Notes
to Unaudited Condensed 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 “Jay Pharma 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 Jay Pharma 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 Jay Pharma Amalgamation Agreement. On December 30, 2020, the Company, Jay Pharma,
Merger Sub, and ExchangeCo completed the Offer 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 unaudited condensed consolidated financial statements are those of Jay Pharma.
On
May 24, 2021, the Company entered into an Amalgamation Agreement (the “Amalgamation Agreement”) with 1306432 B.C. Ltd., a
corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of the Company (“HoldCo”),
1306436 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of HoldCo
(“Purchaser”), and MagicMed Industries Inc., a corporation existing under the laws of the Province of British Columbia (“MagicMed”),
pursuant to which, among other things, the Company, indirectly through Purchaser, acquired all of the outstanding securities of MagicMed
in exchange for securities of the Company by way of an amalgamation under the British Columbia Business Corporations Act, upon the terms
and conditions set forth in the Amalgamation Agreement, such that, upon completion of the Amalgamation (as defined herein), the amalgamated
corporation (“Amalco”) will be an indirect wholly-owned subsidiary of the Company. The Amalgamation was completed on September
16, 2021.
At
the effective time of the Amalgamation (the “Effective Time”), holders of outstanding common shares of MagicMed (the “MagicMed
Shares”) received such number of shares of common stock of the Company (“Company Shares”) representing, together with
the Company Shares issuable upon exercise of the Warrants and the Converted Options (each as defined herein), approximately 36.6% of
the issued and outstanding Company Shares (on a fully-diluted basis). The MagicMed Shares were initially converted into Amalco Redeemable
Preferred Shares (as defined in the Amalgamation Agreement), which immediately following the Amalgamation were redeemed for 0.000001
of a Company Share. Following such redemption, the shareholders of MagicMed received additional Company Shares equal to the product of
the Exchange Ratio (as defined in the Amalgamation Agreement) multiplied by the number of MagicMed Shares held by each such shareholder.
Additionally, following the Effective Time (i) each outstanding MagicMed stock option was converted
into and became an option to purchase (the “Converted Options”) the number of Company Shares equal to the Exchange Ratio
multiplied by the number of MagicMed Shares subject to such MagicMed stock option, and (ii) each holder of an outstanding MagicMed warrant
(including Company Broker Warrants (as defined in the Amalgamation Agreement), the “Warrants”) received upon exercise of
such Warrant that number of Company Shares which the holder would have been entitled to receive as a result of the Amalgamation if, immediately
prior to the date of the Amalgamation (the “Effective Date”), such holder had been the registered holder of the number of
MagicMed Shares to which such holder would have been entitled if such holder had exercised such holder’s Warrants immediately prior
to the Effective Time (the foregoing collectively, the “Amalgamation”). In aggregate, holders of MagicMed Shares received
9,951,217 Company Shares, representing approximately 31.7% of the Company Shares following the consummation of the Amalgamation. The
maximum number of Company Shares to be issued by the Company as in respect of the Warrants and Converted Options shall not exceed 7,404,101
Company Shares.
The
aggregate number of Company Shares that the Company issued in connection with the Amalgamation (collectively, the “Share Consideration”)
was in excess of 20% of the Company’s pre-transaction outstanding Company Shares. Accordingly, the Company sought and received
stockholder approval of the issuance of the Share Consideration in the Amalgamation in accordance with the NASDAQ Listing Rules.
Pursuant
to the terms of the Amalgamation Agreement, the Company appointed, effective as of the Effective Time two individuals selected by MagicMed
to the Company Board of Directors, Dr. Joseph Tucker and Dr. Brad Thompson.
Enveric
Biosciences, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
The
Amalgamation Agreement contained representations and warranties, closing deliveries and indemnification provisions customary for a transaction
of this nature. The closing of the Amalgamation was conditioned upon, among other things, (i) the Share Consideration being approved
for listing on Nasdaq, (ii) the effectiveness of a Registration Statement on Form S-4 registering the Share Consideration and (iii) the
approval (a) of the MagicMed stockholders of the Amalgamation and (b) of the Company’s stockholders of each of the Amalgamation
and the issuance of the Share Consideration in the Amalgamation. The closing of the Amalgamation occurred on September 16, 2021.
MagicMed
Industries develops and commercializes psychedelic-derived pharmaceutical candidates. MagicMed’s psychedelic derivatives library,
the Psybrary™, is an essential building block from which industry can develop new patented products. The initial focus
of the Psybrary™ is on psilocybin and DMT derivatives, and it is then expected to be expanded to other psychedelics.
As
of September 30, 2021, the accounting for the Amalgamation with MagicMed is provisional pending the calculation of the final purchase
price, finalization of the opening balances sheet, the final valuation report, and allocation of the total consideration transferred.
LIQUIDITY
AND OTHER UNCERTANTIES
The
unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles
in the United States (“U.S. GAAP”), which contemplate continuation of the Company as a going concern. The Company is in a
development stage and has incurred losses each year since inception and has experienced negative cash flows from operations in each year
since inception and has an accumulated deficit of approximately $18,630,963 as of September 30, 2021. Based on the current development
plans and other operating requirements, the Company believes that the existing cash on hand at September 30, 2021 is sufficient to fund
operations for at least the next twelve months following the filing of these unaudited condensed consolidated financial statements.
During
2020 and continuing into 2021, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic. COVID-19
(including its variants and mutations) and measures to prevent its spread impacted our business in a number of ways. The impact of these
disruptions and the extent of their adverse impact on our financial and operating results will be dictated by the length of time that
such disruptions continue, which will, in turn, depend on the currently unknowable duration and severity of the impacts of COVID-19,
and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals’ and companies’
risk tolerance regarding health matters going forward and developing strain mutations.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principal of Consolidation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim
financial information and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by U.S. GAAP for complete financial statements. Management’s opinion is that all adjustments (consisting of normal accruals) considered
necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2021. These unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2020 and
related notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on April 1, 2021. The unaudited
condensed consolidated financial statements represent the consolidation of the Company and its subsidiaries in conformity with U.S. GAAP.
