clinical trials;
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our
relationships with our collaboration partners may suffer;
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we
could be sued and held liable for harm caused to patients; or
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our
reputation may suffer. The reputational risk is heightened with respect to those of our future product candidates that are being
developed for pediatric indications.
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We
may voluntarily suspend or terminate our clinical trials if at any time we believe that the product candidates present an unacceptable
risk to participants, or if preliminary data demonstrates that our future product candidates are unlikely to receive regulatory approval
or unlikely to be successfully commercialized.
After
completing preclinical testing and obtaining the requisite regulatory authorizations, as applicable, we may voluntarily suspend or terminate
our clinical trials for any number of reasons, including if we believe that a product’s use, or a person’s exposure to it,
may cause adverse health consequences or death. In addition, regulatory agencies, IRBs or data safety monitoring boards may at any time
recommend the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical
trials if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that
they present an unacceptable safety risk to participants. Although we have never been asked by a regulatory agency, IRB or data safety
monitoring board to temporarily or permanently discontinue a clinical trial, if we elect or are forced to suspend or terminate a clinical
trial of any of our future product candidates, the commercial prospects for that product will be harmed and our ability to generate product
revenue from that product may be delayed or eliminated. Furthermore, any of these events may result in labeling statements such as warnings
or contraindications. In addition, such events or labeling could prevent us or our partners from achieving or maintaining market acceptance
of the affected product and could substantially increase the costs of commercializing our future product candidates and impair our ability
to generate revenue from the commercialization of these products either by us or by our collaboration partners.
The
success of our prospective product candidates and future approved products, if any, especially those containing hemp-derived CBD, is
subject to a number of constantly-evolving state and federal laws, regulations, and enforcement policies pertaining to hemp-derived CBD
and/or cannabis more generally.
The
Agriculture Improvement Act of 2018, or the “2018 Farm Bill,” was signed into law on December 20, 2018. This 2018 Farm Bill
expressly excluded “hemp” from the federal Controlled Substances Act of 1970 and the Controlled Substances Import and Export
Act’s, as amended (the “CSA”)’s definition of marijuana and, accordingly, declassified substances derived from
or containing any part(s) of the cannabis plant containing not more than 0.3% THC on a dry-weight basis from Schedule I. In effect, the
2018 Farm Bill legalized the cultivation and commercial sale of hemp in the United States, subject to applicable state laws and regulations
and applicable FDCA provisions, including any implementing regulations, as interpreted and enforced by the FDA.
Local,
state, federal, and international hemp and CBD laws and regulations are broad in scope and subject to evolving interpretations, which
could require us to incur substantial costs associated with compliance requirements. In addition, violations of these laws, or allegations
of such violations, could disrupt our business and result in a material adverse effect on our operations. In addition, it is possible
that regulations may be enacted in the future that will be directly applicable to our proposed business regarding cannabinoid production.
It is also possible that the federal government will begin strictly enforcing existing laws, which may limit the legal uses of the hemp
plant and its derivatives and extracts, such as cannabinoids. we cannot predict the nature of any future laws, regulations, interpretations,
or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when
and if promulgated, could have on our activities in the cannabis industry.
In
addition, the 2018 Farm Bill did not alter the FDA’s authority to regulate products containing cannabis or cannabis-derived compounds,
including cannabinoids, under the FDCA. Hemp products, including cannabinoids, that qualify as drugs, food, dietary supplements, veterinary
products, and cosmetics, for example, are subject to regulation by the FDA. Following passage of the 2018 Farm Bill, the FDA reaffirmed
its enforcement authority and reiterated the requirement that a product containing CBD or other cannabinoid(s) (hemp-derived or otherwise)
that is marketed with a claim of therapeutic benefit implicitly or explicitly attributed to, or based on, the presence of the cannabinoid
as an ingredient, or any other health/medical claim, must be approved by the FDA for its intended use(s) before it may be introduced
into interstate commerce. Our prospective product candidates are currently intended for development under an IND and, eventually, approval
under an NDA, which will mean that, if approved, we can market such products with claims about their proven medical benefits for the
applicable indications for use to the extent consistent with the product’s NDA.
While
we believe that the 2018 Farm Bill and analogous state legislation has reduced the amount of DEA oversight of hemp-derived cannabinoids,
this is a rapidly evolving area of U.S. law and substantial uncertainty remains as to the future of federal and state regulation of cannabinoid
products. In addition, the FDA has approved only one natural cannabis-based drug product, which contains only hemp-derived CBD. There
can be no assurance that our product candidates containing cannabinoids (as the active drug ingredient(s)) will be similarly approved
for commercialization in the United States at any time in the near or distant future. Any regulations the FDA issues relating to the
sale, marketing, and/or other activities involving cannabinoid or certain cannabinoid-containing products could have a material adverse
effect on our business, financial condition and results of operations.
Given
the uncertainty surrounding future state regulations and the continuing barriers that still exist for cannabinoids in certain product
categories due to FDA regulation, it is unknown what impact the removal of hemp from the CSA, and any resulting commercialization of
hemp products, may have on our business.
Costs
associated with compliance with numerous laws and regulations could impact our financial results. In addition, we could become subject
to increased enforcement and/or litigation risks associated with the CBD industry.
The
manufacture, labeling and distribution of products containing CBD or other cannabinoids is governed by various federal, state and local
agencies. To the extent we are able to successfully commercialize any of our currently contemplated product candidates via the FDA’s
NDA approval pathway, the presence of cannabinoids as active or inactive ingredients, as applicable, may give rise to heightened regulatory
scrutiny and greater risk of consumer litigation, either of which could further restrict the permissible scope of our marketing claims
about such products or our ability to sell them in the United States at all. The shifting compliance environment and the need to build
and maintain robust systems to comply with different hemp or CBD-related regulations in jurisdictions may increase costs and/or the risk
that we may violate one or more applicable regulatory requirements. If our operations, or any of our activities or prospective products,
are found to be in violation of any such laws or any other governmental regulations that apply to the manufacture, distribution, or sale
of prescription drug products, generally, and to products containing hemp or CBD, we may be subject to penalties, including, without
limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, any of which could adversely
affect our ability to operate our business or our financial results.
Failure
to comply with any applicable FDA requirements, relating to CBD or otherwise, may result in, among other things, injunctions, product
withdrawals, recalls, product seizures, fines and criminal prosecutions. Our advertising is also subject to regulation by the FTC under
the Federal Trade Commission Act. Additionally, analogous state advertising and labeling laws are often enforced by state attorneys general,
and any state or federal enforcement action based on potentially misleading or deceptive advertising is often followed by costly class-action
complaints under state consumer-protection laws.
The
FDA, on its own and in collaboration with the FTC, has issued numerous warning letters to companies offering for sale of topical, oral,
and other types of products containing CBD, which were not approved under the FDA’s NDA process, in response to their making unsubstantiated
claims on product webpages, online stores, and social media websites about the products’ purported therapeutic or other drug-like
benefits in connection with CBD or other cannabinoids. The FDA deemed that companies “used these online platforms to make unfounded,
egregious claims about their products’ ability to limit, treat or cure cancer, neurodegenerative conditions, autoimmune diseases,
opioid use disorder, and other serious diseases, without sufficient evidence and the legally required FDA approval.”
The
agency has continuously demonstrated its commitment to taking action against companies making medical claims about products containing
CBD (as the active ingredient), as selling unapproved products with unsubstantiated therapeutic claims can put patients and consumers
at risk. The FDA does not believe CBD has been shown to be safe and effective for any therapeutic use, except as used in Epidiolex, the
only new drug containing CBD that has been approved by FDA under the NDA process, which was approved for the treatment of seizures associated
with Lennox-Gastaut syndrome or Dravet syndrome in patients 2 years of age and older. The agency’s principal concern with CBD products
on the market that are unlawfully claiming to treat serious medical conditions is that deceptive marketing of unproven treatments may
keep some patients from accessing appropriate, recognized therapies to treat serious and even fatal diseases. Additionally, because they
are not evaluated by the FDA, there may be other ingredients that are not disclosed, which may be harmful.
The
FDA has pledged to continue to monitor the marketplace and take enforcement action as-needed to protect the public against companies
illegally selling products containing CBD as the active ingredient, claiming to prevent, diagnose, treat, or cure serious diseases, such
as cancer, Alzheimer’s disease, psychiatric disorders and diabetes; illegally selling cannabis and cannabis-derived products that
can put consumers at risk; and marketing and distributing such products in violation of the FDA’s authorities.
Negative
public perception of hemp and cannabinoid-related businesses, misconceptions about the nature of our business and regulatory uncertainties
could have a material adverse effect on our business, financial condition, and results of operations.
We
believe the cannabinoid industry is highly dependent upon consumer perception regarding the safety, efficacy, quality, and legality
of cannabinoid, whether derived from hemp or marijuana. Consumer perception of cannabinoid products can be significantly influenced
by scientific research or findings, regulatory investigations, litigation, media attention, and other publicity regarding the
consumption of cannabinoid products. There can be no assurance that future scientific research, findings, regulatory proceedings,
litigation, media attention, or other research findings or publicity will be favorable to the cannabinoid market or any particular
product, or consistent with earlier publicity. Our dependence upon consumer perceptions means that adverse scientific research
reports, findings, regulatory proceedings, litigation, media attention, or other publicity relating to cannabinoid products, generally
or any particular cannabinoid products or derivatives, in particular, regardless of merit or accuracy, could have a material adverse
effect on our business, the demand for our product candidates or any products for which we obtain regulatory approval in the future.
Such adverse publicity or other negative media attention could arise even if the adverse effects reportedly associated with such
products resulted from consumers’ failure to consume such products appropriately or as directed. Any adverse publicity or
other similar occurrences affecting consumer perception may have a material adverse impact on our reputation, perception of our
product candidates, our ability to obtain the necessary regulatory approvals for our product candidates, and the commercial viability
of the products for which regulatory approval is obtained in the future, if any.
Our
management will be required to devote a substantial time to comply with public company regulations.
As
a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as rules
implemented by the SEC and Nasdaq, impose various requirements on public companies, including those related to corporate governance
practices. Our management and other personnel must devote a substantial amount of time to these requirements. Moreover, these
rules and regulations increase our legal and financial compliance costs and make some activities more time consuming and costly.
The
Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure
controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over
financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required
by Section 404 of the Sarbanes-Oxley Act. Our compliance with these requirements will require that we incur substantial accounting
and related expenses and expend significant management efforts. We will likely need to hire additional accounting and financial
staff to satisfy the ongoing requirements of Section 404 of the Sarbanes-Oxley Act. The costs of hiring such staff may be material
and there can be no assurance that such staff will be immediately available to us. Moreover, if we are not able to comply with
the requirements of Section 404 of the Sarbanes-Oxley Act, or if we identify deficiencies in our internal control over financial
reporting that are deemed to be material weaknesses, investors could lose confidence in the accuracy and completeness of our financial
reports, the market price of our common stock could decline and we could be subject to sanctions or investigations by Nasdaq,
the SEC or other regulatory authorities, which could require additional financial and management resources.
We
have identified a material weakness in our internal control over financial reporting. If we are unable to remediate the material
weakness, or if we experience additional material weaknesses in the future, our business may be harmed.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating
and reporting on the effectiveness of our system of internal control. Internal control over financial reporting is a process used
to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements
for external purposes in accordance with generally accepted accounting principles in the United States. As a public company, we
are required to comply with the Sarbanes-Oxley Act and other rules that govern public companies. In particular, we are required
to certify our compliance with Section 404 of the Sarbanes-Oxley Act, which requires us to furnish annually a report by management
on the effectiveness of our internal control over financial reporting.
Our
management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020
and concluded our internal control over financial reporting was not effective as of December 31, 2020 due to the material weakness
related to segregation of duties. Specifically, due to the small size of our Company, we do not maintain sufficient segregation
of duties to ensure the processing, review and authorization of all transactions including non-routine transactions. We are in
the process of remediating our material weaknesses and designing an effective internal control environment.
Remediation
efforts place a significant burden on management and add increased pressure to our financial resources and processes. If we are
unable to successfully remediate our existing material weakness or any additional material weaknesses in our internal control
over financial reporting that may be identified in the future in a timely manner, the accuracy and timing of our financial reporting
may be adversely affected; our liquidity, our access to capital markets, the perceptions of our creditworthiness may be adversely
affected; we may be unable to maintain or regain compliance with applicable securities laws, the listing requirements of the Nasdaq
Stock Market; we may be subject to regulatory investigations and penalties; investors may lose confidence in our financial reporting;
our reputation may be harmed; and our stock price may decline.
Risks
Related to Our Intellectual Property
We
may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position.
We
currently hold full or limited rights to several patents as an in-licensee covering the use of CBD including with current cancer treatments,
both broadly, as well as for specific cancer types. Our success will depend, in part, on our ability to obtain additional patents, protect
our trade secrets and operate without infringing on the proprietary rights of others. We rely upon a combination of patents, trade secret
protection (i.e., know-how), and confidentiality agreements to protect the intellectual property of our future product candidates. The
strengths of patents in the pharmaceutical field involve complex legal and scientific questions and can be uncertain. Where appropriate,
we seek patent protection for certain aspects of our products and technology. Filing, prosecuting and defending patents globally can
be prohibitively expensive.
Our
policy is to look to patent technologies with commercial potential in jurisdictions with significant commercial opportunities. However,
patent protection may not be available for some of the products or technology we are developing. If we must spend significant time and
money protecting, defending or enforcing our patents, designing around patents held by others or licensing, potentially for large fees,
patents or other proprietary rights held by others, our business, results of operations and financial condition may be harmed. We may
not develop additional proprietary products that are patentable.
The
patent positions of pharmaceutical products are complex and uncertain. The scope and extent of patent protection for our future product
candidates are particularly uncertain. Our future product candidates will be based on medicinal chemistry instead of cannabis plants.
While we have sought patent protection, where appropriate, directed to, among other things, composition-of-matter for our specific formulations,
their methods of use, and methods of manufacture, we do not have and will not be able to obtain composition of matter protection on these
previously known CBD derivatives per se. Although we have sought, and will continue to seek, patent protection in the U.S., Europe and
other countries for our proprietary technologies, future product candidates, their methods of use, and methods of manufacture, any or
all of them may not be subject to effective patent protection. If any of our products is approved and marketed for an indication for
which we do not have an issued patent, our ability to use our patents to prevent a competitor from commercializing a non-branded version
of our commercial products for that non-patented indication could be significantly impaired or even eliminated.
Publication
of information related to our future product candidates by us or others may prevent us from obtaining or enforcing patents relating to
these products and product candidates. Furthermore, others may independently develop similar products, may duplicate our products, or
may design around our patent rights. In addition, any of our issued patents may be opposed and/or declared invalid or unenforceable.
If we fail to adequately protect our intellectual property, we may face competition from companies who attempt to create a generic product
to compete with our future product candidates. We may also face competition from companies who develop a substantially similar product
to our future product candidates that is not covered by any of our patents.