All intercompany transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of the unaudited condensed consolidated 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,
accruals associated with third party providers supporting research and development efforts, estimated fair values of long lives assets
used to record impairment charges related to intangible assets, acquired in-process research and development (“IPR&D), and
goodwill, and allocation of purchase price in business acquisitions. Actual results could differ from those estimates.
Enveric
Biosciences, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
Foreign
Currency Translation
From
inception through December 31, 2020, the reporting currency of the Company was the United States dollar while the functional
currency of the Company was the Canadian dollar. From January 1, 2021 through September 30, 2021, the reporting currency of the Company
remained the United States dollar, with a portion of transactions being denominated in Canadian dollars. As a result, the Company is
subject to exposure from changes in the exchange rates of the Canadian dollar and the U.S. dollar.
The
Company has not entered into any financial derivative instruments that expose it to material market risk, including any instruments designed
to hedge the impact of foreign currency exposures. The Company may, however, hedge such exposure to
foreign currency exchange fluctuations in the future.
Warrant
Liability
The
Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging”
(“ASC 815”). The Company accounts for warrants for shares
of the Company’s common stock that are not indexed to its own stock as derivative liabilities at fair value on the unaudited
condensed consolidated balance sheet. The Company accounts for common stock warrants with put options as liabilities under ASC
480. Such warrants are subject to remeasurement at each unaudited condensed consolidated balance sheet date and any change
in fair value is recognized as a component of other expense on the unaudited condensed consolidated statement of operations. The
Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of such common
stock warrants. At that time, the portion of the warrant liability related to such common stock warrants will be reclassified to additional
paid-in capital.
Offering
Costs
The
Company allocates offering costs to the different components of the capital raise on a pro rata basis. Any offering costs allocated to
common stock are charged directly to additional paid-in capital. Any offering costs allocated to warrant liabilities are charged to general
and administrative expenses on the Company’s unaudited condensed consolidated statement of operations.
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 three and nine months ended
September 30, 2021 and 2020 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 for the three and
nine months ended September 30, 2021 and 2020 because the effect of their inclusion would have been anti-dilutive.
SCHEDULE
OF POTENTIALLY DILUTIVE SECURITIES
|
|
For
the three and nine months ended
September
30, 2021
|
|
|
For
the three and nine months ended
September
30, 2020
|
|
Warrants
to purchase shares of common stock
|
|
|
10,576,654
|
|
|
|
332,854
|
|
Convertible
notes
|
|
|
-
|
|
|
|
139,721
|
|
Restricted
stock units
|
|
|
5,775,171
|
|
|
|
-
|
|
Restricted
stock awards
|
|
|
28,861
|
|
|
|
-
|
|
Options
to purchase shares of common stock
|
|
|
1,147,334
|
|
|
|
797,372
|
|
Total
potentially dilutive securities
|
|
|
17,528,020
|
|
|
|
1,269,947
|
|
Enveric
Biosciences, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
Fair
Value Measurement
The
Company follows Accounting Standards Codification (“ASC”) 820–10 “Fair Value Measurement” of the Financial
Accounting Standards Board’s (“FASB”) Accounting Standards Codification to measure the fair value of its financial
instruments and disclosures about fair value of its financial instruments. ASC 820–10 establishes a framework for measuring fair
value and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and
related disclosures, ASC 820–10 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to
measure fair value into three (3) broad levels.
The
three (3) levels of fair value hierarchy defined by ASC 820–10 are described below:
Level
1
|
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
Level
2
|
|
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the
reporting date.
|
|
|
|
Level
3
|
|
Pricing
inputs that are generally unobservable inputs and not corroborated by market data.
|
Financial
assets or liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies
or similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than
one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of
the instrument.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses and other current assets, accounts
payable and accrued expenses approximate their fair values due to the short-term nature of these instruments.
The
Company uses Level 3 of the fair value hierarchy to measure the fair value of its warrant liabilities. The Company revalues such liabilities
at every reporting period and recognizes gains or losses as change in fair value of warrant liabilities in the unaudited condensed
consolidated statements of operations that are attributable to the change in the fair value of the warrant liabilities.
The
following table provides the financial liabilities measured on a recurring basis and reported at fair value on the unaudited condensed
consolidated balance sheet as of September 30, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized
to determine such fair value:
SCHEDULE
OF FAIR VALUE HIERARCHY OF VALUATION INPUTS ON RECURRING BASIS
|
|
Level
|
|
|
September
30, 2021
|
|
Warrant liabilities
– January Warrants
|
|
|
3
|
|
|
$
|
1,487,234
|
|
Warrant liabilities –
February Warrants
|
|
|
3
|
|
|
|
1,416,391
|
|
Put rights in warrants issued prior to and
surviving amalgamation with Ameri
|
|
|
2
|
|
|
|
262,491
|
|
Fair value as of September
30, 2021
|
|
|
|
|
|
$
|
3,166,116
|
|
The
Company had no assets or liabilities measured at fair value on December 31, 2020.
Both
the January and February Warrants are classified as Level 3, for which there is no current market for these securities such as the determination
of fair value requires significant judgment or estimation. Changes in fair value measurement categorized within Level 3 of the fair value
hierarchy are analysed each period based on changes in estimates or assumptions and recorded as appropriate.
Initial
measurement
SCHEDULE
OF BLACK SCHOLES VALUATION MODELS OF WARRANT LIABILITIES
|
|
January
Warrants
|
|
|
February
Warrants
|
|
|
|
January
13, 2021
|
|
|
February
12, 2021
|
|
Term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
Stock price
|
|
$
|
4.21
|
|
|
$
|
4.62
|
|
Exercise price
|
|
$
|
4.95
|
|
|
$
|
4.90
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
84.7
|
%
|
|
|
84.7
|
%
|
Risk free interest rate
|
|
|
0.5
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
1,821,449
|
|
|
|
1,714,005
|
|
Value (per share)
|
|
$
|
2.66
|
|
|
$
|
3.00
|
|
Enveric
Biosciences, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
Subsequent
measurement
The
following table presents the changes in fair value of the warrant liabilities:
SCHEDULE
OF FAIR VALUE OF WARRANT LIABILITIES
|
|
January
Warrants
|
|
|
February
Warrants
|
|
|
Total
Warrant Liability
|
|
Fair value as of December 31, 2020
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Initial value of warrant liability
|
|
|
4,846,000
|
|
|
|
5,135,000
|
|
|
|
9,981,000
|
|
Change in fair value
|
|
|
(3,358,767
|
)
|
|
|
(3,718,609
|
)
|
|
|
(7,077,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of put rights in warrants issued prior to and surviving
amalgamation with Ameri
|
|
|
|
|
|
|
|
|
|
|
262,491
|
|
Fair value as of September 30, 2021
|
|
$
|
1,487,234
|
|
|
$
|
1,416,391
|
|
|
$
|
3,166,116
|
|
The
key inputs into the Black Scholes valuation model for the Level 3 valuations as of September 30, 2021 are below:
SCHEDULE
OF BLACK SCHOLES VALUATION MODELS OF WARRANT LIABILITIES
|
|
January
Warrants
|
|
|
February
Warrants
|
|
Term (years)
|
|
|
4.3
|
|
|
|
4.3
|
|
Stock price
|
|
$
|
2.07
|
|
|
$
|
2.07
|
|
Exercise price
|
|
$
|
4.95
|
|
|
$
|
4.90
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
77.1
|
%
|
|
|
76.7
|
%
|
Risk free interest rate
|
|
|
0.98
|
%
|
|
|
0.98
|
%
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
1,821,449
|
|
|
|
1,714,005
|
|
Value (per share)
|
|
$
|
0.82
|
|
|
$
|
0.83
|
|
Certain
warrants issued by Ameri prior to the December 30, 2020 amalgamation with the Company, and containing put rights, remain outstanding
and operative, with the put rights contained therein representing a liability to the Company classified as Level 2, due to the pricing
input per warrant share, prior to adjustment for the reverse split subsequent to issuance of the warrants, and the number of warrant
shares being directly observable as of the reporting date.
Business
Combinations
The
Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification(“ASC”)
805 “Business Combinations” using the acquisition method of accounting, and accordingly, the assets and liabilities of the
acquired business are recorded at their fair values at the date of acquisition. For transactions that are business combinations, the
Company evaluates the existence of goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets
and intangible assets acquired in a business combination. ASC 805-10 also specifies criteria that intangible assets acquired in a business
combination must meet to be recognized and reported apart from goodwill. . All acquisition costs are expensed as incurred. Upon
acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date.
The
estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined
using established valuation techniques. A fair value measurement is determined as the price the Company would receive to sell an asset
or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In the context of purchase
accounting, the determination of fair value often involves significant judgments and estimates by management, including the selection
of valuation methodologies, estimates of future revenues, costs and cash flows, discount rates, and selection of comparable companies.
The estimated fair values reflected in the purchase accounting are subject to management’s judgment.
Intangible
Assets
Intangible
assets consist of in-process research and development acquired. The intangible assets are valued using the discounted cash
flows method. The Company assesses the carrying value of its intangible assets for impairment each year. License agreements are
recorded at cost and amortized over the life of the license.
Intangible
assets related to acquired IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated
research and development efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be
tested for impairment. Impairment testing is performed at least annually or when a triggering event occurs that could indicate a potential
impairment. If and when development is complete, which generally occurs when regulatory approval to market a product is obtained, the
associated assets are deemed finite-lived and are amortized over a period that best reflects the economic benefits provided by these
assets.
Enveric
Biosciences, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
Research
and Development
Research
and development expenses are charged to operations as incurred. Research and development expenses include, among other things, internal
and external costs associated with preclinical development, pre-commercialization manufacturing expenses, and clinical trials. The Company
accrues for costs incurred as the services are being provided by monitoring the status of the trial or services provided and the invoices
received from its external service providers. In the case of clinical trials, a portion of the estimated cost normally relates to the
projected cost to treat a patient in the trials, and this cost is recognized based on the number of patients enrolled in the trial. As
actual costs become known, the Company adjusts its accruals accordingly.
Stock-Based
Compensation
The
Company recognizes compensation expense for all equity-based payments in accordance with 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 .
Under fair value recognition provisions, the Company accounts for forfeitures when they occur. Stock-based compensation expense
recognized in the financial statements is reduced by the actual awards forfeited.
Restricted
stock units, restricted stock awards, and stock options are granted at the discretion of the Compensation Committee of the Company’s
board of directors (the “Board of Directors”). These awards are restricted as to the transfer of ownership and generally
vest over the requisite service periods, typically over a 12 to 48-month period.
Segment
Reporting
The
Company determines its reporting units in accordance with FASB ASC 280, “Segment Reporting” (“ASC 280”).
The Company evaluates a reporting unit by first identifying its operating segments under ASC 280. The Company then evaluates each operating
segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment
that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more
reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines
if the segments are economically similar and, if so, the operating segments are aggregated. The Company has one operating segment and
reporting unit. The Company is organized and operated as one business. Management reviews its business as a single operating segment,
using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate.
Long
Lived Assets
Property
and equipment and intangible assets are recorded at cost. Major property additions, replacements, and betterments are capitalized,
while maintenance and repairs that do not extend the useful lives of an asset or add new functionality are expensed as incurred.
Depreciation and amortization are recorded using the straight-line method over the respective estimated useful lives of the
Company’s long-lived assets. The estimated useful lives are typically 3
to 5 years for office furniture and equipment and are depreciated on a straight-line basis. The estimated useful life of the
Company’s intellectual property is equal to the term of the related license, if applicable or 10
years and is amortized on a straight-line basis
The
Company reviews its long-lived assets for impairment whenever events or changes indicate that the carrying value of the long-lived assets
may not be fully recoverable. In cases where the Company does not expect to recover its carrying costs, an impairment charge is recorded.