Many
companies have encountered significant problems in protecting, defending and enforcing intellectual property rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other
intellectual property rights, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement
of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent
rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
Our
success depends on our ability to obtain additional intellectual property and operate without infringing the proprietary rights of others.
Infringement claims by third parties may result in liability for damages or prevent or delay our developmental and commercialization
efforts.
Our
success and ability to compete depend in part on our ability to obtain additional patents, protect our trade secrets, and operate without
infringing on the proprietary rights of others. If we fail to adequately protect our intellectual property, we may face competition from
companies who develop a substantially similar product to our future product candidates that is not covered by any of our intellectual
property. Many companies have encountered significant problems in protecting, defending, and enforcing intellectual property rights in
foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement
of patents and other intellectual property rights, particularly those relating to pharmaceuticals, which could make it difficult for
us to stop the infringement of our intellectual property and other proprietary rights. There is also a substantial amount of litigation,
both within and outside the U.S., involving patient and other intellectual property rights in the pharmaceutical industry. We may, from
time to time, be notified of claims that we are infringing upon the proprietary rights of third parties, and we cannot provide assurances
that other companies will not, in the future, pursue such infringement claims against it, our commercial partners, or any third-party
proprietary technologies we have licensed.
We
may be unsuccessful in licensing additional intellectual property to develop new product candidates.
We
may in the future seek to in-license additional intellectual property that we believe could complement or expand our product candidates
or otherwise offer growth opportunities. The pursuit of such licenses may cause us to incur various expenses in identifying, investigating
and pursuing suitable intellectual property. If we acquire additional intellectual property to develop new therapeutic product candidates,
we may not be able to realize anticipated cost savings or synergies.
If
third parties claim that intellectual property used by us infringes upon their intellectual property, our operating profits could be
adversely affected.
There
is a substantial amount of litigation, both within and outside the U.S., involving patent and other intellectual property rights in the
pharmaceutical industry. We may, from time to time, be notified of claims that we are infringing upon patents, trademarks, copyrights
or other intellectual property rights owned by third parties, and we cannot provide assurances that other companies will not, in the
future, pursue such infringement claims against us, our commercial partners or any third-party proprietary technologies we have licensed.
If we were found to infringe upon a patent or other intellectual property right, or if we failed to obtain or renew a license under a
patent or other intellectual property right from a third party, or if a third party that we were licensing technologies from was found
to infringe upon a patent or other intellectual property rights of another third party, we may be required to pay damages, including
damages of up to three times the damages found or assessed, if the infringement is found to be willful, suspend the manufacture of certain
products or reengineer or rebrand our products, if feasible, or we may be unable to enter certain new product markets. Any such claims
could also be expensive and time-consuming to defend and divert management’s attention and resources. Our competitive position
could suffer as a result. In addition, if we have declined or failed to enter into a valid non-disclosure or assignment agreement for
any reason, we may not own the invention or our intellectual property, and our products may not be adequately protected. Thus, we cannot
guarantee that any of our future product candidates, or our commercialization thereof, does not and will not infringe any third party’s
intellectual property.
If
we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and
products could be significantly diminished.
We
rely on trade secrets to protect our proprietary technologies, especially where it does not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our current and former
employees, consultants, outside scientific collaborators, sponsored researchers, contract manufacturers, vendors and other advisors to
protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential
information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition,
we cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets. Any
party with whom we or they have executed such an agreement may breach that agreement and disclose our proprietary information, including
our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
Enforcing
a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome
is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets.
If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent
them, or those to whom they disclose such trade secrets, from using that technology or information to compete with us. If any of our
trade secrets were to be disclosed to or independently developed by a competitor or other third-party, our competitive position would
be harmed.
Risks
Related to the Ownership of Our Common Stock
We
may not obtain the requisite votes at our special meeting to ratify our reverse stock split.
On January 21, 2021,
we received a stockholder litigation demand letter from the law firm of Purcell Julie & Lefkowitz LLP, on behalf of James
Self, a purported stockholder of our Company. The letter demands that we (i) deem ineffective the December 30, 2020 amendment
to our Amended and Restated Certificate of Incorporation in which we effected a one-for-four reverse stock split of our common
stock (the “2020 Reverse Stock Split”) due to the manner in which non-votes by brokers were tabulated, (ii) seek appropriate
relief for damages allegedly suffered by the company and its stockholders or seek a valid stockholder approval of the amendment
and reverse stock split, and (iii) adopt adequate internal controls to prevent a recurrence of the alleged misconduct. We dispute
that the amendment was ineffective or that there were any inadequate internal controls related to the same. However, to eliminate
any questions about the amendment, we intend to seek to ratify the amendment at a special stockholders’ meeting pursuant
to Section 204 of the Delaware General Corporation Law. This special stockholders’ meeting is scheduled to occur on May 14, 2021.
On
March 19, 2021, in response to the stockholder demand letter, we filed a preliminary proxy statement on Schedule 14A, which
provided notice of a special meeting of stockholders and sought the ratification of the filing and effectiveness of the certificate
of amendment to our amended and restated certificate of incorporation filed with the Secretary of State of the State of Delaware
on December 30, 2020 to effect the 2020 Reverse Stock Split. Should we fail to obtain the requisite votes to ratify
the 2020 Reverse Stock Split, the 2020 Reverse Stock Split will deemed to be invalid, and we will not have a requisite
amount of authorized shares of common stock.
The
market price of our common stock may be subject to significant fluctuations and volatility, and our stockholders may be unable to resell
their shares at a profit and incur losses.
The
market price our common stock could be subject to significant fluctuation. Market prices for securities of life sciences and biopharma
companies in particular have historically been particularly volatile and have shown extreme price and volume fluctuations that have often
been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, as well as general
economic, political and market conditions such as recessions or interest rate changes, may seriously affect the market price of our common
stock, regardless of our actual operating performance. Some of the factors that may cause the market price of our common stock to fluctuate
include:
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investors
react negatively to the effect on our business and prospects;
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the
announcement of new products, new developments, services or technological innovations by us or our competitors;
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actual
or anticipated quarterly increases or decreases in revenue, gross margin or earnings, and changes in our business, operations or
prospects;
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announcements
relating to strategic relationships, mergers, acquisitions, partnerships, collaborations, joint ventures, capital commitments,
or other events by us or our competitors;
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conditions
or trends in the life sciences and biopharma industries;
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changes
in the economic performance or market valuations of other life sciences and biopharma companies;
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general
market conditions or domestic or international macroeconomic and geopolitical factors unrelated to our performance or financial condition;
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sale
of our common stock by stockholders, including executives and directors;
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volatility
and limitations in trading volumes of our common stock;
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volatility
in the market prices and trading volumes of companies in the life sciences and biopharma industries;
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our
ability to finance our business;
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ability
to secure resources and the necessary personnel to pursue our plans;
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failures
to meet external expectations or management guidance;
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changes
in our capital structure or dividend policy, future issuances of securities, sales or distributions of large blocks of common stock
by stockholders;
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our
cash position;
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announcements
and events surrounding financing efforts, including debt and equity securities;
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analyst
research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage;
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departures
and additions of key personnel;
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disputes
and litigation related to intellectual properties, proprietary rights, and contractual obligations;
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investigations
by regulators into our operations or those of our competitors;
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changes
in applicable laws, rules, regulations, or accounting practices and other dynamics; and
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other
events or factors, many of which may be out of our control.
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In
the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, securities
class action litigations have often been instituted against these companies. Litigation of this type, if instituted against us, could
result in substantial costs and a diversion of our management’s attention and resources. Any adverse determination in any such
litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.
Moreover,
the COVID-19 pandemic has resulted in significant financial market volatility and uncertainty in recent months. A continuation or worsening
of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital,
on our business, results of operations and financial condition, and on the market price of our common stock.
We
may issue additional equity securities in the future, which may result in dilution to existing investors.
To
the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may, from
time to time, sell additional equity securities in one or more transactions at prices and in a manner we determine. If we sell additional
equity securities, existing stockholders may be materially diluted. New investors could gain rights superior to existing stockholders,
such as liquidation and other preferences. In addition, the number of shares available for future grant under our equity compensation
plans may be increased in the future. Also, the exercise or conversion of outstanding options or warrants to purchase shares of capital
stock may result in dilution to our stockholders upon any such exercise or conversion.
Certain
stockholders could attempt to influence changes within our Company which could adversely affect our operations, financial condition and
the value of our common stock.
Our
stockholders may from time to time seek to acquire a controlling stake in our Company, engage in proxy solicitations, advance stockholder
proposals or otherwise attempt to effect changes. Campaigns by stockholders to effect changes at publicly-traded companies are sometimes
led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special
dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist stockholders
can be costly and time-consuming and could disrupt our operations and divert the attention of our board of directors and senior management
from the operation of our business. These actions could adversely affect our operations, financial condition and the value of our common
stock.
If
securities analysts do not publish research or reports about our business, or if they publish negative evaluations, the price of our
common stock could decline.
The
trading market for our common stock will rely in part on the availability of research and reports that third-party industry or financial
analysts publish about our Company. There are many large, publicly traded companies active in the life sciences and biopharma industries,
which may mean it will be less likely that we receive widespread analyst coverage. Furthermore, if one or more of the analysts who do
cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our Company, we
could lose visibility in the market, which in turn could cause our stock price to decline.
We
may be required to take write-downs or write-offs, restructuring and impairment or other charges in connection with the Offer that could
have a significant negative effect on our financial condition, results of operations and stock price, which could cause you to lose some
or all of your investment.
Although
Ameri and Jay Pharma conducted due diligence on each other prior to the completion of the Offer, there can be no assurances that their
diligence revealed all material issues that may be present in the other company’s business, that all material issues through a
customary amount of due diligence will be uncovered, or that factors outside of our control will not later arise. As a result, we may
be forced to write-down or write-off assets, restructure operations, or incur impairment or other charges that could result in losses.
Even if due diligence successfully identifies certain risks, unexpected risks may arise, and previously known risks may materialize in
a manner not consistent with each company’s preliminary risk analysis. Even though these charges may be non-cash items and not
have an immediate impact on liquidity, the fact that we report charges of this nature could contribute to negative market perceptions
about our securities. In addition, charges of this nature may make future financing difficult to obtain on favorable terms or at all.
Anti-takeover
provisions under Delaware corporate law may make it difficult for our stockholders to replace or remove our board of directors and could
deter or delay third parties from acquiring our Company, which may be beneficial to our stockholders.
Under
our Amended and Restated Certificate of Incorporation, we are subject to the anti-takeover provisions of the Delaware General Corporation
Law (“DGCL”), including Section 203 of the DGCL. Under these provisions, if anyone becomes an “interested stockholder,”
we may not enter into a “business combination” with that person for three (3) years without special approval, which could
discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203 of
the DGCL, “interested stockholder” means, generally, someone owning fifteen percent (15%) or more of our outstanding voting
stock or an affiliate of ours that owned fifteen percent (15%) or more of our outstanding voting stock during the past three (3) years,
subject to certain exceptions as described in Section 203 of the DGCL.
We
do not anticipate paying any cash dividends in the foreseeable future.
The
current expectation is that we will retain our future earnings, if any, to fund the development and growth of our business. As a result,
capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain, if any, for the foreseeable future.
In
the event that we fail to satisfy any of the listing requirements of NASDAQ, our common stock may be delisted, which could affect our
market price and liquidity.
Our
common stock is listed on NASDAQ. For continued listing on NASDAQ, we will be required to comply with the continued listing requirements,
including the minimum market capitalization standard, the corporate governance requirements and the minimum closing bid price requirement,
among other requirements. In the event that we fail to satisfy any of the listing requirements of NASDAQ, our common stock may be delisted.
If we are unable to list on NASDAQ, we would likely be more difficult to trade in or obtain accurate quotations as to the market price
of our common stock. If our common stock is delisted from trading on NASDAQ, and we are not able to list our common stock on another
exchange or to have it quoted on NASDAQ, our securities could be quoted on the OTC Bulletin Board or on the “pink sheets.”
As a result, we could face significant adverse consequences including:
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a
limited availability of market quotations for our securities;
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a
determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere
to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
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limited amount of news and analyst coverage for our Company; and
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a
decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3 or obtain
additional financing in the future).
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An
active trading market for our common stock may not develop.
The
listing of our common stock on NASDAQ does not assure that a meaningful, consistent and liquid trading market exists. If an active market
for our common stock does not develop, it may be difficult for investors to sell their shares without depressing the market price for
the shares or at all.
We
may acquire businesses or products, or form strategic alliances, in the future, and may not realize the benefits of such acquisitions.
We
may acquire additional businesses or products, form strategic alliances, or create joint ventures with third parties that we believe
will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able
to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and
company culture. We may encounter numerous difficulties in developing, manufacturing, and marketing any new products resulting from a
strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. There is
no assurance that, following any such acquisition, we will achieve the synergies expected in order to justify the transaction, which
could result in a material adverse effect on our business and prospects.
Item
1B. Unresolved Staff Comments
Not
applicable.
Item
2. Properties
Our
principal corporate office is located at 4851 Tamiami Trail N, Suite 200 Naples, FL 34013. The Company believes our office is
in good condition and is sufficient to conduct our operations. Our principal corporate office is held under a month-to-month
operating lease.
Item
3. Legal Proceedings
From time to time,
we may be a party to litigation that arises in the ordinary course of its business. Other than as described below, we do not have
any pending litigation that, separately or in the aggregate, would, in the opinion of management, have a material adverse effect
on its results of operations, financial condition or cash flows.
On January 21, 2021,
we received a stockholder litigation demand letter from the law firm of Purcell Julie & Lefkowitz LLP, on behalf of James
Self, a purported stockholder of our Company. The letter demands that we (i) deem ineffective the December 30, 2020 amendment
to its Amended and Restated Certificate of Incorporation in which we effected a reverse stock split due to the manner in which
non-votes by brokers were tabulated, (ii) seek appropriate relief for damages allegedly suffered by the company and its stockholders
or seek a valid stockholder approval of the amendment and reverse stock split, and (iii) adopt adequate internal controls to prevent
a recurrence of the alleged misconduct. We dispute that the amendment was ineffective or that there were any inadequate internal
controls related to the same. However, to eliminate any questions about the amendment, we intend to seek to ratify the amendment
at a special stockholders’ meeting pursuant to Section 204 of the Delaware General Corporation Law. This special stockholders’ meeting is scheduled to occur on May 14, 2021.
Item
4. Mine Safety Disclosures
Not
Applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
The
following table sets forth information regarding the members of our board of directors (the “Board”) and our executive officers.
Name
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Age
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Position(s)
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Term
of Office
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Executive
Officers and Directors
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David
Johnson
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64
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Chairman,
Chief Executive Officer and Director
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Since
December 2020
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John
Van Buiten
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34
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Chief
Financial Officer
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Since
December 2020
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Avani
Kanubaddi
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48
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Chief
Operations Officer
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Since
December 2020
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Robert
Wilkins
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66
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Chief
Medical Officer
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Since
December 2020
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Non-Employee
Directors
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George
Kegler
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64
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Director
and Chair of the Audit Committee
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Since
December 2020
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Sol
Mayer
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57
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Director
and Chair of the Nominating and Corporate Governance Committee
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Since
December 2020
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Dr.