The Company measures and records impairment losses on its long-lived assets when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than their carrying amount. Considerable judgment by management is necessary
to estimate undiscounted future operating cash flows and fair values and, accordingly, actual results could vary significantly from such
estimates.
Goodwill
The
Company tests goodwill for potential impairment at least annually, or more frequently if an event or other circumstance indicates that
the Company may not be able to recover the carrying amount of the net assets of the reporting unit. The Company has determined that the
reporting unit is the entire company, due to the integration of all of the Company’s activities. In evaluating goodwill for impairment,
the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that
the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the qualitative assessment, or if the Company
concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs
a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount. There
was no impairment of goodwill for the three and nine months ended September 30, 2021.
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 September 30, 2021 and December 31, 2020, no liability for unrecognized tax benefits was required to be
recorded.
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, Alberta (Canada) and Ontario (Canada)
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.
Recent
Accounting Pronouncements
In
December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, Income Taxes (Topic 740: Simplifying
the Accounting for Income Taxes (“ASU 2019-12”), which removes certain exceptions to the general principles in Topic 740.
ASU 2019-12 is effective for the fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption of this
guidance did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
In
October 2020, the FASB issued ASU 2020-10, “Codification Improvements.” The new accounting rules improve the consistency
of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50) that had only been included
in the Other Presentation Matters Section (Section 45) of the Codification. Additionally, the new rules also clarify guidance across
various topics including defined benefit plans, foreign currency transactions, and interest expense. The new accounting rules were effective
for the Company in the first quarter of 2021. The adoption of the new accounting rules did not have a material impact on the Company’s
unaudited condensed consolidated financial statements.
Enveric
Biosciences, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
In
May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The
amendments in ASU No. 2021-04 provides guidance to clarify and reduce diversity in an issuer’s accounting for modifications or
exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification
or exchange. The amendments in this ASU No. 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021,
and interim periods within those fiscal years, with early adoption permitted, including interim periods within those fiscal years. As
a result, the Company will not be required to adopt ASU 2021-04 until January 1, 2022. The Company is currently evaluating the impact
of the adoption of this principle on the Company’s unaudited condensed consolidated financial statements.
NOTE
3 – INTANGIBLE ASSETS
As
of September 30, 2021, the Company’s intangible assets consisted of:
SCHEDULE
OF COMPONENTS OF INTANGIBLE ASSETS
|
|
Useful
Life
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Skincare Assets
and License Agreements
|
|
4
years
|
|
$
|
1,944,689
|
|
|
$
|
(508,324
|
)
|
|
$
|
1,436,365
|
|
Diverse Bio License Agreement
|
|
4
years
|
|
|
675,000
|
|
|
|
(84,376
|
)
|
|
|
590,624
|
|
In process research and development
|
|
Indefinite
|
|
|
36,246,678
|
|
|
|
-
|
|
|
|
36,246,678
|
|
Total
|
|
|
|
$
|
38,866,367
|
|
|
$
|
(592,700
|
)
|
|
$
|
38,273,667
|
|
During
the three months ended September 30, 2021 and 2020, the Company recognized amortization expense of $170,692
and $0,
respectively. During the nine months ended September 30, 2021 and 2020, the Company recognized amortization expense of $481,351
and $0,
respectively.
Acquisition
of Diverse Bio License Agreement
On
March 5, 2021, the Company entered into an Exclusive License Agreement (the “DB Agreement”) with Diverse Biotech, Inc. (“Diverse”),
pursuant to which the Company acquired an exclusive, perpetual license to develop five therapeutic candidates (collectively, the “Agents”)
with the goal of alleviating the side effects that cancer patients experience. Under the terms of the DB Agreement, Diverse has granted
the Company an exclusive license to its intellectual property rights covering the Agents and its products. In exchange, the Company has
granted Diverse the right to information relating to the Agents developed for the express purpose of using such information to obtain
patent rights, which right terminates upon the issuance or denial of the patent rights.
Under
the DB Agreement, the Company will maintain sole responsibility and ownership of the development and commercialization of the Agents
and its products. Diverse has agreed not to develop or commercialize any agent or product that would compete with the Agents, or its
products containing the Agents, at any time during or after the term of the DB Agreement. If Diverse intends to license, sell, or transfer
any other molecules linked with cannabinoids not granted to the Company under the terms of the DB Agreement, the Company will have the
first right, but not the obligation, to negotiate an agreement with Diverse for such cannabinoids. The Company has also agreed to pay
Diverse an up-front investment payment in the amount of $675,000,
as well as a running royalty starting with the first commercial sale by the Company to a third party in an arms’-length transaction.
Enveric
Biosciences, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
The
term of the DB Agreement shall continue for as long as the Company intends to develop or commercialize the new drugs, unless earlier
terminated by either Party. The Agreement may be terminated by either party upon ninety (90) days written notice of an uncured material
breach or in the event of bankruptcy or insolvency. In addition, the Company has the right to terminate the DB Agreement at any time
upon sixty (60) days’ prior written notice to Diverse.
In
process research and development
Please
refer to Note 6, Business Combination with MagicMed Industries.
NOTE
4 – COMMITMENTS AND CONTINGENCIES
The
Company is periodically involved in legal proceedings, legal actions and claims arising in the normal course of business. Management
believes that the outcome of such legal proceedings, legal actions and claims will not have a significant adverse effect on the Company’s
financial position, results of operations or cash flows.
Stockholder
Demand Letters
On
January 21, 2021, the Company received a stockholder litigation demand letter from the law firm of Purcell Julie & Lefkowitz
LLP, on behalf of James Self, a purported stockholder of the Company. The letter demands that the Company (i) deem ineffective the
December 30, 2020 amendment to our Amended and Restated Certificate of Incorporation in which the Company effected a one-for-four
reverse stock split of its common stock 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. The Company disputes 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, the Company ratified the amendment at a special stockholders’ meeting pursuant to Section 204
of the Delaware General Corporation Law. This special stockholders’ meeting occurred on May 14, 2021. On May 14, 2021, the Company
filed a certificate of validation with the State of Delaware to ratify the reverse stock split on December 30, 2020. The purported
stockholder thereafter agreed that the changes mooted his potential claims, and the Amalgamation successfully closed. The Company paid
$65,000 to the purported stockholder’s counsel in connection with the changes effected.
On
July 14, 2021, the Company received a stockholder demand letter from the law firm of Rigrodsky Law P.A., on behalf of Matthew Whitfield,
a purported stockholder of the Company, alleging that the registration statement (the “Amalgamation Registration Statement”)
filed by the Company with the SEC on June 21, 2021 omitted material information with respect to the Amalgamation and requesting
that the Company and the Company board of directors provide certain corrective disclosures in an amendment or supplement to the Amalgamation
Registration Statement. The Company does not believe the request had merit, but made certain changes to the Amalgamation Registration
Statement, which it believes sufficed to answer the purported stockholder’s demands. The purported stockholder thereafter
agreed that the changes mooted his potential claims, and the Amalgamation successfully closed. The Company agreed to pay $30,000 to the
purported stockholder’s counsel in connection with the changes to the Amalgamation Registration Statement. This amount was accrued
as of, and paid subsequent to September 30, 2021.
On
July 22, 2021, the Company received a DGCL Section 220 books and records demand letter from the law firm of Kahn Swick & Foti, on
behalf of Scott Waller, a purported stockholder of the Company, seeking access to certain books and records of the Company in connection
with the process underlying the Amalgamation (as defined herein) and the Company’s engagement of its financial advisors. The Company
does not believe the request had merit, but made certain changes to the Amalgamation Registration Statement, which it believes sufficed
to answer the purported stockholder’s demands. The purported stockholder thereafter agreed that the changes mooted his potential
claims, and the Amalgamation successfully closed. The Company agreed to pay $60,000 to the purported stockholder’s counsel in connection
with the changes to the Amalgamation Registration Statement. This amount was accrued as of, and paid subsequent to September 30, 2021.
On
September 2, 2021, Vince Mojta (“Plaintiff”), through his attorney, filed a complaint (Mojta v. Enveric Biosciences, Inc.,
et al., Case No. 1:21-cv-07385 (S.D.N.Y.)) in the United States District Court for the Southern District of New York, against the Company
and the members of its board of directors (the “Directors”). The complaint alleged, among other things, that the Amalgamation
Registration Statement omitted material information with respect to the Amalgamation. The complaint sought to enjoin the Company from
taking any steps to consummate the Amalgamation unless and until certain information was disclosed to the Company’s shareholders
before a vote on the Amalgamation and a judgment for damages. The Company believed that the suit was without merit. Plaintiff never served
the Company or the Directors with the suit, and the Amalgamation successfully closed. Plaintiff then voluntarily dismissed the suit on
October 25, 2021.
Development
and Clinical Supply Agreement
On
February 22, 2021, the Company entered into a Development and Clinical Supply Agreement (the “PureForm Agreement”) with PureForm
Global, Inc. (“PureForm”), pursuant to which PureForm will be the exclusive provider of synthetic cannabidiol (“API”)
for the Company’s development plans for cancer treatment and supportive care. Under the terms of the PureForm Agreement, PureForm
has granted the Company the exclusive right to purchase API and related product for cancer treatment and supportive care during the term
of the Agreement (contingent upon an initial minimum order of 1 kilogram during the first thirty (30) days from the effective date) and
has agreed to manufacture, package and test the API and related product in accordance with specifications established by the parties.
All inventions that are developed jointly by the parties in the course of performing activities under the PureForm Agreement will be
owned jointly by the parties in accordance with applicable law; however, if the Company funds additional research and development efforts
by PureForm, the parties may enter into a further agreement whereby PureForm would assign any resulting inventions or technical information
to the Company.
The
initial term of the PureForm Agreement is three (3) years commencing on the effective date of the Agreement, subject to extension by
mutual agreement of the parties. The PureForm Agreement may be terminated by either party upon thirty (30) days written notice of an
uncured material breach or immediately in the event of bankruptcy or insolvency. The Agreement contains, among other provisions, representation
and warranties, indemnification obligations and confidentiality provisions in favor of each party that are customary for an agreement
of this nature.
The
Company has met the minimum purchase requirement of 1 kilogram during the first thirty days of the PureForm Agreement’s effectiveness.
Purchase
agreement with Prof. Zvi Vogel and Dr. Ilana Nathan
On
December 26, 2017, Jay Pharma entered into a purchase agreement with Prof. Zvi Vogel and Dr. Ilana Nathan (the “Vogel-Nathan Purchase
Agreement”), pursuant to which Jay Pharma was assigned ownership rights to certain patents, which were filed and unissued as of
the date of the Vogel-Nathan Purchase Agreement. The Vogel-Nathan Purchase Agreement includes a commitment to pay a one time milestone
totaling $200,000 upon the issuance of a utility patent in the United States or by the European Patent Office, as defined in the agreement.
The Company has accrued such amount as of September 30, 2021, as a result of the milestone criteria being achieved during three month
period ended September 30, 2021. In addition, a milestone payment totaling $300,000 is due upon initiation of a Phase II(b) study. Research
activities related to the relevant patents are still in pre-clinical stage, and accordingly, this milestone has not been achieved. The
Vogel-Nathan Purchase Agreement contains a commitment for payment of royalties equalling 2% of the first $20 million in net sales derived
from the commercialization of products utilizing the relevant patent. As these products are still in the preclinical phase of development,
no royalties have been earned.
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 Pharma Inc. (“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
TO Pharmaceuticals USA LLC (“TOP”) and Tikkun Olam IP, LTD (“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, Tikkun Olam LLC (“TO LLC”) and Tikkun Olam Hemp LLC (“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.