Marcus Schabacker
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57
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Director
and Chair of the Compensation Committee
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Since
December 2020
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Dr.
Douglas Lind
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61
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Director
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Since
March 2021
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Executive
Officers and Directors
David
Johnson has served as our Chairman and Chief Executive Officer of Enveric since December 30, 2020. Mr. Johnson also has served on
the board of directors and as the Chief Executive Officer of Aquamed Technologies, Inc. since April 2019. Mr. Johnson formerly served
on the board of directors and as the President and Chief Executive Officer of Alliqua BioMedical, Inc. from November 2012 until April
2019. Mr. Johnson was formerly President of the ConvaTec Division of Bristol-Myers Squibb, Inc. until 2008 when he orchestrated a sale
of the division from its pharmaceutical parent to Avista Capital Partners and Nordic Capital in a deal valued at $4.1 billion. Concurrently,
he acquired and integrated the assets of Copenhagen-based Unomedical to expand ConvaTec Inc.’s manufacturing and infrastructure
into Europe. From 2008 through 2012, Mr. Johnson served as the Chief Executive Officer of ConvaTec Inc. Prior to his tenure with ConvaTec
Inc., Mr. Johnson held several senior positions in the U.S., Europe and Canada with Zimmer Inc., Fisher Scientific, and Baxter Corporation.
He served as a member of ConvaTec Inc.’s board of directors and the board of the Advanced Medical Technology Association (AdvaMed),
where he chaired the Global Wound Sector Team for four years. Mr. Johnson received an Undergraduate Business Degree in Marketing from
the Northern Alberta Institute of Technology in Edmonton, Alberta, Canada, completed the INSEAD Advanced Management Program in Fontainbleau,
France, and is a fellow from the Wharton School of the University of Pennsylvania. Mr. Johnson’s extensive experience in the pharmaceutical
and biotechnology fields, as well as his executive leadership experience, make him an asset that will serve as a bridge between the board
of directors and our executive officers.
John
Van Buiten has served as our Chief Financial Officer of Enveric since December 30, 2020. Mr. Van Buiten had served as Chief Financial
Officer of Jay Pharma since December 17, 2018 and resigned on January 8, 2020. Mr. Van Buiten is an experienced finance executive with
extensive background in public company accounting and financial reporting. He currently serves as a manager at Financial Consulting Strategies,
LLC (“FCS”), preparing annual and quarterly SEC filings for clients in a wide range of industries and sizes. Mr. Van Buiten
has been employed by FCS since April 2010, and in addition to his position at Enveric, he served as the Chief Financial Officer of Tikkun
under contract with FCS. He is a Certified Public Accountant.
Avani
Kanubaddi has served as our Chief Operating Officer since December 30, 2020. Mr. Kanubaddi is an entrepreneur
and business leader who has a passion for health and healing. From September 2019 through December 2020, Mr. Kanubaddi
was the President & Chief Operating Officer of NEXGEL, Inc. (“NEXGEL”), an FDA registered, ISO certified
advanced hydrogel manufacturer serving the OTC, cosmetic and medical device markets around the world. At NEXGEL, Mr. Kanubaddi
led the rebranding, repositioning and overall strategy for the company to accelerate growth and drive innovation. This included
rebranding the company as NEXGEL, branding the company’s unique hydrogels, developing a robust white label catalog, architecting
an innovation engine to fill the pipeline with new concepts and guiding the company’s first-ever branded product launches.
In addition to NEXGEL, since August 2018, Mr. Kanubaddi has also served as the Senior Partner at IQ/EQ Brand
Strategy, where he assists companies in developing “go to market” strategies, branding and naming exercises and new
product innovation for consumer, medical device and prescription companies. Prior to his consulting career, from February 2007
to September 2019, Mr. Kanubaddi was the Founder and Chief Executive Officer of Welmedix Healthcare, where he developed
innovative skin and wound care solutions to improve health and healing with an eye towards whole person wellness. During his
tenure, he led the company to develop three unique brands with patented solutions, gaining distribution in over 20,000 retail
outlets, including Walmart, Walgreens, CVS and others. After building some of the fastest growing brands in their respective categories,
Welmedix sold its leading brands to a private-equity backed healthcare company. Before his entrepreneurial venture, Mr. Kanubaddi
began his 25+ year career in the healthcare industry at two leading companies – Wyeth (now Pfizer) and Bristol Myers
Squibb’s ConvaTec Division. While working with market leading brands like Centrum, Advil and Chapstick; medical devices
and hospital businesses including Aloe Vesta, DuoDerm and Sur-Fit Natura, Mr. Kanubaddi held positions of increasing responsibility
across the functional areas of brand management, sales, new product development and new ventures.
Mr.
Kanubaddi holds an MBA from Columbia Business School and BS in Marketing from Miami University. Mr. Kanubaddi also served on the Board
of Directors for the Consumer Healthcare Products Association (CHPA), the leading industry trade group for consumer healthcare in the
United States.
Dr.
Robert Wilkins has served as our Chief Medical Officer since December 30, 2020. Since November 2017, Dr. Wilkins
has provided consulting services in areas such as market assessment, business plan development and implementation and clinical
and regulatory planning and support to healthcare and life sciences companies ranging from start-ups to Fortune 500 companies
through QPS Consulting, LLC, which he founded in November 2017. Dr. Wilkins formerly served as Vice President of Strategy at Battelle
Memorial Institute from February 2012 to November 2017, in which capacity he was responsible for management of subsidiaries, spin-outs
and venture-class investments. As Vice President of Strategy, Dr. Wilkins oversaw the sale of Bluefin Robotics to General Dynamics
and managed the divestiture of several other Battelle Ventures portfolio companies. During his time at Battelle, Dr. Wilkins also
served as a member of Battelle’s Growth Council, the Battelle Ventures Advisory Board, the Board of Directors of Hepregen
Corporation and the Board of Managers of Armada Power LLC, and he was responsible for creating and leading Battelle’s Corporate
Strategy team. From May 2006 until its merger with MID Inc. in May 2011, Dr. Wilkins served as President and Chief Executive Officer
of Endovalve Inc., where he managed the product development process and significantly expanded the company’s intellectual
property portfolio. Prior to his tenure with Endovalve Inc., Dr. Wilkins served in senior positions with GlucoLight Corporation,
Datascope Corp., Physiometrix Inc., Baxter Healthcare, Abbott Laboratories, Vifor Pharma and TIL Medical Ltd. Dr. Wilkins received
an MBChB from the University of Manchester and received an FRCA in Anesthesiology from the Royal College of Anaesthetists. Dr.
Wilkins’ extensive experience in both product development and business strategy in the pharmaceutical and biotechnology
fields will be invaluable to the Company’s development.
Non-Employee
Directors
George
Kegler has served as a non-employee director of the Company since December 30, 2020. Mr. Kegler was employed
by Mallinckrodt Pharmaceuticals from January 2013 to June 2019, serving as the Executive Vice President and Chief Financial
Officer, Interim from December 2018 to May 2019, where he had responsibility for the global finance function and was a
member of the executive committee, Vice President Finance from November 2016 to November 2018, President Specialty Generics
(Interim) and Vice President Finance from July 2016 to October 2016, and Vice President, Finance from January 2013 to June
2016. He has served in various consulting roles since June 2019, which ended in March 2020. Mr. Kegler has 40 years of
experience in financial planning and analysis, corporate finance, controllership and business development. Previously Mr. Kegler
served as the vice president of commercial finance for various businesses within Mallinckrodt and was also interim president of
the company’s specialty generics business. Prior to joining Mallinckrodt, he was the chief financial officer for Convatec
a private equity-owned company that was purchased from Bristol-Myers Squibb. He worked in various finance roles within Bristol-Myers
Squibb including commercial, International, technical operations, research & development as well as the assistant controller
of internal controls. Mr. Kegler holds a bachelor’s degree in accounting from the University of Missouri, an MBA from Saint
Louis University and completed the Certified Public Accountant exam in Missouri.
Sol
Mayer has served as a non-employee director of the Company since December 30, 2020. Mr. Mayer has served as a
member of the board of directors of DropCar, Inc (NASDAQ: DCAR) from 2018 through May of 2020. He has served as President and
Chief Executive Officer of Mooney Aviation Company, a private company that manufactures four-place, single-engine and piston-powered
aircraft, since 1999. He was a member of the board of directors of Microbot Medical, Inc (NASDAQ: MBOT) from 2014-2017. Prior
to that time, he held the position of Chief Executive Officer of, Overseas Trading, a department store wholesaler. Mr. Mayer currently
serves as a director of Laniado Hospital, a voluntary, not-for-profit hospital in Netanya, Israel, as well as a director of several
private companies. He previously served as a consultant to and director of each of Innovative Food Holdings, a provider of sourcing,
preparation and delivery of specialty/fresh food for both professional chefs and consumers, and BlastGard International Inc.,
which manufactures and markets proprietary blast mitigation materials, in each case, from 2002 until 2016.
Dr.
Marcus Schabacker has served as a non-employee director of the Company since December 30, 2020. Since January 2018,
Dr. Schabacker has served as president and chief executive officer of the ECRI Institute, a nonprofit organization
with 500 employees and an operating budget of $70 million focusing on advancing evidenced-based, effective healthcare globally.
Prior to joining ECRI, Dr. Schabacker worked at Baxter Healthcare Corporation, serving as corporate vice president and chief scientific
officer from July 2015 to May 2017, chairman of the executive quality council from March 2014 to May 2017, Chief
Scientific Officer, Medical Products from July 2014 to July 2015, and Vice President, R&D, Medical Products from March
2011 to July 2014. During his clinical years, and his time as an industry thought leader, Dr. Schabacker was focused on
patient safety and enhancing patient care. For over a decade Dr. Schabacker has served on numerous boards of small and midsize
companies and organizations, providing management with guidance and expertise to strategically accelerate growth and to build
successful and sustainable high performing management teams.
Dr.
Schabacker is a board-certified anesthesiologist and intensive care specialist with more than 35 years of healthcare experience in complex
global environments, and more than 20 years of senior leadership responsibilities serving the medical device and pharmaceutical industries
across the healthcare value chain.
After
his medical and academic training at the Medical University of Lubeck, Germany, Dr. Schabacker served as senior medical officer and head
of the intensive care and anesthesia department at the Mafikeng General Hospital, North-West Province, South Africa. His work there was
part of a humanitarian aid program to support the African National Congress government under Nelson Mandela in the restructuring and
buildup of a rural healthcare system in post-apartheid South Africa. Upon his return from Africa, Dr. Schabacker joined the medical device
industry and held roles of increasing responsibility in medical affairs, preclinical and clinical development, regulatory affairs, quality,
research and development, and patient safety. His experience includes designing, transforming, and leading organizations of up to 4,000
employees across five continents to provide safe and effective products to patients and healthcare providers worldwide.
Dr.
Schabacker achieved his board certification in anesthesia and intensive care, as well as a doctorate in medicine, from the Medical University,
Lubeck, Germany. He also received certifications in emergency medicine and disaster medicine. He is an affiliate assistant professor
at The Stritch School of Medicine at Loyola University Chicago.
Dr. Douglas Lind
has served as a non-employee director of the Company since March 17, 2021. Dr. Lind is a co-founder and Managing Partner at
Biomark Capital, a Greenwich, CT-based healthcare venture firm. There, his investment focus has included cellular therapy, medical
imaging, peripheral vascular disease, and oncology. Dr. Lind has more than 30 years of experience in a variety of life science
related professions, ranging from former practicing physician to senior Wall Street equity research analyst at Morgan Stanley.
Dr. Lind is a graduate of the University of Iowa College of Medicine. He was a practicing physician in Brookline, Massachusetts.
He served as an attending physician at St. Elizabeth’s Hospital in Boston, a major teaching affiliate of Tufts University
School of Medicine, where he completed his residency training in Internal Medicine.
Family
Relationships
There
are no family relationships among our directors and executive officers.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of a registered class of our equity
securities to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity
securities. Officers, directors and greater-than-10% stockholders are required by SEC regulations to furnish us with copies of all Section
16(a) forms they file.
To
our knowledge, based solely on a review of copies of such reports furnished to us and written representations that no other reports
were required, each of our directors, officers and ten percent stockholders complied with all Section 16(a) filing requirements
applicable to them during the year ended December 31 2020.
Corporate
Governance
Enveric,
with the oversight of the board of directors and its committees, operates within a comprehensive plan of corporate governance for the
purpose of defining independence, assigning responsibilities, setting high standards of professional and personal conduct and assuring
compliance with such responsibilities and standards. We regularly monitor developments in the area of corporate governance.
Code
of Corporate Conduct and Ethics and Whistleblower Policy
We
have adopted a Code of Corporate Conduct and Ethics and Whistleblower Policy that applies to our directors, officers, employees and certain
persons performing services for us. The Code of Corporate Conduct and Ethics and Whistleblower Policy addresses, among other things,
competition and fair dealing, conflicts of interest, protection and proper use of Company assets, government relations, compliance with
laws, rules and regulations and the process for reporting violations of the Code of Corporate Conduct and Ethics and Whistleblower Policy,
employee misconduct, improper conflicts of interest or other violations. Our Code of Corporate Conduct and Ethics and Whistleblower Policy
is available on our website at www.enveric.com in the “Corporate Governance” section found under the “Investors”
tab. We intend to disclose any amendments to, or waivers from, our Code of Corporate Conduct and Ethics and Whistleblower Policy at the
same website address provided above.
Board
Composition
Our
Amended and Restated Certificate of Incorporation and Bylaws provide that our board will consist of such number of directors as determined
from time to time by resolution adopted by our Board. The size of our board is currently fixed at five (5) directors. Subject to any
rights applicable to any then-outstanding shares of preferred stock, any vacancies or newly created directorships resulting from an increase
in the authorized number of directors may be filled by a majority of the directors then in office. Stockholders vote to elect directors
with a term then expiring each year at our annual meeting.
We
have no formal policy regarding board diversity. Our board believes that each director should have a basic understanding of the principal
operational and financial objectives and plans and strategies of the Company, our results of operations and financial condition and relative
standing in relation to our competitors. We take into consideration the overall composition and diversity of the board and areas of expertise
that director nominees may be able to offer, including business experience, knowledge, abilities and customer relationships. Generally,
we will strive to assemble a board that brings to us a variety of perspectives and skills derived from business and professional experience
as we may deem are in our and our stockholders’ best interests. In doing so, we will also consider candidates with appropriate
non-business backgrounds.