Enveric
Biosciences, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
5 - SHARE CAPITAL AND OTHER EQUITY INSTRUMENTS
Offerings
On
January 14, 2021, the Company completed an offering of 2,221,334 shares
of Common Stock and pre-funded warrants at approximately $4.50 per
share and a concurrent private placement of warrants to purchase 1,666,019 shares
of Common Stock at $4.95 per
share, exercisable immediately and terminating five years after the date of issuance for gross proceeds of approximately $10,000,000.
The net proceeds to the Company after deducting financial advisory fees and other costs and expenses were approximately $8,800,087,
with $4,617,087 of such amount allocated to share capital and $4,846,000 allocated to warrant liability
and the remaining $663,000 recorded as an expense.
On
February 11, 2021, the Company completed an offering of 3,007,026 shares
of Common Stock and a concurrent private placement of warrants to purchase 1,503,513 shares
of Common Stock at $4.90 per
share, exercisable immediately and terminating five
year from the date of issuance for gross
proceeds of approximately $12,800,000.
The net proceeds to Enveric from the offering after deducting financial advisory fees and other costs and expenses were approximately
$11,624,401,
with $7,016,401
of such amount allocated to share capital and $5,135,000
allocated to warrant liability and the
remaining $527,000
recorded as an expense.
Stock
Options
SCHEDULE
OF STOCK OPTIONS
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Fair Value
|
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
(USD)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding – January 1, 2021
|
|
|
929,765
|
|
|
$
|
1.53
|
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
80,000
|
|
|
$
|
3.50
|
|
|
$
|
2.81
|
|
|
|
|
|
|
|
|
|
Options assumed pursuant to acquisition of MagicMed
|
|
|
973,840
|
|
|
$
|
1.34
|
|
|
$
|
1.83
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(143,796
|
)
|
|
$
|
0.23
|
|
|
$
|
5.69
|
|
|
|
|
|
|
|
|
|
Expired forfeited, or cancelled
|
|
|
(692,475
|
)
|
|
$
|
1.69
|
|
|
$
|
1.98
|
|
|
|
|
|
|
|
|
|
Outstanding – September 30, 2021
|
|
|
1,147,334
|
|
|
$
|
1.57
|
|
|
$
|
2.09
|
|
|
|
5.7
|
|
|
$
|
730,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2021
|
|
|
931,810
|
|
|
$
|
1.52
|
|
|
$
|
2.00
|
|
|
|
4.9
|
|
|
$
|
550,191
|
|
Options
granted during the three months ended September 30, 2021 were valued using the Black Scholes model and the following
assumptions:
SCHEDULE OF STOCK OPTION ASSUMPTION
Term (years)
|
|
|
7.0
|
|
Stock price
|
|
$
|
3.50
|
|
Exercise price
|
|
$
|
3.50
|
|
Dividend yield
|
|
|
0
|
%
|
Expected volatility
|
|
|
79
|
%
|
Risk free interest rate
|
|
|
1.3
|
%
|
The
Company’s stock based compensation expense related to stock options for the three months ended September 30, 2021 and 2020 was
$4,683
and $0,
respectively. The Company’s stock based compensation expense related to stock options for the nine months ended September 30, 2021
and 2020 was $4,683
and $0,
respectively. As of September 30, 2021, the Company had $504,903
in unamortized stock option expense with
a weighted average amortization period equal to 2.9 years
During
the first quarter 2021, the Company exchanged options to purchase 560,404
shares of common stock for 325,410
restricted stock units and 42,125
restricted stock awards. In connection with this
exchange, the Company recognized $298,714
in inducement expense related to the increase
in fair value of the new awards over the old awards, which is included in other expenses on the Company’s unaudited condensed
consolidated statement of operations and comprehensive loss.
Restricted
Stock Awards
The
Company’s activity in restricted common stock was as follows for the nine months ended September 30, 2021:
SCHEDULE
OF RESTRICTED STOCK UNITS AND AWARDS ACTIVITY
|
|
Number
of
shares
|
|
|
Weighted
average
fair value
|
|
Non–vested at January
1, 2021
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
70,986
|
|
|
$
|
3.84
|
|
Vested
|
|
|
(64,334
|
)
|
|
$
|
4.24
|
|
Non–vested at September
30, 2021
|
|
|
6,652
|
|
|
$
|
2.50
|
|
For
the three months ended September 30, 2021 and 2020, the Company recorded $23,995
and $0,
in stock-based compensation expense related to restricted stock awards, respectively. For the nine months ended September 30, 2021 and
2020, the Company recorded $80,109
and $0,
in stock-based compensation expense related to restricted stock awards, respectively. As of September 30, 2021, unamortized stock-based
compensation costs related to restricted share awards was $24,012,
which will be recognized over a weighted average period of 0.25
years.
Enveric
Biosciences, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
Issuance
of Restricted Stock Units
The
Company’s activity in restricted stock units was as follows for the nine months ended September 30, 2021:
SCHEDULE
OF RESTRICTED STOCK UNITS AND AWARDS ACTIVITY
|
|
Number
of
shares
|
|
|
Weighted
average
fair value
|
|
Non–vested at January
1, 2021
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
5,775,171
|
|
|
$
|
3.65
|
|
Vested
|
|
|
(1,207,825
|
)
|
|
$
|
4.46
|
|
Non–vested at September
30, 2021
|
|
|
4,567,346
|
|
|
$
|
3.43
|
|
For
the three months ended September 30, 2021 and 2020, the Company recorded $458,308
and $0,
respectively, in stock-based compensation expense related to restricted stock units, with $315,929
included as a component of general and
administrative expenses and $118,474
included as a component of research and
development costs in the unaudited condensed consolidated statement of operations.