Director
Independence
We
are currently listed on the NASDAQ Stock Market and therefore rely on the definition of independence set forth in the NASDAQ
Listing Rules (“NASDAQ Rules”). Under the NASDAQ Rules, a director will only qualify as an “independent director”
if, in the opinion of our board, that person does not have a relationship that would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. Based upon information requested from and provided by each director
concerning his background, employment, and affiliations, including family relationships, we have determined that Mr. Kegler, Mr.
Mayer, Dr. Schabacker and Dr. Lind have no material relationships with us that would interfere with the exercise of independent
judgment and are “independent directors” as that term is defined in the NASDAQ Listing Rules.
Board
Committees, Meetings and Attendance
From
the date of the completion of the Offer until December 31, 2020, the Board held zero meetings (but acted by written consent on one occasion).
We expect our directors to attend board meetings, meetings of any committees and subcommittees on which they serve and each annual meeting
of stockholders.
The
board delegates various responsibilities and authority to different board committees. Committees regularly report on their activities
and actions to the full board. Currently, the board has established an Audit Committee, a Compensation Committee and a Nominating
and Corporate Governance Committee. Committee assignments are re-evaluated annually. Each of these standing committees
operates under a charter that has been approved by our Board. The current charter of each of these committees is available on
our website at www.enveric.com in the “Corporate Governance” section under “Investors.”
The
following table sets forth the membership of each of the Board committees listed above.
Name
|
|
Audit
Committee
|
|
Compensation
Committee
|
|
Nominating
and Corporate Governance Committee
|
David
Johnson
|
|
|
|
|
|
|
George
Kegler
|
|
Chairman
|
|
X
|
|
X
|
Sol
Mayer
|
|
|
|
X
|
|
Chairman
|
Dr.
Marcus Schabacker
|
|
X
|
|
Chairman
|
|
X
|
Dr.
Douglas Lind
|
|
X
|
|
|
|
|
Audit
Committee
Our
Audit Committee is responsible for, among other matters:
|
●
|
approving
and retaining the independent auditors to conduct the annual audit of our financial statements;
|
|
|
|
|
●
|
reviewing
the proposed scope and results of the audit;
|
|
|
|
|
●
|
reviewing
and pre-approving audit and non-audit fees and services;
|
|
|
|
|
●
|
reviewing
accounting and financial controls with the independent auditors and our financial and accounting staff;
|
|
|
|
|
●
|
reviewing
and approving transactions between us and our directors, officers and affiliates;
|
|
|
|
|
●
|
recognizing
and preventing prohibited non-audit services;
|
|
|
|
|
●
|
establishing
procedures for complaints received by us regarding accounting matters;
|
|
|
|
|
●
|
overseeing
internal audit functions, if any; and
|
|
|
|
|
●
|
preparing
the report of the audit committee that the rules of the SEC require to be included in our annual meeting proxy statement.
|
As
of March 30, 2021, the members of our Audit Committee were George Kegler (chairman), Dr. Douglas Lind, and Dr. Marcus Schabacker. Our
Board has determined that Mr. Kegler, Dr. Lind and Dr. Schabacker are independent in accordance with NASDAQ Rules and Rule 10A-3 under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our Board has also reviewed the education, experience
and other qualifications of each member of the Audit Committee. Based upon that review, our Board has determined that Mr. Kegler qualifies
as an “audit committee financial expert,” as defined by the rules of the SEC. The Audit Committee did not meet from the date
of the completion of the Offer until December 31, 2020.
Compensation
Committee
Our
Compensation Committee is responsible for, among other matters:
|
●
|
reviewing
and recommending the compensation arrangements for management, including the compensation for our president and chief executive
officer;
|
|
|
|
|
●
|
establishing
and reviewing general compensation policies with the objective to attract and retain superior talent, to reward individual
performance and to achieve our financial goals;
|
|
|
|
|
●
|
administering
our stock incentive plans; and
|
|
|
|
|
●
|
preparing
the report of the compensation committee that the rules of the SEC require to be included in our annual meeting proxy statement.
|
As
of March 30, 2021, the members of our Compensation Committee were Dr. Marcus Schabacker (chairman), Sol Mayer and George
Kegler. Our Board has determined that Dr. Schabacker, Mr. Mayer and Mr. Kegler are independent in accordance with NASDAQ Rules.
The Compensation Committee has the authority to delegate to subcommittees of the Compensation Committee any of the responsibilities
of the full committee. The Compensation Committee did not meet from the date of the completion of the Offer until December 31,
2020.
Nominating
and Corporate Governance Committee
Our
Nominating and Corporate Governance Committee is responsible for, among other matters:
|
●
|
evaluating
the current composition, organization and governance of the board and its committees, and making recommendations for changes
thereto;
|
|
|
|
|
●
|
reviewing
each director and nominee annually;
|
|
|
|
|
●
|
determining
desired board member skills and attributes and conducting searches for prospective members accordingly;
|
|
|
|
|
●
|
evaluating
nominees, and making recommendations to the Board concerning the appointment of directors to board committees, the selection
of board committee chairs, proposal of the slate of directors for election to the board, and the termination of membership
of individual directors in accordance with the board’s governance principles;
|
|
|
|
|
●
|
overseeing
the process of succession planning for the chief executive officer and, as warranted, other senior officers of the Company;
|
|
|
|
|
●
|
developing,
adopting and overseeing the implementation of a code of business conduct and ethics; and
|
|
|
|
|
●
|
administering
the annual board performance evaluation process.
|
As
of March 30, 2021, the members of our Compensation Committee were Sol Mayer (chairman), Dr. Marcus Schabacker and George
Kegler. The Nominating and Corporate Governance Committee did not meet from the date of the completion of the Offer until December
31, 2020.
ITEM
11. EXECUTIVE COMPENSATION
Summary
Compensation Table
The
following table sets forth total compensation paid to the named executive officers for the years ended December 31, 2020 and 2019.
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
All Other Compensation
($)
|
|
|
Total
($)
|
|
David Johnson(1)
|
|
2020
|
|
|
—
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
100,000
|
|
Chairman and Chief Executive Officer
|
|
2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Van Buiten(2)
|
|
2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Chief Financial Officer
|
|
2019
|
|
|
—
|
|
|
|
—
|
|
|
|
102,000
|
|
|
|
102,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avani Kanubaddi(3)
|
|
2020
|
|
|
—
|
|
|
|
60,000
|
|
|
|
—
|
|
|
|
60,000
|
|
Chief Operating Officer
|
|
2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brent Kelton(4)
|
|
2020
|
|
|
250,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
250,000
|
|
Former Chief Executive Officer
|
|
2019
|
|
|
250,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barry Kostiner(5)
|
|
2020
|
|
|
200,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200,000
|
|
Former Chief Financial Officer
|
|
2019
|
|
|
200,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Srinidhi (Dev) Devanur
|
|
2020
|
|
|
250,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
250,000
|
|
Former Executive Chairman
|
|
2019
|
|
|
250,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
250,000
|
|
|
(1)
|
Mr.
Johnson was appointed as Chairman and Chief Executive Officer on December 30, 2020.
|
|
(2)
|
Mr.
Van Buiten was appointed as Chief Financial Officer of Jay Pharma on December 17, 2018 and resigned on January 8, 2020. Mr.
Van Buiten was appointed as Chief Financial Officer of the Company on December 30, 2020. Mr. Van Buiten’s compensation
is earned through his employment at Financial Consulting Strategies LLC.
|
|
(3)
|
Mr.
Kanubaddi was appointed as Chief Operating Officer on December 30, 2020.
|
|
(4)
|
Resigned
from such position on December 30, 2020.
|
|
(5)
|
Resigned
from such position and began to serve as a consultant on December 30, 2020.
|
Narrative
Disclosure to Summary Compensation Table
Prior
to the completion of the Offer, and in connection with the execution of that certain Amalgamation Agreement, dated January 10,
2020, by and among the Company (f/k/a Ameri), Jay Pharma, Jay Pharma Merger Sub, Inc., 1236567 B.C. Unlimited Liability Company
and Barry Kostiner, as the Ameri representative, which predates the Tender Agreement, Jay Pharma entered into an employment agreement
with Mr. Johnson, whereby Mr. Johnson would serve as the Chief Executive Officer and Chairman of the Company upon the completion
of the Offer (the “Johnson Employment Agreement”). In addition, prior to the completion of the Offer, and to be contingent
and effective upon the completion of the Offer, the Company entered into executive employment agreements with Mr. Kanubaddi (the
“Kanubaddi Employment Agreement”, and together with the Johnson Employment Agreement, the “Executive Employment
Agreements”). In addition, pursuant to the Tender Agreement, on December 29, 2020, the Company entered into a consulting
agreement with Barry Kostiner (the “Kostiner Consulting Agreement”), to be effective upon the completion of the Offer.
Johnson
Employment Agreement
Pursuant
to the Johnson Employment Agreement, dated January 10, 2020, Mr. Johnson serves in the position of Chief Executive Officer and
Chairman of the Company following the completion of the Offer. Mr. Johnson is entitled to a base salary of $250,000 and an annual
bonus in the amount of $100,000 (provided, however, that if Mr. Johnson’s position is changed such that he no longer serves
as Chief Executive Officer and only serves as Chairman of the Company, he will only be entitled to a base salary of $100,000 beginning
with the first day of the month following such change). Mr. Johnson is also eligible to receive annual performance bonuses based
on satisfaction of performance criteria/financial results, as determined by the board of directors of the Company in its sole
discretion. Within 30 days after the completion of the Offer, Mr. Johnson will be granted an award of restricted stock units that
represent, in the aggregate, 5% of the Company’s issued and outstanding common stock determined on a fully diluted basis
as of the date of grant. Mr. Johnson will also be eligible to receive additional equity awards, as determined by the Company in
its sole discretion.
Under
the terms of the Johnson Employment Agreement, Mr. Johnson’s employment may be terminated by either the Company or Mr. Johnson
at any time and for any reason with 30 days’ advance written notice. Upon termination of Mr. Johnson’s employment,
Mr. Johnson will receive (i) his fully earned but unpaid base salary through the date of termination, (ii) any accrued and unpaid
time off or similar pay to which Mr. Johnson is entitled as a matter of law or Company policy, (iii) any amounts due to Mr. Johnson
under the terms of the benefit plans, and (iv) any unreimbursed expenses properly incurred prior to the date of termination (the
“Johnson Accrued Obligations”).
If
the Company terminates Mr. Johnson’s employment for cause (as defined below) or Mr. Johnson resigns without good reason
(as defined below), the Company, at its sole discretion, may shorten the notice period and determine the date of termination without
any obligation to pay any additional compensation other than the Johnson Accrued Obligations and without triggering a termination
of Mr. Johnson’s employment without cause. If the Company terminates Mr. Johnson’s employment without cause or Mr.
Johnson resigns for good reason at any time, Mr. Johnson is entitled to the following severance payments and benefits: (i) his
full annual base salary less applicable deductions and withholdings; plus (ii) any earned but unpaid annual bonus and performance
bonus, if any, for the year of the termination.
The
Johnson Employment Agreement also contains certain standard non-solicitation, non-disparagement and confidentiality requirements
for Mr. Johnson.
Kanubaddi
Employment Agreement
Pursuant
to the Kanubaddi Employment Agreement, dated December 2, 2020, Mr. Kanubaddi serves in the position of Chief Operating Officer
of the Company following the completion of the Offer. Mr. Kanubaddi is entitled to a base salary of $295,000 and a closing bonus
in the amount of $60,000. Mr. Kanubaddi is also eligible to receive annual performance bonuses of up to 50% of his base salary
based on satisfaction of performance criteria/financial results, as determined by the board of directors of the Company in its
sole discretion. Within 30 days after the completion of the Offer, Mr. Kanubaddi will be granted an award of restricted stock
units that represent, in the aggregate, 3% of the Company’s issued and outstanding common stock determined on a fully diluted
basis as of the date of grant. Mr. Kanubaddi will also be eligible to receive additional equity awards, as determined by the Company
in its sole discretion.
Under
the terms of the Kanubaddi Employment Agreement, Mr. Kanubaddi’s employment may be terminated by either the Company or Mr.
Kanubaddi at any time and for any reason with 30 days’ advance written notice. Upon termination of Mr. Kanubaddi’s
employment, Mr. Kanubaddi will receive (i) his fully earned but unpaid base salary through the date of termination, (ii) any accrued
and unpaid time off or similar pay to which Mr. Kanubaddi is entitled as a matter of law or Company policy, (iii) any amounts
due to Mr. Kanubaddi under the terms of the benefit plans, and (iv) any unreimbursed expenses properly incurred prior to the date
of termination (the “Kanubaddi Accrued Obligations”).
If
the Company terminates Mr. Kanubaddi’s employment for cause (as defined below) or Mr. Kanubaddi resigns without good reason
(as defined below), the Company, at its sole discretion, may shorten the notice period and determine the date of termination without
any obligation to pay any additional compensation other than the Kanubaddi Accrued Obligations and without triggering a termination
of Mr. Kanubaddi’s employment without cause. If the Company terminates Mr. Kanubaddi’s employment without cause or
Mr. Kanubaddi resigns for good reason at any time, Mr. Kanubaddi is entitled to the following severance payments and benefits:
(i) his full annual base salary less applicable deductions and withholdings; plus (ii) any earned but unpaid performance bonus,
if any, for the year of the termination.
The
Kanubaddi Employment Agreement also contains certain standard non-solicitation, non-disparagement and confidentiality requirements
for Mr. Kanubaddi.
For
purposes of the Executive Employment Agreements:
“Cause”
shall mean a termination of employment because of (i) the executive’s failure or refusal to perform the duties of the executive’s
position in a manner causing material detriment to the Company; (ii) the executive’s willful misconduct with regard to the
Company or its business, assets or executives (including, without limitation, his fraud, embezzlement, intentional misrepresentation,
misappropriation, conversion or other act of dishonesty with regard to the Company; (iii) the executive’s commission of
an act or acts constituting a felony or any crime involving fraud or dishonesty as determined in good faith by the Company; (iv)
the executive’s breach of a fiduciary duty owed to the Company; (v) any material breach of the employment agreement or any
other agreement with the Company; or (vi) any injury, illness or incapacity which shall wholly or continuously disable the executive
from performing the essential functions of the executive’s position for any successive or intermittent period of at least
12 months.
“Good
reason” shall mean a termination of employment because of: (i) a materially adverse diminution in the execution’s
role or responsibilities without the executive’s consent, provided that the parties to the employment agreement agree that
it shall not be considered a diminution in the executive’s role or responsibilities if he ceases serving as Chief Executive
Officer provided he remains Chairman; or (ii) any material breach of the employment agreement by the Company or any other agreement
with the executive.
The
foregoing descriptions of the Executive Employment Agreements does not purport to be complete and is qualified entirely by reference
to the full text of the Executive Employment Agreements, with the Johnson Employment Agreement, the Kanubaddi Employment Agreement
and the Kostiner Consulting Agreement attached hereto as Exhibits 10.17, 10.18 and 10.20, respectively, which in
each case is incorporated by reference herein.
Terms
of John Van Buiten’s Employment.
Pursuant
to the Consulting and Advisory Agreement, dated as of December 19, 2018, as amended by and between Enveric and Financial Consulting
Strategies LLC (“FCS”), Mr. Van Buiten served as Chief Financial Officer of Jay Pharma Inc. Pursuant to the consulting
agreement, FCS provided certain financial services for a fee of $8,500 per month for each month Mr. Van Buiten served as Chief
Financial Officer. As such, Mr. Van Buiten’s compensation was earned through his employment at FCS. Mr. Buiten resigned
as Chief Financial Officer on January 8, 2020 and was re-appointed on December 30, 2020.
The
consulting agreement may be terminated with 30 days’ written notice by Enveric or FCS. The agreement with FCS also contains
certain confidentiality requirements for FCS and Mr. Van Buiten.
Independent
Contractor Agreement with David Johnson
Jay
Pharma entered into an independent contractor agreement with Mr. Johnson on January 2, 2020. Pursuant to the agreement, Mr. Johnson
provided certain consulting services in connection with the Offer beginning on January 1, 2020 through the completion of the Offer.
Mr. Johnson was entitled to (i) $15,000 per month, and (ii) $100,000 on the closing date. The agreement was terminable by Jay
Pharma and Mr. Johnson for any reason upon 30 days’ written notice.
Kostiner
Consulting Agreement
Pursuant
to the Kostiner Consulting Agreement, dated December 29, 2020, Mr. Kostiner will serve as a consultant to the Company following
the completion of the Offer for a period of 12 months following the closing of the Offer. Mr. Kostiner will be entitled to a total
compensation of $120,000 (the “Fee”) under the Kostiner Consulting Agreement, payable in monthly installments of $10,000.
Under
the terms of the Kostiner Consulting Agreement, Mr. Kostiner’s consulting services may be terminated by either the Company
or Mr. Kostiner at any time and for any reason. In the event that either Mr. Kostiner or the Company terminates the Kostiner Consulting
Agreement prior to the end of the term thereof, the Company will continue to make monthly payments of $10,000 to Mr. Kostiner
until the full amount of the Fee has been paid.
The
Kostiner Consulting Agreement also contains certain standard non-solicitation, non-disparagement and confidentiality requirements
for Mr. Kostiner.
Devanur
Employment Agreement
On
December 11, 2018, in connection with the appointment of Mr.
Devanur as Executive Chairman, the Company and Mr. Devanur entered into an amended and restated employment agreement (the “Devanur
Employment Agreement”), pursuant to which the Company agreed to pay Mr. Devanur a base salary of $250,000 per year. The
term of the Devanur Employment Agreement was initially for three years. Additionally, Mr. Devanur was eligible to earn a bonus
of up to 100% of his base salary upon the achievement of pre-established performance targets set by the board of directors.
Kostiner
Employment Letter
On
October 17, 2018, pursuant to an employment letter (the “Kostiner Employment Letter”), Mr. Kostiner received an annual
base salary of $200,000 and be eligible for bonus payments of up to an aggregate of $50,000 as determined by our board of directors,
based on meeting and exceeding mutually agreed upon annual performance goals. Additionally, Mr. Kostiner received an option to
purchase 6,000 shares of common stock with an exercise price based on the closing price of our common stock on the grant date
and expiring on the fifth anniversary of the grant date. The option vests in thirds on each of the first through third anniversaries
of October 17, 2018, the grant date.
The
Kostiner Employment Letter had a term lasting through December 31, 2019, subject to automatic one-year renewals thereafter, unless
the Company or Mr. Kostiner delivered written notice of non-renewal to the other party at least 60 days prior to the relevant
renewal date. In addition, the Kostiner Employment Letter was subject to early termination by him or the Company in accordance
with the terms of the Kostiner Employment Letter. The Kostiner Employment Letter also contained covenants restricting Mr. Kostiner
from soliciting the Company’s employees or customers for a period of two years after the termination of Mr. Kostiner’s
employment with the Company, and prohibiting him from disclosure of confidential information regarding the Company at any time.
Outstanding
Equity Awards at Fiscal Year-End
As
of December 31, 2020, there were no outstanding equity awards that have been previously awarded to each of our named executive
officers and which remained outstanding.
Potential
Payments Upon Termination of Employment or Change in Control
None
of our named executive officers has a contract in place for termination or change in control payments.
Director
Compensation
The
following table presents the total compensation for each person who served as a member of our board of directors during the fiscal
year ended December 31, 2020. Other than set forth in the table and described more follow below, we did not pay any compensation,
reimburse any expense of, make any equity awards or non-equity awards to, or pay any other compensation to any of the other members
of our board of directors in 2020.
Name
|
|
Fees earned
or paid in
cash
($)
|
|
Equity
awards
($)
|
|
Total
($)
|
Srinidhi “Dev” Devanur
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Dimitrios J. Angelis
|
|
|
120,000
|
|
|
|
—
|
|
|
|
120,000
|
|
Carmo Martella
|
|
|
120,000
|
|
|
|
—
|
|
|
|
120,000
|
|
Thoranath Sukumaran
|
|
|
120,000
|
|
|
|
—
|
|
|
|
120,000
|
|
George Kegler
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Sol Mayer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Marcus Schabacker
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Douglas Lind
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Incentive
Plans
Enveric
Biosciences, Inc. 2020 Long-Term Incentive Plan
Pursuant
to the Tender Agreement, effective as of the effective time of the Offer, the Company adopted the Enveric Biosciences, Inc. 2020
Long-Term Incentive Plan (the “2020 Plan”). The 2020 Plan provides for the granting of incentive stock options, nonqualified
stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights
and other awards which may be granted singly, in combination or in tandem, and which may be paid in shares of Common Stock.
The
foregoing description of the 2020 Plan does not purport to be complete and is qualified entirely by reference to the full text
of the 2020 Plan, which is attached hereto as Exhibit 10.21 and is incorporated by reference herein.
In
connection with the 2020 Plan, the Board adopted a form of Restricted Stock Unit Award Agreement, which is attached hereto as
Exhibit 10.22 and is incorporated by reference herein. Restricted stock units granted to participants pursuant to the Restricted
Stock Unit Award Agreement may be converted into the number of shares of Common Stock equal to the number of restricted stock
units, with each restricted stock unit to represent a notional share of Common Stock, with a value equal to the fair market value
of a share of common stock at any time.
Ameri
2015 Equity Incentive Award Plan
On
April 20, 2015, the Ameri board of directors and the holder of a majority of the outstanding shares of Ameri’s common stock
approved the adoption of the 2015 Equity Incentive Award Plan (the “Ameri Equity Plan”) and a grant of discretionary
authority to the executive officers to implement and administer the Ameri Equity Plan. The Ameri Equity Plan allowed for the issuance
of up to 2,000,000 shares of Ameri common stock for award grants (all of which can be incentive stock options). The Ameri Equity
Plan provides equity-based compensation through the grant of cash-based awards, nonqualified stock options, incentive stock options,
stock appreciation rights (“SARs”), restricted stock, restricted stock units, performance shares, performance units
and other stock-based awards. The Ameri 2015 Equity Incentive Plan was terminated in accordance with the completion of the Offer.
Equity
Compensation Plan Information
The
following table provides information regarding the weighted-average exercise price of options issued by Enveric as of December
31, 2020. Such issuances were approved by Enveric’s board of directors outside of an equity compensation plan.
Plan category
|
|
Number of securities to be issued upon exercise
of outstanding options, warrants and rights
|
|
|
Weighted-average exercise price of outstanding options, warrants and rights
|
|
|
Number of securities remaining
for issuance under equity compensation plans (excluding securities reflected in the first column)
|
|
Equity compensation plans approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Equity compensation plans not approved by security holders
|
|
|
929,765
|
|
|
$
|
1.53
|
|
|
|
—
|
|
Total
|
|
|
929,765
|
|
|
$
|
1.53
|
|
|
|
—
|
|
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The
following table sets forth the names and number of common shares beneficially owned as of March 29, 2021 (including shares
of common stock issuable within sixty (60) days of that date upon exercise or conversion of securities that entitle the holders
thereof to obtain common stock upon exercise or conversion in accordance with the terms thereof) by (i) those persons who are
known to us to be the beneficial owner(s) of more than five percent (5%) of our common stock, (ii) each of our directors and named
executive officers and (iii) all of our directors and executive officers as a group. Except as otherwise indicated, the beneficial
owners listed in the table below possess the sole voting and dispositive power in regard to such shares and have an address of
c/o Enveric Biosciences, Inc., 4851 Tamiami Trail N, Suite 200, Naples, FL 34103. As of March 29, 2021, there were 19,450,507
shares of common stock of the Company outstanding.
Name
|
|
Number of Shares of Common Stock Beneficially Owned
|
|
|
Percentage of Shares Outstanding
|
|
Directors and Officers
|
|
|
|
|
|
|
|
|
David Johnson
|
|
|
-
|
|
|
|
*
|
%
|
Avani Kanubaddi
|
|
|
-
|
|
|
|
*
|
%
|
John Van Buiten
|
|
|
-
|
|
|
|
*
|
%
|
George Kegler
|
|
|
-
|
|
|
|
*
|
%
|
Marcus Schabaker
|
|
|
-
|
|
|
|
*
|
%
|
Sol Mayer
|
|
|
-
|
|
|
|
*
|
%
|
Douglas Lind
|
|
|
-
|
|
|
|
*
|
%
|
All directors and officers as a group of seven (7) persons
|
|
|
-
|
|
|
|
*
|
%
|
Five Percent (5%) Stockholders
|
|
|
|
|
|
|
|
|
Alpha Capital Anstalt
|
|
|
2,159,220
|
(1)
|
|
|
9.99
|
%
|
David Stefansky
|
|
|
1,288,816
|
(2)
|
|
|
6.56
|
%
|
TO Pharmaceuticals
|
|
|
2,299,001
|
(3)
|
|
|
11.82
|
%
|
* Represents less than 1%
|
(1)
|
The address of
Alpha Capital Anstalt is Lettstrasse 32, FL-9490 Vaduz, Furstentums, Liechtenstein. Alpha Capital Anstalt is the beneficial
owner of 2,159,220 shares of Common Stock including (i) 513 shares of Common Stock and (ii) 2,158,707 shares of Common Stock
underlying warrants that are currently exercisable. Nicola Feuerstein, Director of Alpha Capital Anstalt, exercises voting power and dispositive power
over such shares of Common Stock. As of March 29, 2021, Alpha Capital Anstalt owns additional warrants that would be exercisable
up to 1,500,440 additional shares of Common Stock, except for a limitation set forth in the warrant agreements that restricts
Alpha Capital Anstalt’s ability to exercise the warrants if such exercise would result in Alpha Capital Anstalt (including
its affiliates) owning more than 9.99% of the Company’s currently outstanding number of shares of Common Stock. Thus,
the number of shares of the Company’s Common Stock beneficially owned by Alpha Capital Anstalt as of March 29, 2021
was 2,159,220, which represents 9.99% beneficial ownership of the 19,449,975 shares of the Common Stock of the Company that
were outstanding as of March 29, 2021.
|
|
|
|
|
(2)
|
The address of
David Stefansky and Bezalel Partners, LLC is 265 E. 66th St., Apt. 6C, New York, NY 10065. Includes (i) 931,855 shares of
Common Stock held through Bezalel Partners, LLC (“Bezalel”), (ii) 150,836 shares of Common Stock held by Mr. Stefansky,
and (iii) options held by Mr. Stefansky to purchase up to 206,125 shares of Common Stock that are currently exercisable. Mr.
Stefansky is the natural person with voting and dispositive power over shares of Bezalel and is deemed to have beneficial
ownership of the shares held by Bezalel.
|
|
|
|
|
(3)
|
Based on a Schedule
13G filed February 10, 2021 by TO Pharmaceuticals LLC and TOP Invest LLC. The address of TO Pharmaceuticals and TOP Invest
LLC is TO Pharmaceuticals, 77 Water St., 8th Floor, New York, New York 10005. According to the Schedule 13G, TO Pharmaceuticals
LLC and TOP Invest LLC each have sole voting power and sole dispositive power with respect to 2,299,001 shares of Common Stock.
|
Item
13. Certain Relationships and Related Transactions and Director Independence
Described
below are transactions occurring since January 1, 2020 and any currently proposed transactions to which Jay Pharma was a party
and in which:
|
●
|
the
amounts involved exceeded or will exceed the lesser of (i) $120,000, or (ii) 1% of the average of Jay Pharma’s total
assets at December 31, 2019 and December 30, 2020; and
|
|
●
|
a
director, executive officer, holder of more than 5% of Jay Pharma’s outstanding capital stock, or any member of such
person’s immediate family had or will have a direct or indirect material interest, excluding compensation arrangements
described above.
|
Employment
and Consulting Agreements
Independent
Contractor Agreement with Barry Kostiner
Jay
Pharma and Barry Kostiner entered into an independent contractor agreement on January 10, 2020 (the “January Agreement”).
Pursuant to the January Agreement, Mr. Kostiner agreed to provide consulting services to Jay Pharma effective December 1, 2019.
The January Agreement was terminated effective April 30, 2020. Mr. Kostiner earned $10,000 per month over the term of the January
Agreement.
Agreements
with Tikkun
Assignment
and Assumption Agreements
On
January 10, 2020, Jay Pharma entered into two assignment and assumption agreements, pursuant to which, upon the satisfaction of
all closing conditions to the Offer, affiliates of Tikkun would assign to Jay Pharma all of such affiliates’ in-licensed
and developed rights based on certain Amended and Restated Sublicense Agreements, effective January 12, 2018, pursuant to which
Jay Pharma entered into two in-licensing U.S. and rest of world rights to the limited pharmaceutical business (including cancer)
from TOP and TOCI, respectively, each as amended by a First Amendment entered January 10, 2020, with:
(i) TOP and Tikkun regarding all of Tikkun’s (i) in-licensed rights and obligations to commercialize pharmaceutical
products related to GVHD under the relevant Sublicense in the U.S. and (ii) certain skincare business and all of
Tikkun’s rights related thereto as of the January 10, 2020 effective date. Jay Pharma agreed to issue 8,288,006 common
shares of Jay Pharma to Tikkun in exchange for these rights; and
(ii)
TOCI and Tikkun regarding all of Tikkun’s in-licensed rights and obligations to commercialize pharmaceutical products related
to GVHD under the relevant sublicense anywhere in the world outside the U.S. Jay Pharma agreed to issue 2,072,001 common shares
of Jay Pharma to Tikkun in exchange for these rights.
On
August 12, 2020, Jay Pharma and the applicable Tikkun affiliates entered into the First Amendment to the Tikkun Agreements, pursuant
to which all references to the Original Amalgamation Agreement and the amalgamation were revised to be references to the Tender
Agreement and the Offer, as applicable.
On
October 2, 2020, Jay Pharma and the applicable Tikkun affiliates entered into the Second Amendment to the Tikkun Agreements, pursuant
to which the effective date of the transactions was revised to occur as of October 2, 2020.