For the nine months ended September 30, 2021 and 2020, the Company recorded $4,710,225
and $0,
respectively, in stock-based compensation expense related to restricted stock units, with $4,592,748
included as a component
of general and administrative expenses and $118,474
included as a component of research and
development expenses in the unaudited condensed consolidated
statement of operations. As of September 30, 2021, the Company had unamortized stock-based compensation costs related to restricted stock
units of $7,908,006
which will be recognized over a weighted average
period of 3.57
years and unamortized stock based costs related
to restricted stock units of $6,966,721
which will be recognized upon achievement of
specified milestones.
Warrants
The
following table summarizes information about shares issuable under warrants outstanding at September 30, 2021:
SCHEDULE
OF WARRANTS
|
|
Warrant
shares
outstanding
|
|
|
Weighted
average
exercise price (USD)
|
|
|
Weighted
average remaining life
|
|
|
Intrinsic
value
|
|
Outstanding at January 1, 2021
|
|
|
3,770,550
|
|
|
$
|
2.13
|
|
|
|
5.0
|
|
|
$
|
8,040,836
|
|
Issued
|
|
|
4,146,146
|
|
|
$
|
4.90
|
|
|
|
|
|
|
|
|
|
Assumed pursuant to acquisition of MagicMed
|
|
|
5,913,672
|
|
|
$
|
1.31
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,253,714
|
)
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
Outstanding at September
30, 2021
|
|
|
10,576,654
|
|
|
$
|
2.76
|
|
|
|
3.6
|
|
|
$
|
5,115,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September
30, 2021
|
|
|
10,576,654
|
|
|
$
|
2.76
|
|
|
|
3.6
|
|
|
$
|
5,115,080
|
|
The
warrants assumed pursuant to the acquisition of MagicMed contain certain down round features that would require adjustment to the exercise
price upon certain events when the offering price is less than the stated exercise price.
NOTE
6 – AMALGAMATION WITH MAGICMED INDUSTRIES INC.
On
May 24, 2021, the Company entered into an Amalgamation Agreement (the “Amalgamation Agreement”) with 1306432 B.C. Ltd., a
corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of the Company (“HoldCo”),
1306436 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of HoldCo
(“Purchaser”), and MagicMed Industries Inc., a corporation existing under the laws of the Province of British Columbia (“MagicMed”),
pursuant to which, among other things, the Company, indirectly through Purchaser, acquired all of the outstanding securities of MagicMed
in exchange for securities of the Company by way of an amalgamation under the British Columbia Business Corporations Act, upon the terms
and conditions set forth in the Amalgamation Agreement, such that, upon completion of the Amalgamation (as defined herein), the amalgamated
corporation (“Amalco”) will be an indirect wholly-owned subsidiary of the Company. The Amalgamation was completed on September
16, 2021.
At
the effective time of the Amalgamation (the “Effective Time”), holders of outstanding common shares of MagicMed (the “MagicMed
Shares”) received such number of shares of common stock of the Company (“Company Shares”) representing, together with
the Company Shares issuable upon exercise of the Warrants and the Converted Options (each as defined herein), approximately 36.6% of
the issued and outstanding Company Shares (on a fully-diluted basis). The MagicMed Shares were initially converted into Amalco Redeemable
Preferred Shares (as defined in the Amalgamation Agreement), which immediately following the Amalgamation were redeemed for 0.000001
of a Company Share. Following such redemption, the shareholders of MagicMed received additional Company Shares equal to the product of
the Exchange Ratio (as defined in the Amalgamation Agreement) multiplied by the number of MagicMed Shares held by each such shareholder.
Additionally, following the Effective Time (i) each outstanding MagicMed stock option was converted
into and became an option to purchase (the “Converted Options”) the number of Company Shares equal to the Exchange Ratio
multiplied by the number of MagicMed Shares subject to such MagicMed stock option, and (ii) each holder of an outstanding MagicMed warrant
(including Company Broker Warrants (as defined in the Amalgamation Agreement), the “Warrants”) received upon exercise of
such Warrant that number of Company Shares which the holder would have been entitled to receive as a result of the Amalgamation if, immediately
prior to the date of the Amalgamation (the “Effective Date”), such holder had been the registered holder of the number of
MagicMed Shares to which such holder would have been entitled if such holder had exercised such holder’s Warrants immediately prior
to the Effective Time (the foregoing collectively, the “Amalgamation”). In aggregate, holders of MagicMed Shares received
9,951,237 Company Shares representing approximately 31.7% of the Company Shares following the consummation of the Amalgamation. The maximum
number of Company Shares to be issued by the Company as in respect of the Warrants and Converted Options shall not exceed 7,404,101 Company
Shares.
The
aggregate number of Company Shares that the Company issued in connection with the Amalgamation (collectively, the “Share Consideration”)
was in excess of 20% of the Company’s pre-transaction outstanding Company Shares. Accordingly, the Company sought and received
stockholder approval of the issuance of the Share Consideration in the Amalgamation in accordance with the NASDAQ Listing Rules.
Pursuant
to the terms of the Amalgamation Agreement, the Company appointed, effective as of the Effective Time two individuals selected by MagicMed
to the Company Board of Directors, Dr. Joseph Tucker and Dr. Brad Thompson.
The
Amalgamation Agreement contained representations and warranties, closing deliveries and indemnification provisions customary for a transaction
of this nature. The closing of the Amalgamation was conditioned upon, among other things, (i) the Share Consideration being approved
for listing on Nasdaq, (ii) the effectiveness of a Registration Statement on Form S-4 registering the Share Consideration (the “S-4
Registration Statement”) and (iii) the approval (a) of the MagicMed stockholders of the Amalgamation and (b) of the Company’s
stockholders of each of the Amalgamation and the issuance of the Share Consideration in the Amalgamation. The closing of the Amalgamation
occurred on September 16, 2021.
MagicMed
Industries develops and commercializes psychedelic-derived pharmaceutical candidates. MagicMed’s psychedelic derivatives library,
the Psybrary™, is an essential building block from which industry can develop new patented products. The initial focus
of the Psybrary™ is on psilocybin and DMT derivatives, and it is then expected to be expanded to other psychedelics.