License
Agreement
Jay
Pharma, TO LLC and TOH entered into a license agreement dated on January 10, 2020, pursuant to which Jay Pharma would acquire
certain in-licensed and owned intellectual property rights related to the cannabis products in the United States (presently excluding
the state of New York) from TO LLC and TOH, each of which is an affiliate of TO Holdings, in exchange for royalty payments of
(i) four percent (4.0%) of net sales of OTC cancer products made via consumer channels; (ii) five percent (5.0%) of net sales
of beauty products made via consumer channels; and (iii) three percent (3.0%) of net sales of OTC cancer products made via professional
channels, along with a minimum net royalty payment starting in January 1, 2022 and progressively increasing up to a cap of $400,000
maximum each year for the first 10 years, then $600,000 maximum each year for the next 5 years, and an annual maximum cap of $750,000
each year thereafter during the term of the agreement. The licensed intellectual property rights relate to beauty products and
OTC cancer products, and branding rights related thereto. The beauty products include any topical or transdermal cannabis-containing
or cannabis-derived (including hemp-based) skin care or body care beauty products, and the OTC cancer products means any cancer-related
products, in each case excluding those regulated as a drug, medicine, or controlled substance by the FDA or any other relevant
governmental authority, such as the USDA.
On
August 12, 2020, Jay Pharma, TO LLC and TOH entered into the First Amendment to the License Agreement, pursuant to which all references
to the Original Amalgamation Agreement and the amalgamation were revised to be references to the Tender Agreement and the Offer,
as applicable.
On
October 2, 2020, Jay Pharma, TO LLC and TOH entered into the Second Amendment to the License Agreement, pursuant to which the
effective date of the transactions was revised to occur as of October 2, 2020.
Agreements
with Alpha
Alpha
Bridge Loan
At
the signing of the Original Amalgamation Agreement, Jay Pharma issued the Original Note to Alpha, dated as of January 10, 2020,
pursuant to which Alpha loaned $1,500,000 to Jay Pharma in connection with, and as a condition to, the Original Amalgamation Agreement.
The Original Note was amended on June 23, 2020 (as discussed further below) to reflect an additional investment of $500,000, resulting
in a total principal amount of $2,000,000 (the “Second Note Amendment”). The Original Note was further amended on
August 12, 2020 (as discussed further below), to account for the termination of the Original Amalgamation Agreement and the change
in the structure of the transaction from an amalgamation to a stock-for-stock exchange offer (the “Third Note Amendment”).
The terms described in the following paragraphs reflect the terms of the Original Note as amended by the Second Note Amendment
and the Third Note Amendment. The Note was secured, pursuant to the Security Agreement, by all of the assets of Jay Pharma. The
Note carried an annual interest rate of 7%, calculated daily.
Upon
the closing of the Offer, the Note was converted into the right to receive 2,473,848 common shares of Jay Pharma and warrants
to purchase 2,333,970 common shares of Jay Pharma at an exercise price of $1.03 per share immediately prior to the Offer. In connection
with the Offer, such common shares and warrants of Jay Pharma acquired by Alpha upon conversion of the Note were converted into
the right to receive (i) 547,278 shares of Series B Preferred Stock that are convertible into up to 547,278 shares of Common Stock,
after giving effect to the Reverse Stock Split, and (ii) warrants to purchase up to 516,333 shares of Common Stock at an exercise
price of $4.64 per share, after giving effect to the Reverse Stock Split,
Jay
Pharma was obligated by certain covenants set forth in the Note, including, but not limited to, the obligation (i) to provide
certain financial information, (ii) to use the proceeds in a specifically agreed to manner, (iii) to not incur any new indebtedness
other than as allowed under the terms of the Note, (iv) to not enter into any business, except those in which Jay Pharma is already
engaged or that are reasonably related thereto, (v) to not make any distributions to its shareholders or creditors, (vi) to not
make any changes to its capital structure, authorize or issue any equity interest of Jay Pharma, and (vii) to not take or suffer
any act not permitted under the Tender Agreement.
Events
of default under the Note included, but were not limited to, (i) breaches of representations and warranties made by Jay Pharma,
in the Note or the Security Agreement, (ii) breaches of covenants made by Jay Pharma, (iii) bankruptcy and insolvency of Jay Pharma,
and (iv) the failure to consummate the Offer by a certain date.
The
Note and the Security Agreement also provided certain customary representations and warranties of Jay Pharma. If the Tender Agreement
had been terminated without Alpha’s prior written consent and without meeting certain other conditions in the Tender Agreement,
Jay Pharma would have been required to repay the entire outstanding principal balance of the Note plus all accrued and unpaid
interest thereon and any other sums payable to Alpha directly in connection with the Note.
First
Note Amendment
On
May 6, 2020, Jay Pharma and Alpha entered into the First Note Amendment. The First Note Amendment revised the maturity date of
the Note. Prior to the First Note Amendment, the maturity date of the Note was the earlier of (i) July 6, 2020 and (ii) an event
of default that accelerates the maturity of the Note. Following the First Note Amendment, the maturity date of the Note was revised
to be the earlier of (i) September 30, 2020 and (ii) an event of default that accelerates the maturity of the Note. The First
Note Amendment also revised the event of default regarding a failure of the amalgamation to be consummated by March 31, 2020 to
extend such date to September 30, 2020.
Second
Note Amendment
On
June 23, 2020, Jay Pharma and Alpha entered into the Second Note Amendment. The Second Note Amendment revised the principal amount
of the Note from $1,500,000 to $2,000,000, which was deemed advanced as the of date of the Second Note Amendment. The rights and
securities granted to Alpha under the terms of the Note were extended to the additional $500,000 advance contemplated by the Second
Note Amendment pursuant to the terms of the Second Note Amendment.
Third
Note Amendment
On
August 12, 2020, Jay Pharma and Alpha entered into the Third Note Amendment. The Third Note Amendment extended the maturity date
to be the earlier of (a) January 1, 2021 and (b) an event of default that accelerates the maturity of the Note. The Third Note
Amendment also revised the Note to account for the change in structure from an amalgamation to a stock-for-stock exchange offer.
As a result, references to the Original Amalgamation Agreement and the amalgamation were revised to be references to the Tender
Agreement and the Offer. The Third Note Amendment also revised the event of default regarding a failure of the amalgamation to
be consummation by March 31, 2020 to be an event of default if the Offer was not completed by January 1, 2021.
Series
B Warrants
Upon
the completion of the Offer, the Company provided Alpha with the Series B Warrants to purchase the number of pre-reverse stock
split shares of common stock of the Company equal to the product of (i) 8,100,000 and (ii) the Exchange Ratio of 0.8849 at an
exercise price of $0.01 to Alpha, as set forth in, and pursuant to the terms of, the Series B Common Stock Purchase Warrant.
The Series B Warrants had a five-year term beginning on the 90th day after the later of the last day of the lock-up/leak-out
period. If Alpha chooses to exercise the Series B Warrants, Alpha may elect, at its own option, to exercise the Series B Warrants
on a cashless basis. Alpha may not exercise the Series B Warrants to the extent such exercise would result in Alpha and its affiliates
owning more than 9.99% of the Company. The number of shares issuable under the terms of the Series B Common Stock Purchase Warrant
are adjustable for stock dividends and splits. Additionally, Alpha shall have the right to participate in subsequent rights
offerings or pro rata distributions with respect to the equity of the Company or any fundamental transaction involving the Company
as more fully described in the Series B Common Stock Purchase Warrant.
Alpha
Investment
At
the signing of the Original Amalgamation Agreement, Alpha entered into the Original Alpha Securities Purchase Agreement, pursuant
to which Alpha agreed, subject to the terms and conditions thereof, to purchase common shares of Jay Pharma and Jay Pharma Series
A Warrants to purchase Jay Pharma’s common shares for an aggregate total purchase price of $3,500,000. The Alpha Securities
Purchase Agreement was amended on August 12, 2020 (as discussed further below), to account for the termination of the Original
Amalgamation Agreement and the change in the structure of the transaction from an amalgamation to a stock-for-stock exchange offer
(the “Third Alpha SPA Amendment”). The terms described in the following paragraphs reflect the terms of the Alpha
Securities Purchase Agreement as amended by the Third Alpha SPA Amendment.
The
closing of the Alpha Investment is conditioned upon the satisfaction or waiver of the conditions set forth in the Tender Agreement.
The obligations of Alpha under the Alpha Securities Purchase Agreement in connection with the closing of the Alpha Investment
are also subject to the condition that, from the date of the Alpha Securities Purchase Agreement to the date of closing of the
Alpha Investment, trading in Ameri’s common stock shall not have been suspended by the SEC or NASDAQ, and, at any time prior
to the closing date of the Alpha Investment, trading in securities generally as reported by Bloomberg L.P. shall not have been
suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service,
or on any trading market, nor shall a banking moratorium have been declared either by the U.S. or New York State authorities.
The
Alpha Securities Purchase Agreement provides certain customary covenants, conditions, representations and warranties, and other
agreements by and between Jay Pharma and Alpha. In addition, Jay Pharma has agreed to use commercially reasonable efforts to complete
the Offer, and as a condition to closing of the Offer, to cause Ameri to assume all of Jay Pharma’s obligations under the
warrants and the Securities Purchase Agreement.
Pursuant
to the terms of the Alpha Securities Purchase Agreement, from the closing date of the Offer until 120 days thereafter, Jay Pharma
agreed to not permit or allow Ameri or any of its subsidiaries to issue, enter into agreement to issue, or announce the issuance
or proposed issuance of any shares of Ameri common stock. Additionally, for a period of 18 months following the closing date of
the Offer, Ameri is prohibited from effecting or entering into an agreement to effect any issuance by Ameri or any of its subsidiaries
of their respective common stock or common stock equivalent involving a variable rate transaction. A “variable rate transaction”
means a transaction in which Ameri (i) issues or sells any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of common stock either (A) at a conversion price, exercise
price or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares
of common stock at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or indirectly related to the business of Ameri or the market for
the common stock, or (ii) enters into, or effects a transaction under, any agreement, including, but not limited to, an equity
line of credit, whereby Ameri may issue securities at a future determined price. Additionally, from the closing date of the Offer
until such time as Alpha holds less than one-fifth of the shares issued in connection with the Alpha Investment, Alpha will hold
certain anti-dilution rights outlined in the Alpha Securities Purchase Agreement.
Upon
the closing of the Alpha Investment under the Alpha Securities Purchase Agreement immediately prior to the Offer, Alpha received
approximately 3,500,954 common shares of Jay Pharma and Jay Pharma Series A Warrants to purchase 3,500,954 common shares of Jay
Pharma at an exercise price of $1.03 per common share (the “Alpha Investment Securities”). In connection with the
Offer, such common shares and warrants of Jay Pharma acquired by Alpha in the Alpha Investment were converted into, as applicable,
the right to receive (i) 774,499 shares of Series B Preferred Stock that are convertible into up to 774,499 shares of Common Stock,
after giving effect to the Reverse Stock Split, and (ii) warrants to purchase up to 774,499 shares of Common Stock at an exercise
price of $4.64 per share, after giving effect to the Reverse Stock Split. The Company warrants will be immediately exercisable
and will expire on the fifth anniversary of the original issuance date. The exercise price and number of shares of Company common
stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations
or similar events affecting the Company common stock and the exercise price. The Series B Preferred Stock of the Company and the
warrants to purchase Company common stock to be issued to Alpha are convertible or exercisable, as applicable, subject to a 9.99%
beneficial ownership blocker.
First
Amendment to Alpha Securities Purchase Agreement
On
June 23, 2020, Jay Pharma and Alpha entered into the Second Note Amendment. The Second Note Amendment also amended the Alpha Securities
Purchase Agreement to reduce the amount of the investment in Jay Pharma’s common shares and Jay Pharma Series A Warrants
from $3,500,000 to $3,000,000.
Second
Amendment to Alpha Securities Purchase Agreement
On
August 12, 2020, Jay Pharma and Alpha entered into a second amendment to the Alpha Securities Purchase Agreement (the “Second
Alpha SPA Amendment”). The Second Alpha SPA Amendment revised the formula regarding the securities to be issued to Alpha
in connection with the closing of the amalgamation to match the formula set forth in the Original Amalgamation Agreement. Additionally,
the Second Alpha SPA amended the termination rights under the Alpha Securities Purchase Agreement to extend the termination date
from July 7, 2020 to September 30, 2020.
Third
Amendment to Alpha Securities Purchase Agreement
On
August 12, 2020, Jay Pharma and Alpha entered into a third amendment to the Alpha Securities Purchase Agreement (the “Third
Alpha SPA Amendment”). The Third Alpha SPA Amendment revised the references to the Original Amalgamation Agreement and amalgamation
to be references to the Tender Agreement and the Offer, as applicable, in order to account for the change in transaction structure
from an amalgamation to a stock-for-stock exchange offer. Additionally, the Third Alpha SPA Amendment amended the termination
rights under the Alpha Securities Purchase Agreement to extend the termination date from September 30, 2020 to January 1, 2021.
Company
Warrants
As
noted above, in connection with conversion of the Note and the closing of the Alpha Investment, which occurred immediately prior
to the closing of the Offer, Alpha received warrants to purchase common shares of Jay Pharma. Further, as noted above, in connection
with the Offer and pursuant to the terms of the Tender Agreement and the Alpha Exchange Agreement, these warrants were exchanged
for Company warrants to purchase pre-reverse stock split shares of Company common stock equal to the number of common shares of
Jay Pharma underlying such outstanding Jay Pharma warrants multiplied by the Exchange Ratio, with the exercise price of such converted
warrants determined by dividing the exercise price of the Jay Pharma warrant by the Exchange Ratio. The Company warrants will
be immediately exercisable and will expire on the fifth anniversary of the original issuance date. The exercise price and number
of shares of Company common stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends,
stock splits, reorganizations or similar events affecting Jay Pharma common stock and the exercise price.
If,
at the time Alpha exercises its Company common stock warrants, a registration statement registering the issuance of the shares
of Company common stock underlying the Company common stock warrants under the Securities Act is not then available for the issuance
of such shares, then in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in
payment of the aggregate exercise price, Alpha may elect instead to receive upon such exercise (either in whole or in part) the
net number of shares of Company common stock determined according to a formula set forth in the Company common stock warrants.
Alpha
(together with its affiliates) may not exercise any portion of the Company common stock warrant to the extent that Alpha would
own more than 9.99% of the outstanding Company common stock immediately after exercise; provided, however, that upon notice to
the Company, Alpha may increase or decrease the beneficial ownership limitation, provided that in no event shall the beneficial
ownership limitation exceed 9.99% and any increase in the beneficial ownership limitation will not be effective until 61 days
following notice of such increase from Alpha to the Company.
If
the Company, at any time while the Company common stock warrant is outstanding, sells or grants any option to purchase, or sells
or grants any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase
or other disposition) any Company common stock (or common stock equivalents), at an effective price per share less than the exercise
price then in effect, then simultaneously with the consummation (or, if earlier, the announcement) of each such dilutive issuance,
the exercise price will be reduced to equal the exercise price then in effect, subject to certain exceptions, which includes issuance
of securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors
of the Company and not for the primary purpose of raising capital.
In
the event of a fundamental transaction, as described in the common warrants and generally including any reorganization, recapitalization
or reclassification of the Company’s common stock, the sale, transfer or other disposition of all or substantially all of
Company’s properties or assets, the Company’s consolidation or merger with or into another person, the acquisition
of more than 50% of the Company’s outstanding common stock, or any person or group becoming the beneficial owner of 50%
of the voting power represented by the Company’s outstanding common stock, Alpha will be entitled to receive upon exercise
of such warrants the kind and amount of securities, cash or other property that Alpha would have received had they exercised the
Company’s common stock warrants immediately prior to such fundamental transaction.
Nominal
Share Purchase Agreement
In
connection with the Offer, Jay Pharma entered into a series of assignment and assumption agreements with a third party, Tikkun
Pharma, Inc. (“Tikkun”), pursuant to which Tikkun assigned to Jay Pharma all of Tikkun’s (i) rights to certain
skin care treatment assets and (ii) intellectual property rights to certain formulations for the development of therapeutic candidates
for the prevention, management and treatment of graft versus host disease (GVHD) in exchange for an aggregate of 10,360,007 common
shares of Jay Pharma, which were issued in October 2020.
Because
Alpha required additional shares of the Company, at no or a nominal cost, for Alpha to consummate the Alpha Bridge Loan and the
Alpha Investment at the planned valuation, Alpha entered into an agreement with Tikkun pursuant to which, immediately following
such assignment, but prior to the Offer, Tikkun sold 7,774,463 of these common shares of Jay Pharma to Alpha for the nominal aggregate
purchase price of $10.00 (the “Alpha Nominal Shares”), leaving Tikkun with 2,585,544 common shares of Jay Pharma (the
“Tikkun Shares”). In connection with the Offer, the Tikkun Shares were converted into the right to receive 571,987
shares shares of common stock of the Company, after giving effect to the Reverse Stock Split, and the Alpha Nominal Shares were
converted into the right to receive 1,719,906 shares of Series B Preferred Stock of the Company that are convertible into up to
1,719,906 shares of common stock of the Company, after giving effect to the Reverse Stock Split.
Alpha
December Investment
On December 4, 2020,
Jay Pharma and Alpha executed a securities purchase agreement whereby Alpha purchased an additional 1,000,000 common shares of
Jay Pharma and warrants to purchase 500,000 common shares of Jay Pharma at an exercise price of $0.30 per share for an aggregate
purchase price of $300,000 (the “Alpha December Investment”). In connection with the Offer, such shares were exchanged
for 221,225 shares of Common Stock, and such warrants were exchanged for warrants to purchase 110,613 shares of common stock of
the Company at $1.36 per share.
Securities
Exchange Agreements
Option
Exchange Agreements
Pursuant
to the terms of the Tender Agreement, prior to the closing of the Offer, the Company entered into exchange agreements with each
of the holders of Jay Pharma options (the “Option Exchange Agreements”). Pursuant to the terms of the Option Exchange
Agreements, each outstanding Jay Pharma option was exchanged for Company options to purchase a number of shares of Company common
stock equal to the Exchange Ratio on substantially the same terms as those contained in the stock option plan of the Company,
and each such Jay Pharma option was cancelled. The exercise price for each share of Company common stock underlying a Company
option was equal to the exercise price per share of Jay Pharma common stock under the Jay Pharma option in effect immediately
prior to the completion of the Offer, as adjusted to reflect the reverse stock split and Exchange Ratio and applicable currency
exchange ratio. Jay Pharma and Ameri intended that the exchange of all Jay Pharma options for Resulting Issuer options would occur
on a rollover basis pursuant to subsection 7(1.4) of the Tax Act and that any relevant adjustments to the exercise price of the
Company options would be made to reflect this intention, and that the foregoing treatment of Jay Pharma options was fair and reasonable
in light of the circumstances of the transaction.
Warrant
Exchange Agreements
Pursuant
to the terms of the Tender Agreement, prior to the closing of the Offer, the Company entered into exchange agreements with the
holders of Jay Pharma warrants (the “Warrant Exchange Agreements”). Pursuant to the terms of the Warrant Exchange
Agreements, each outstanding Jay Pharma warrant was exchanged for Company warrants to purchase the number of shares of Company
common stock equal to the Exchange Ratio on substantially economically equivalent terms and each such Jay Pharma warrant shall
be cancelled. The exercise price for each share of Company common stock underlying a Company warrant will be equal to the exercise
price per share of Jay Pharma common stock under the Jay Pharma warrant in effect immediately prior to the completion of the Offer,
as adjusted to reflect the proposed reverse stock split and Exchange Ratio and the applicable currency exchange ratio.
Alpha
Exchange Agreement
Pursuant
to the terms of the Tender Agreement, prior to the closing of the Offer, the Company entered into an exchange agreement with Alpha
(the “Alpha Exchange Agreement” and, together with the Option Exchange Agreements and Warrant Exchange Agreements,
the “Securities Exchange Agreements”). Pursuant to the terms of the Alpha Exchange Agreement, the Jay Note Securities
and the Alpha Investment Securities were exchanged for (i) the number of shares of Series B Preferred Stock convertible into 3,262,907
shares of Company common stock, (ii) warrants to purchase 1,290,831 shares of common stock of the Company at $4.64 per share,
and (iii) warrants to purchase up to 110,613 shares of common stock of the Company at an exercise price of $1.36 per share, in
each case, after giving effect to the reverse stock split. The Series B Preferred Stock of the Company and the warrants to purchase
Company common stock issued to Alpha are convertible or exercisable, as applicable, subject to a 9.99% beneficial ownership blocker.
Relationships
with Tikkun and Jay Pharma
Solomon
Eisenberg
Solomon
Eisenberg was both a board member and shareholder of Tikkun and a board member of Jay Pharma. His role with both companies might
have created a conflict of interest in connection with Jay Pharma’s strategic relationship with Tikkun.
Barry
Farkas
Barry
Farkas was both a board member and shareholder of Tikkun and a board member of Jay Pharma. His role with both companies might
have created a conflict of interest in connection with Jay Pharma’s strategic relationship with Tikkun.
Lorne
Gertner
Lorne
Gertner was both a board member of Tikkun and a board member of Jay Pharma. His role with both companies might have created
a conflict of interest in connection with Jay Pharma’s strategic relationship with Tikkun.
David
Stefansky
David
Stefansky was both a board member of Tikkun and a board member and an executive officer of Jay Pharma. His role with both companies
might have created a conflict of interest in connection with Jay Pharma’s strategic relationship with Tikkun. On May 6,
2020, Mr. Stefansky resigned as an executive officer and director of Jay Pharma.
John
Van Buiten
John
Van Buiten was both an executive officer of Tikkun and an executive officer of Jay Pharma. His role with both companies might
have created a conflict of interest in connection with Jay Pharma’s strategic relationship with Tikkun. On January 8,
2020, John Van Buiten resigned from his role as an executive officer of Jay Pharma, but he continues to serve as a consultant
for Jay Pharma and since the closing of the Offer has served as an executive officer of Enveric.
Abstention
In
order to avoid any potential conflicts of interest amongst the Jay Pharma board of directors in light of the transactions described
above, on January 7, 2020, each of Solomon Eisenberg and Barry Farkas, both of whom were board members and shareholders of Tikkun,
resigned from the Jay Pharma board. In addition, Lorne Gertner, who also served on the board of both Jay Pharma and Tikkun, agreed
to abstain from any votes regarding the Original Amalgamation Agreement, the Side Transactions and all matters related to such
transactions.
Yaron
Conforti Letter Agreement
On
January 6, 2020, Yaron Conforti and Jay Pharma entered into a letter agreement pursuant to which Jay Pharma agreed to pay Yaron
Conforti a sum of $83,409, which constituted amounts owed to Yaron Conforti by Jay Pharma, with such sum to be paid in the following
manner: (a) $10,000 paid in cash upon execution of the Original Amalgamation Agreement with Ameri, (b) $5,000 to be paid in cash
upon the closing the transactions contemplated by the Original Amalgamation Agreement, and (c) the remaining $68,409 paid through
the issuance of 118,117 shares of common stock of Jay Pharma. In exchange for the payment structured as described above, Yaron
Conforti released Jay Pharma from any claims or obligations related to the $83,409 sum. In July 2020, Jay Pharma agreed to adjust
the the per share price of $0.8849, of the Jay Pharma common shares issued under the previous letter to $0.22. Accordingly, Mr.
Conforti was awarded 193,169 additional Jay Pharma common shares pursuant to a letter agreement.
Ameri
Related Party Transactions
At
December 31, 2020, there were no transactions or series of similar transactions, since January 1, 2020 to which Ameri has been
a participant in which the amount involved exceeded or will exceed the lesser of (a) $120,000, or (b) 1% of its average total
assets at year-end for the last two completed fiscal years, and in which any of Ameri’s director, executive officer, holder
of more than 5% of our capital stock, promotor or certain control person or any member of their immediate family had or will have
a direct or indirect material interest, except as follows.
Ameri
Share Purchase Agreement
On
January 10, 2020, Ameri entered into Share Purchase Agreement, upon which Ameri agreed to consummate the Spin-Off, wherein all
of the issued and outstanding shares of Series A preferred stock of Ameri was redeemed for an equal number of shares of Private
Ameri Preferred Stock. Ameri contributed, transferred and conveyed to Private Ameri all of the issued and outstanding equity interests
of the existing subsidiaries of Ameri, constituting the entire business and operations of Ameri and its subsidiaries. Srinidhi
“Dev” Devanur, Ameri’s executive Chairman, was the owner of all the current issued and outstanding capital stock
of Private Ameri.
2019
and 2020 Bonus Grants
On
January 9, 2020, in reliance on applicable exemption from the securities laws registration requirements, and subject to the Ameri’s
stockholders’ approval for purposes of compliance with the Nasdaq Rule 5635(c), Ameri’s board of directors awarded
an aggregate of 270,541 restricted shares of Ameri common stock as compensation in lieu of cash performance bonuses. On October
19, 2020, in reliance on applicable exemption from the securities laws registration requirements, and subject to the Ameri’s
stockholders’ approval for purposes of compliance with the Nasdaq Rule 5635(c) and continued service through the end of
the 2020 fiscal year, Ameri’s board of directors awarded an aggregate of up to 354,730 restricted shares of Ameri common
stock as compensation in lieu of cash performance bonuses. Such restricted shares will not be issued if this Bonus Shares Proposal
is not approved.
The
restricted shares approved by Ameri’s board of directors in January 2020 represent aggregate bonus payments of $675,000
divided by a price of $2.495, which is the closing price on the day immediately preceding board approval. The restricted shares
approved by Ameri’s board of directors in October 2020 represent aggregate bonus payments of $525,000 divided by a price
of $1.48, which is the closing price on the day immediately preceding board approval.
Director
Independence
We
are currently listed on the NASDAQ Stock Market and therefore rely on the definition of independence set forth in the NASDAQ Listing
Rules (“NASDAQ Rules”). Under the NASDAQ Rules, a director will only qualify as an “independent director”
if, in the opinion of our board, that person does not have a relationship that would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. Based upon information requested from and provided by each director
concerning his background, employment, and affiliations, including family relationships, we have determined that Mr. Kegler, Mr.
Mayer, Dr. Schabacker and Dr. Lind have no material relationships with us that would interfere with the exercise of independent
judgment and are “independent directors” as that term is defined in the NASDAQ Listing Rules.
Item
14. Principal Accountant Fees and Services
In
May 2015, the Board selected Ram Associates as its independent accountant to audit the Company’s financial statements. The
following is a summary of the fees billed by Ram Associates for professional services rendered for the fiscal years ended December
31, 2020 and 2019. Ram Associates was dismissed by the Company on January 12, 2021.
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Audit fees
|
|
$
|
15,000
|
|
|
$
|
85,000
|
|
Tax fees
|
|
|
16,000
|
|
|
|
11,500
|
|
Audit-related fees
|
|
|
–
|
|
|
|
–
|
|
All other fees
|
|
|
–
|
|
|
|
–
|
|
|
|
$
|
31,000
|
|
|
$
|
96,500
|
|
Audit
fees consist of fees billed for services rendered for the audit of our financial statements and review of our financial statements.
Tax
fees consist of fees billed for professional services related to the preparation of our U.S. federal and state income tax returns
and tax advice.
Audit–related
fees consists of fees reasonably related to the performance of the audit or review of the Company’s financial statements
that are not reported as “Audit Fees.”
All
other fees consist of fees for other miscellaneous items.
All
services provided by the Company’s independent auditor were approved by the Company’s audit committee.
Pre–Approval
Policy of Services Performed by Independent Registered Public Accounting Firm
The
Audit Committee’s policy is to pre–approve all audit and non–audit related services, tax services and other
services. Pre–approval is generally provided for up to one year, and any pre–approval is detailed as to the particular
service or category of services and is generally subject to a specific budget. The Audit Committee has delegated the pre–approval
authority to its chairperson when expedition of services is necessary. The independent registered public accounting firm and management
are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent registered
public accounting firm in accordance with this pre–approval and the fees for the services performed to date.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - Business
Nature
of operations
Enveric
Biosciences, Inc. (“Enveric Biosciences, Inc.”, “Enveric” or the “Company”)
(formerly known as Ameri Holdings, Inc.) (“Ameri”) is a pharmaceutical company developing innovative, evidence-based
cannabinoid medicines. The head office of the Company is located in Naples, Florida.
On
January 10, 2020, the Company entered into an Amalgamation Agreement (as amended on May 6, 2020), (the “Amalgamation Agreement”)
with Jay Pharma Merger Sub, Inc., a company organized under the laws of Canada and a wholly owned subsidiary of the Company (“Merger
Sub”), Jay Pharma Inc., a company organized under the laws of Canada (“Jay Pharma”), Jay Pharma ExchangeCo.,
Inc. a company organized under the laws of British Columbia and a wholly owned subsidiary of the Company (“ExchangeCo”),
and Barry Kostiner, as the Company Representative, which provided that, among other things, Merger Sub and Jay Pharma would be
amalgamated and would continue as one corporation (“Amalco”), with Amalco continuing as a direct wholly owned subsidiary
of ExchangeCo and an indirect wholly owned subsidiary of Ameri, on the terms and conditions set forth in the Amalgamation Agreement.