On
September 16, 2021, the Company (“Purchaser”), in connection with the Amalgamation Agreement entered into on May 24, 2020,
acquired MagicMed Industries Inc., and its wholly owned subsidiary MagicMed USA, Inc. (“MagicMed”), (the “Acquisition”).
In exchange for a total purchase price valued at $48,104,210
the Company acquired 37,463,673
shares of Common Stock from MagicMed, which represents 100%
of the outstanding and issued shares of Common Stock of MagicMed,
for equity consideration on the date of closing valued at $27,067,310.
The Purchaser also agreed that it would issue Company Shares in lieu of shares of MagicMed Shares for any warrants to purchase
MagicMed Shares that were exercised, with the maximum number of Company Shares issuable pursuant to such warrant exercises being
5,913,672. The
fair value of the warrants on the closing date of the Amalgamation was $10,724,579.
Additionally, the Purchaser agreed that it would issue issued
Company Shares in lieu of shares of MagicMed Shares for any options to purchase MagicMed
Shares that were exercised, with the maximum number of Company Shares issuable pursuant to such option exercises being
973,840. The fair value of the options on the closing date of the Amalgamation
was $1,535,790,
with $1,250,394
included in the purchase price and $285,396
to be recognized as expense in the post combination period.
The
goodwill of $9,061,927
is related to deferred tax liabilities arising
from the Company’s purchase of the MagicMed Shares.
The
following table represents the preliminary purchase price:
SCHEDULE
OF BUSINESS ACQUISITIONS
|
|
|
|
|
Stock (9,951,217
common shares issued)
|
|
$
|
27,067,310
|
|
Fair value of warrants
|
|
|
10,724,578
|
|
Fair value of options
|
|
|
1,250,394
|
|
Deferred tax liability incurred
|
|
|
9,061,927
|
|
Total Purchase Price
|
|
$
|
48,104,209
|
|
Enveric
Biosciences, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
The
Acquisition is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair
values of the assets acquired and liabilities assumed in the Acquisition. These values are provisional and subject to change pending
the calculation of the final purchase price, finalization of the opening balance sheet, the final valuation report, and allocation
of the total consideration transferred.
The
Company has made a preliminary allocation of the purchase price of the Acquisition to the assets acquired and the liabilities assumed
as of the purchase date.
The
following table summarizes the preliminary purchase price allocations relating to the Acquisition:
SCHEDULE
OF RECOGNIZED IDENTIFIED ASSETS ACQUIRED AND LIABILITIES ASSUMED
Description
|
|
Fair
Value
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
3,055,327
|
|
Prepaid
expenses and other current assets
|
|
|
440,968
|
|
Government
remittances recoverable
|
|
|
25,607
|
|
Property
and equipment
|
|
|
143,945
|
|
Other
assets
|
|
|
11,182
|
|
In process research
and development
|
|
|
36,246,678
|
|
Goodwill
|
|
|
9,061,927
|
|
Total
assets acquired
|
|
$
|
48,985,634
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Accounts
payable
|
|
$
|
811,961
|
|
Accrued
expenses and other liabilities
|
|
|
69,464
|
|
Deferred Tax Liabilities
|
|
|
9,061,927
|
|
Total
liabilities assumed
|
|
|
9,943,352
|
|
Estimated
fair value of net assets acquired attributable to the Company
|
|
$
|
39,042,282
|
|
The
goodwill represents the excess fair value after the allocation to the identifiable net assets, with such being specifically attributable
to the deferred tax liabilities incurred. The calculated goodwill is not deductible for tax purposes.
Certain
adjustments to the assessed fair values of the assets and liabilities made subsequent to the acquisition date, but within the measurement
period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded
in income.
Total
acquisition-related costs for the Acquisition incurred by the Company during the period ended September 30, 2021 was approximately $200,000
and is included in general and administrative
expenses in the Unaudited condensed consolidated statement of operations.
HISTORICAL
AND PROFORMA FINANCIAL INFORMATION
The
amounts of MagicMed’s revenues and net loss included in the Company’s unaudited consolidated condensed statements
of operations and comprehensive loss for the period from the acquisition date to September 30, 2021 were $0
and $183,753
respectively. The following unaudited proforma
financial information presents the consolidated results of operations of the Company and MagicMed for the three and nine months ended
September 30, 2021 and September 30, 2020, as if the acquisition had occurred as of the beginning of the first period presented instead
of on September 16, 2021. The proforma information does not necessarily reflect the results of operations that would have occurred had
the entities been a single company during those periods.
SCHEDUELE
OF PROFORMA INFORMATION
|
|
|
For
the Three
Months
Ended September 30,
2020
|
|
|
|
For
the Nine
Months
Ended September 30,
2020
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
Net loss
|
|
$
|
(862,582
|
)
|
|
$
|
(2,810,104
|
)
|
Enveric
Biosciences, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
|
|
|
For
the Three
Months
Ended September 30,
2021
|
|
|
|
For
the Nine
Months
Ended September 30,
2021
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
Net loss
|
|
$
|
(3,726,677
|
)
|
|
$
|
(10,922,678
|
)
|
NOTE
7 – INCOME TAXES
On September 16, 2021, the
Company acquired MagicMed. In connection with the acquisition, the Company recorded intangible assets from in-process research and development
valued at $36,246,678, which is amortized for book purposes over its useful life, but without a tax basis, creating a deferred tax liability
of $9,061,927. The deferred tax liability will decrease as the intangible assets that created the deferred tax liability are amortized.
. The ultimate realization of the net operating loss is dependent upon future taxable income, if any, of the Company. Based on losses
from inception, the Company determined that as of September 30, 2021 and December 31, 2020 it is more likely than not that the Company
will not realize benefits from the deferred tax assets. The Company will not record income tax benefits in the financial statements until
it is determined that it is more likely than not that the Company will generate sufficient taxable income to realize the deferred income
tax assets. As a result of the analysis, the Company determined that a full valuation allowance against the deferred tax assets was required
as of September 30, 2021 and December 31, 2020, respectively.