On August 12, 2020, the Company, Jay Pharma and certain other signatories thereto entered into a tender agreement (the “Tender
Agreement”), which provided that, among other things, Ameri would make a tender offer (the “Offer”) to purchase
all of the outstanding common shares of Jay Pharma for the number of shares of Enveric common stock equal to the exchange ratio
set forth in the Tender Agreement, and Jay Pharma would become a wholly-owned subsidiary of Ameri, on the terms and conditions
set forth in the Tender Agreement. The Tender Agreement terminated and replaced in its entirety the Amalgamation Agreement. On
December 30, 2020, the Company, Jay Pharma, Merger Sub, and ExchangeCo consummated the Tender Agreement and Jay Pharma became
a wholly owned subsidiary of the Company. The transaction was treated as a reverse acquisition and recapitalization and accordingly,
the historical financial statements prior to the date of the Business Combination in these consolidated financial statements are
those of Jay Pharma. The transaction is further described in Note 7.
COVID-19
In
December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has
spread to multiple countries, including the United States. As the COVID-19 continues to spread in the United States, the Company
may experience disruptions that could severely impact the Company. The global outbreak of COVID-19 continues to rapidly evolve.
The extent to which COVID-19 may impact the Company’s business will depend on future developments, which are highly uncertain
and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak,
travel restrictions and social distancing in the United States and other countries, business closures or business disruptions
and the effectiveness of actions taken in the United States to contain and treat the disease. The Company is in process of monitoring
COVID-19’s potential impact on the Company’s operations.
Note
2 – Liquidity
The
Company has incurred continuing losses from its operations and as of December 31, 2020, had an accumulated deficit of $11,759,557
and working capital of $1,597,920. Since inception, the Company’s operations have been funded principally through the issuance
of debt and equity.
On
January 14, 2021, the Company completed a registered direct offering of 2,221,458 shares of common stock at approximately $4.50
per share for gross proceeds of approximately $10,000,000. On February 11, 2021, the Company completed a registered direct offering
of 3,007,026 shares of common stock for gross proceeds of approximately $12.8 million. As of March 30, 2021, the Company
had cash on hand of approximately $22.9 million.
The
Company believes that, as a result of these transactions, it currently has sufficient cash and financing commitments to meet its
funding requirements. Accordingly, management has since reevaluated the Company’s liquidity and financial condition and
determined that sufficient capital exists to sustain operations through one year from the issuance of these financial statements
and therefore substantial doubt has been alleviated. Notwithstanding, the Company expects that it will need to raise additional
financing to accomplish its development plan over the next several years. The Company will require additional funding through
debt or equity financing in the future. If the Company is unable to obtain sufficient amounts of additional capital, it may be
required to reduce the scope of its planned development, which could impact its financial condition and operating results.
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
3 – SUMMARY OF Significant Accounting Policies
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance and in conformity with the accounting principles
generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities
and Exchange Commission (the “SEC”) regarding consolidated financial information.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities at the date of the financial statements and expenses during the periods reported.
By their nature, these estimates are subject to measurement uncertainty and the effects on the financial statements of changes
in such estimates in future periods could be significant. Significant areas requiring management’s estimates and assumptions
include determining the fair value of transactions involving common stock and the valuation of stock-based compensation. Actual
results could differ from those estimates.
Foreign
Currency Translation
The
reporting currency of the Company is the United States dollar. The financial statements of companies located outside of the U.S.
are measured in their functional currency, which is the local currency. The functional currency of the Company is the Canadian
dollar. Monetary assets and liabilities are translated using public exchange rates at the balance sheet date. Income and expense
items are translated using average monthly exchange rates. Shareholders’ equity accounts and non-monetary assets are translated
at their historical exchange rates. Translation adjustments are included in accumulated other comprehensive loss in the accompanying
balance sheets.
Cash
and cash equivalents
The
Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
The Company did not have any cash equivalents as of December 31, 2020 and December 31, 2019.
Intangibles
The
Company has finite-lived intangible assets. Finite-lived intangible assets are amortized over their estimated useful lives. Research
and development costs are expensed as incurred. Following initial recognition of the finite-lived intangible asset, the asset
is carried at cost less any accumulated amortization. Amortization of the asset begins when the asset is available for use. Amortization
is recorded in general and administrative expenses on the Company’s consolidated statement of operations. The Company periodically
reviews its owned intangible assets for recoverability.
Impairment
of Long Term Assets
The Company evaluates the carrying value
of long-lived assets subject to amortization whenever events or changes in circumstances indicate that an impairment may exist.
An impairment charge is recognized when the asset’s carrying value exceeds its net undiscounted future cash flows and its fair
market value. The amount of the charge is the difference between the asset’s carrying value and fair market value.
Leases
On February 25, 2016, FASB issued ASU 2016-02,
Leases (Topic 842). This update will require organizations that lease assets to recognize on the balance sheet the assets and
liabilities for the rights and obligations created by those leases. The new guidance will also require additional disclosures
about the amount, timing and uncertainty of cash flows arising from leases. On January 1, 2020, the Company adopted this ASU,
which did not have a material impact on the Company’s financial position and results of operations.
Income Taxes
The
Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income
taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of
taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of
the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected
to reverse.
The
Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than
not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation
of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liabilities. In management’s
opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates,
additional allowances or reversals of reserves may be necessary.
Tax
benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax
authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely
to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits
claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of December 31,
2020 and December 31, 2019, no liability for unrecognized tax benefits was required to be recorded.
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
3 – SUMMARY OF Significant Accounting Policies, continued
Income
Taxes, continued
The
Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component
of operating expenses. There were no amounts accrued for penalties and interest for the years ended December 31, 2020 and 2019.
The Company does not expect its uncertain tax positions to change during the next twelve months. Management is currently unaware
of any issues under review that could result in significant payments, accruals or material deviations from its position.
The
Company has identified its United States and Canadian federal tax return, its state and provincial tax returns in Florida and
Ontario, CA as its “major” tax jurisdictions. The Company is in the process of filing its corporate tax returns for
the years ended December 31, 2020 and December 31, 2019. Net operating losses for these periods will not be available to reduce
future taxable income until the returns are filed.
Stock-Based
Compensation
The
Company follows Accounting Standards Codification (“ASC”) 718, Compensation - Stock Compensation, which addresses
the accounting for stock-based payment transactions, requiring such transactions to be accounted for using the fair value method.
Awards of shares for property or services are recorded at the more readily measurable of the estimated fair value of the stock
award and the estimated fair value of the service. The Company uses the Black-Scholes option-pricing model to determine the grant
date fair value of stock-based awards under ASC 718. The estimated fair value is amortized as a charged to earnings on a straight-line
basis depending on the terms and conditions of the award, and the nature of the relationship of the recipient of the award to
the Company. The Company records the grant date fair value in line with the period over which it was earned. For employees and
consultants, this is typically considered to be the vesting period of the award. The Company estimates the expected forfeitures
and updates the valuation accordingly.
Net
Loss per Share
Basic
net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during
the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential
common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the
exercise of stock options and warrants (using the treasury stock method) and convertible notes. The computation of basic net loss
per share for the years ended December 31, 2020 and 2019 excludes potentially dilutive securities. The computations of net loss
per share for each period presented is the same for both basic and fully diluted.
Potentially
dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share because
the effect of their inclusion would have been anti-dilutive.
|
|
For the year ended December 31, 2020
|
|
|
For the year ended December 31, 2019
|
|
Warrants to purchase shares of common stock
|
|
|
3,251,406
|
|
|
|
303,891
|
|
Convertible notes
|
|
|
-
|
|
|
|
55,306
|
|
Series B Preferred Stock
|
|
|
3,275,407
|
|
|
|
262,500
|
|
Options to purchase shares of common stock
|
|
|
929,765
|
|
|
|
797,373
|
|
Total potentially dilutive securities
|
|
|
7,456,578
|
|
|
|
1,419,070
|
|
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution,
which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these
accounts and management believes the Company is not exposed to significant risks on such accounts.
Fair
Value
The
carrying value of the Company’s financial instruments, including cash and accounts payable, notes payable and convertible
notes payable, approximate fair value because of the short-term nature of such financial instruments.
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
3 – SUMMARY OF Significant Accounting Policies, continued
Subsequent
Events
The
Company has evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial
statements were issued. Other than as described in these financial statements, the Company did not identify any
subsequent
events that would have required adjustment to or disclosure in the financial statements.
NOTE
4 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
As
of December 31, 2020 the Company had no notes payable or convertible notes payable.
As
of December 31, 2019, the Company’s notes payable and convertible notes payable consisted of the following:
|
|
Gross
|
|
|
Discount
|
|
|
Net
|
|
February 2019 Note
|
|
$
|
66,000
|
|
|
$
|
-
|
|
|
$
|
66,000
|
|
March 2019 Note
|
|
|
150,000
|
|
|
|
-
|
|
|
|
150,000
|
|
April 2019 Convertible Notes
|
|
|
300,000
|
|
|
|
(6,079
|
)
|
|
|
293,921
|
|
July 2019 Note
|
|
|
191,640
|
|
|
|
(2,700
|
)
|
|
|
188,940
|
|
December 2019 Note
|
|
|
44,000
|
|
|
|
(2,525
|
)
|
|
|
41,475
|
|
Total
|
|
$
|
751,640
|
|
|
|
(11,304
|
)
|
|
$
|
740,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
451,640
|
|
|
$
|
(5,225
|
)
|
|
$
|
446,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable
|
|
$
|
300,000
|
|
|
$
|
(6,079
|
)
|
|
$
|
293,921
|
|
For
the years ended December 31, 2020 and 2019, interest expense and amortization of debt discount consisted of the following:
|
|
For the Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Interest Expense
|
|
|
Amortization of Debt Discount
|
|
|
Total
|
|
|
Interest Expense
|
|
|
Amortization of Debt Discount
|
|
|
Total
|
|
February 2019 Note
|
|
$
|
-
|
|
|
$
|
3,840
|
|
|
$
|
3,840
|
|
|
$
|
-
|
|
|
$
|
6,000
|
|
|
$
|
6,000
|
|
April 2019 Convertible Notes
|
|
|
13,970
|
|
|
|
5,842
|
|
|
|
19,812
|
|
|
|
13,370
|
|
|
|
17,142
|
|
|
|
30,512
|
|
July 2019 Note
|
|
|
53,342
|
|
|
|
44,704
|
|
|
|
98,046
|
|
|
|
-
|
|
|
|
43,836
|
|
|
|
43,836
|
|
December 2019 Note
|
|
|
-
|
|
|
|
1,427
|
|
|
|
1,427
|
|
|
|
-
|
|
|
|
1,475
|
|
|
|
1,475
|
|
February 2020 Note
|
|
|
2,545
|
|
|
|
50,912
|
|
|
|
53,457
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Alpha Note
|
|
|
86,762
|
|
|
|
181,906
|
|
|
|
268,668
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
156,619
|
|
|
$
|
288,631
|
|
|
$
|
445,250
|
|
|
$
|
13,370
|
|
|
$
|
68,453
|
|
|
$
|
81,823
|
|
Notes
Payable
On
February 7, 2019, the Company received $60,000 in exchange for a promissory note with a director for $66,000, including an original
issue discount of $6,000 (the “February 2019 Note”). The note had no stated interest rate and was due on May 8, 2019.
The Company amortized the full $6,000 original issue discount in the statement of operations and comprehensive loss through December
31, 2019. On July 21, 2020, the Company converted the February 2019 Note into common stock, as further described in Note 6.
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE, CONTINUED
Notes
Payable, continued
On
February 1, 2019, the Company entered into a consulting agreement with its former executive director. In connection with the consulting
agreement, on March 5, 2019, the Company issued a note payable to its former executive director for $150,000 (the “March
2019 Note”). The note had no interest and was due and payable on March 4, 2020. The consulting agreement expired on February
1, 2020. On July 21, 2020, the Company converted the March 2019 Note into common stock, as further described in Note 6.
On
July 8, 2019, the Company entered into a note agreement (the “July 2019 Note”) with a limited liability company (the
“Lender”). One of the principals of the Lender is the brother of a former member of the Company’s Board of Directors.
The Note’s face value was $157,714 and the original issue discount was $19,714 for total gross proceeds of $138,000, implying
an interest rate of 12.5% per annum. The Company could, without premium or penalty, at any time and from time to time, prepay
all or any portion of the Note. The maturity date of the Note was September 8, 2019. On September 20, 2019, the Company entered
into an amendment to the July 2019 Note (the “Amendment”). The Amendment extended the maturity date for the Note until
the earlier of (a) the completion of a bridge financing of greater than or equal to $1,500,000, or (b) November 7, 2019. On November
21, 2019, the Company entered into an amendment for the July 2019 Note that extended the maturity date for the Note until the
earlier of (a) the completion of a bridge financing of greater than or equal to $1,500,000, or (b) December 9, 2019. In consideration
for this amendment, the Company agreed to pay an aggregate extension fee of $33,926, which was added to the principal balance
of the note. On December 9, 2019, the Company entered into an additional amendment for the July 2019 Note that extended the maturity
date for the Note until the earlier of (a) the completion of a bridge financing of greater than or equal to $1,500,000, or (b)
January 7, 2020. The Company also agreed to pay the previously outstanding extension fees of $33,926 on or before March 1, 2020.
On
January 8, 2020 the Company entered into an amendment to the July 2019 Note (the “January 8 Amendment”). The January
8 Amendment extended the maturity date for the July 2019 Note until the (a) the completion of a bridge financing of greater than
or equal to $1,500,000, or (b) April 1, 2020. In consideration for the January 8 Amendment, the Company granted 55,000 shares
of the Company’s common stock to the Lender. The Company accounted for this amendment as a modification, where the shares
paid as a fee were valued at $45,725 and recorded as a discount against the note payable and amortization over the term. On May
6, 2020, the Company entered into an amendment (the “May 2020 Amendment”) whereby both parties agreed to extend the
maturity date of the July 2019 Note to September 30, 2020. The Company accounted for this amendment as a modification, as the
present value of the future cash flows pre-modification and post-modification were not greater than or equal to 10%. On January
12, 2020, the Company repaid $157,714 of the July 2019 Note. On December 31, 2020 the Company paid the remaining unpaid balance.
On
December 12, 2019, the Company received $40,000 in exchange for a promissory note with a lender, including an original issue discount
of $4,000 (the “December 2019 Note”). The December 2019 Note bore interest at a rate of ten percent (10%) on its
face value per annum. In the case of an event of default, the interest rate would increase to 24% per year. The December 2019
Note matured on January 31, 2020. The promissory note with the lender and the Company was converted into 170,333 shares of
common stock on December 30, 2020.
On
February 24, 2020, the Company received $50,000 in exchange for a promissory note with a lender (the “February 2020 Note”).
The February 2020 Note bore interest at a rate of 10% on its face value per annum. In the case of an event of default, the interest
rate would increase to 24% per year. The note matured on July 31, 2020. The February 2020 Note was convertible into the Company’s
common stock at any time at a conversion price of $0.38 per share. The Company recorded a beneficial conversion feature of $17,851
and valued the warrants issued (using relative fair value) at $32,149. The Company recorded the total value as a note discount
and is amortizing the discount over the term of the February 2020 Note using the effective interest method. The Company valued
the beneficial conversion feature and warrants using the following assumptions: