NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
NATURE OF BUSINESS AND BASIS OF PRESENTATION
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. The Company has the following wholly owned subsidiaries: Jay Pharma Inc. (“Jay
Pharma”), 1306432 B.C. Ltd. (“HoldCo”), MagicMed Industries, Inc. (“MagicMed”), and Enveric Canada. The
Company has an Amalgamation Agreement (“Amalgamation Agreement”) and tender agreement (“Tender Agreement”) with
Jay Pharma, which were entered into in prior years.
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.
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.
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Liquidity
and Going Concern and Other Uncertainties
The
Company has incurred continuing losses from its operations. As of March 31, 2022, the Company had an accumulated deficit of $65,260,467
and working capital of $20,571,914. Since inception, the Company’s operations have been funded principally through the issuance
of debt and equity.
The
Company’s material cash requirements consist of working capital to fund capital expenditures incurred at their research facility
in Calgary and their operations, which consist primarily of, without limitation, employee related expenses, product development activities
conducted by third parties, research materials and lab supplies, facility related expenses including rent and maintenance, costs associated
with preclinical studies, patent related costs, costs of regulatory and public company compliance, insurance costs, audit costs, consultants
and legal fees. Additionally, the Company currently utilizes third-party contract CROs to assist with clinical development activities.
If the Company obtains regulatory approval for any of their product candidates, they expect to incur significant expenses to engage third-party
contract CMOs to carry out their clinical manufacturing activities as they do not yet have a commercial organization, and incur significant
expenses related to developing their internal commercialization capability to support product sales, marketing and distribution. The
Company’s current working capital resources are sufficient to fund these material cash requirements for the next twelve months.
The
Company expects to finance future cash needs through public or private equity offerings, debt financings, or business development transactions.
If adequate funds are not available, the Company may be required to delay, reduce the scope of or eliminate research and development
programs or obtain funds through arrangements with collaborators or others that may require the Company to relinquish rights to certain
pipeline candidates that they might otherwise seek to develop or commercialize independently. The Company’s ability to finance
future cash needs through equity offerings may be limited by the amount of authorized and unissued shares. As of the date of filing of
this Quarterly Report on Form 10-Q, the Company does not have sufficient unreserved, authorized shares to secure an equity investment
of sufficient amount, based on the Company’s currently traded price per share. The Company intends to seek shareholder approval
for an increase in authorized shares to remedy the insufficiency of unreserved authorized shares. There can be no assurances given as
to shareholder approval of an increase in authorized shares.
Nasdaq
Notice
On
February 18, 2022, the Company received a letter from the Listing Qualifications Department of the Nasdaq indicating that, based upon
the closing bid price of the Company’s common stock for the 30 consecutive business day period between January 5, 2022, through
February 17, 2022, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital
Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the Company will be provided with a compliance period
of 180 calendar days, or until August 17, 2022 (the “Compliance Period”), in which to regain compliance pursuant to Nasdaq
Listing Rule 5810(c)(3)(A).
In
order to regain compliance with Nasdaq’s minimum bid price requirement, the Company’s common stock must maintain a minimum
closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period. In the event the Company does not
regain compliance by the end of the Compliance Period, the Company may be eligible for additional time to regain compliance. To qualify,
the Company will be required to meet the continued listing requirement for the market value of its publicly held shares and all other
initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written
notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split if necessary.
If the Company meets these requirements, the Company may be granted an additional 180 calendar days to regain compliance. However, if
it appears to Nasdaq that the Company will be unable to cure the deficiency, or if the Company is not otherwise eligible for the additional
cure period, Nasdaq will provide notice that the Company’s common stock will be subject to delisting.
While
the letter has no immediate impact on the listing of the Company’s common stock, which will continue to be listed and traded on
The Nasdaq Capital Market, subject to the Company’s compliance with the other listing requirements of The Nasdaq Capital Market,
a failure to cure this deficiency would result in a delisting from the Nasdaq, which would result in significantly increased uncertainty
as to the Company’s ability to raise capital required to fund its cash requirements.
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 accounting principles generally
accepted in the United States (“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 months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2022. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial
statements for the year ended December 31, 2021 and related notes thereto included in the Company’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022.
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
Company’s significant accounting policies and recent accounting standards are summarized in Note 2 of the Company’s financial
statements for the year ended December 31, 2021. There were no significant changes to these accounting policies during the three months
ended March 31, 2022.
Reclassification
Certain
reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation.
Certain amounts related to depreciation and amortization from the prior period were reclassified from General and administrative line
item to Depreciation and amortization line item on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income
(Loss). These reclassifications had no net effect on loss from operations, net loss, or cash flows as previously reported.
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.
Foreign
Currency Translation
From
inception through March 31, 2022, the reporting currency of the Company was the United States dollar while the functional currency of
the Company’s subsidiaries was the Canadian dollar. For the reporting periods ended March 31, 2022 and March 31, 2021, the Company
engaged in a number of transactions 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 translates the assets and liabilities of its Canadian subsidiaries into the U.S. dollar at the exchange rate in effect on the
balance sheet date. Revenues and expenses are translated at the average exchange rate in effect during each monthly period. Unrealized
translation gains and losses are recorded as foreign currency translation gain (loss), which is included in the consolidated statements
of shareholders’ equity as a component of accumulated other comprehensive income (loss).
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.
Adjustments
that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other comprehensive
income (loss) in the consolidated statements of operations and comprehensive income (loss) as incurred.
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 sheets. 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 statements 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.
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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). The computation of basic net loss per share for the three months ended March 31, 2022 and 2021 excludes
potentially dilutive securities. The computations of net loss per share for each period presented is the same for both basic and fully
diluted. In accordance with ASC 260-10-45-13, penny warrants were included in the calculation of weighted average shares outstanding
for purposes of calculating basic and diluted earnings per share.
Potentially
dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share for the three months
ended March 31, 2022 and 2021 because the effect of their inclusion would have been anti-dilutive.
SCHEDULE
OF POTENTIALLY DILUTIVE SECURITIES
| | |
2022 | | |
2021 | |
| | |
For
the Three Months Ended March 31, | |
| | |
2022 | | |
2021 | |
| Warrants to purchase shares of
common stock | |
| 32,768,766 | | |
| 5,979,611 | |
| Restricted stock units - vested and unissued | |
| 2,785,820 | | |
| 1,207,825 | |
| Restricted stock units - unvested | |
| 4,793,102 | | |
| 2,071,459 | |
| Restricted stock awards - vested and unissued | |
| 42,131 | | |
| 44,390 | |
| Restricted stock awards - unvested | |
| 6,477 | | |
| 26,596 | |
| Options to purchase
shares of common stock | |
| 1,141,434 | | |
| 369,361 | |
| Total potentially dilutive
securities | |
| 41,537,730 | | |
| 9,699,242 | |
Fair Value Measurements
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes
the inputs to valuation methodologies used to measure fair value:
Level
1 - Valuations based on quoted prices for identical assets and liabilities in active markets.
Level
2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and
liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other
inputs that are observable or can be corroborated by observable market data.
Level
3 - Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by
other market participants. These valuations require significant judgment.
For
certain financial instruments, including cash, accounts receivable, and accounts payable, the carrying amounts approximate their fair
values as of March 31, 2022 and December 31, 2021 because of their short-term nature.
The
following table provides the financial liabilities measured on a recurring basis and reported at fair value on the balance sheet as of
March 31, 2022 and indicates the fair value of the valuation inputs the Company utilized to determine such fair value:
SCHEDULE
OF FAIR VALUE HIERARCHY OF VALUATION INPUTS ON RECURRING BASIS
| | |
Level | |
March
31, 2022 | | |
December
31, 2021 | |
| Warrant liabilities - January 2021
Warrants | |
3 | |
$ | 41,201 | | |
$ | 333,471 | |
| Warrant liabilities - February 2021 Warrants | |
3 | |
| 41,695 | | |
| 320,203 | |
| Warrant liabilities
- February 2022 Warrants | |
3 | |
| 3,890,229 | | |
| — | |
| Fair value as of March 31, 2022 | |
| |
$ | 3,973,125 | | |
$ | 653,674 | |
| Fair value | |
| |
$ | 3,973,125 | | |
$ | 653,674 | |
The
warrant liabilities are all 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 analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Initial
measurement
The
Company established the initial fair value of its warrant liabilities at the respective dates of issuance. The Company used a Black Scholes
valuation model in order to determine their value. The key inputs into the Black Scholes valuation model for the initial valuations are
below:
SCHEDULE
OF BLACK SCHOLES VALUATION MODELS OF WARRANT LIABILITIES
| | |
February 2022
Warrants | |
| | |
February
15, 2022 | |
| Term (years) | |
| 5.0 | |
| Stock price | |
$ | 0.32 | |
| Exercise price | |
$ | 0.55 | |
| Dividend yield | |
| — | % |
| Expected volatility | |
| 74.1 | % |
| Risk free interest rate | |
| 1.9 | % |
| | |
| | |
| Number of warrants | |
| 23,000,000 | |
| Value (per share) | |
$ | 0.16 | |
Subsequent
measurement
The
following table presents the changes in fair value of the warrant liabilities:
SCHEDULE
OF FAIR VALUE OF WARRANT LIABILITIES
| | |
Total
Warrant Liabilities | |
| Fair value as of December 31, 2021 | |
$ | 653,674 | |
| Issuance of February 2022 warrants | |
| 3,595,420 | |
| Change in fair value | |
| (275,969 | ) |
| Fair value as of March 31, 2022 | |
$ | 3,973,125 | |
The
key inputs into the Black Scholes valuation model for the Level 3 valuations as of March 31, 2022 are below:
SCHEDULE
OF BLACK SCHOLES VALUATION MODELS OF WARRANT LIABILITIES
| | |
January
2021 Warrants | | |
February
2021 Warrants | | |
February
2022 Warrants | |
| Term (years) | |
| 3.8 | | |
| 3.9 | | |
| 4.9 | |
| Stock price | |
$ | 0.33 | | |
$ | 0.33 | | |
$ | 0.33 | |
| Exercise price | |
$ | 4.95 | | |
$ | 4.90 | | |
$ | 0.55 | |
| Dividend yield | |
| — | % | |
| — | % | |
| — | % |
| Expected volatility | |
| 76.0 | % | |
| 76.0 | % | |
| 75.3 | % |
| Risk free interest rate | |
| 2.44 | % | |
| 2.44 | % | |
| 2.42 | % |
| | |
| | | |
| | | |
| | |
| Number of warrants | |
| 1,821,449 | | |
| 1,714,005 | | |
| 23,000,000 | |
| Value (per share) | |
$ | 0.02 | | |
$ | 0.02 | | |
$ | 0.17 | |
Leases
Operating
lease assets are included within right-of-use operating lease asset and operating lease liabilities are included in current portion of
right-of-use operating lease obligation and non-current portion of right-of-use operating lease obligation on the consolidated balance
sheet as of March 31, 2022. The Company has elected not to present short-term leases as these leases have a lease term of 12 months or
less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. All
other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement
date. Because most of the Company’s leases do not provide an implicit rate of return, the Company used an incremental borrowing
rate based on the information available at adoption date in determining the present value of lease payments.
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3.
INTANGIBLE ASSETS AND GOODWILL
As
of March 31, 2022, the Company’s intangible assets consisted of:
SCHEDULE
OF GOODWILL INDEFINITE AND FINITE LIVED INTANGIBLE ASSETS
| Goodwill | |
| | |
| Balance at December 31, 2021 | |
$ | 1,587,634 | |
| Gain
on currency translation | |
| 23,146 | |
| Balance
at March 31, 2022 | |
$ | 1,610,780 | |
| | |
| | |
| Indefinite lived intangible
assets | |
| | |
| Balance at December 31, 2021 | |
$ | 6,375,492 | |
| Gain
on currency translation | |
| 92,948 | |
| Balance
at March 31, 2022 | |
$ | 6,468,440 | |
| | |
| | |
| Definite lived intangible
assets | |
| | |
| Balance at December 31, 2021 | |
$ | 548,436 | |
| Amortization | |
| (42,188 | ) |
| Balance
at March 31, 2022 | |
$ | 506,248 | |
For
goodwill, identified indefinite lived assets, and identified definite lived intangible assets, there was no impairment expense during
the three months ended March 31, 2022 and 2021. For identified definite lived intangible assets, amortization expense amounted to $42,188
and $136,640 during the three months ended March 31, 2022 and 2021, respectively.
The
Company amortizes definite lived intangible assets on a straight-line basis over their estimated useful lives. Amortization expense
of identified intangible assets based on the carrying amount as of March 31, 2022 is as follows:
SCHEDULE
OF FINITE LIVED INTANGIBLE ASSETS AMORTIZATION EXPENSES
| Year
ending December 31, | |
| |
| 2022 (excluding the three months ended March 31) | |
$ | 126,563 | |
| 2023 | |
| 168,750 | |
| 2024 | |
| 168,750 | |
| 2025 | |
| 42,185 | |
| Finite lived Assets Amortization Expense | |
$ | 506,248 | |
4.
PROPERTY AND EQUIPMENT
Property
and equipment consists of the following assets which are located in Calgary, Canada and placed in service by Enveric Biosciences Canada,
Inc (“EBCI”), with all amounts translated into U.S. dollars:
SCHEDULE
OF PROPERTY PLANT AND EQUIPMENT NET OF ACCUMULATED DEPRECIATION
| | |
March
31, 2022 | | |
December
31, 2021 | |
| Lab equipment | |
$ | 814,555 | | |
$ | 310,957 | |
| Computer equipment | |
| 16,660 | | |
| 10,818 | |
| Property
and Equipment, gross | |
| | | |
| | |
| Less: Accumulated depreciation | |
| (54,422 | ) | |
| (27,345 | ) |
| Property
and equipment, net of accumulated depreciation | |
$ | 776,793 | | |
$ | 294,430 | |
Depreciation
expense was $27,077 and $— for the three months ended March 31, 2022 and 2021, respectively.
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5.
SHARE CAPITAL AND OTHER EQUITY INSTRUMENTS
Authorized
Capital
The
holders of the Company’s common stock (“Common Stock”) are entitled to one vote per share. Holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds.
Upon the liquidation, dissolution, or winding up of the Company, holders of common stock are entitled to share ratably in all assets
of the Company that are legally available for distribution. As of March 31, 2022, 100,000,000 shares of common stock were authorized
under the Company’s articles of incorporation.
On
December 30, 2020, the Company amended its articles of incorporation to designate and authorize 20,000,000 shares of preferred stock.
The Company issued Series B preferred stock (“Series B Preferred Stock), which has a certificate of designation authorizing issuance
of 3,600,000 preferred shares. During the three months ended March 31, 2021, holders of an aggregate of 3,275,407 shares of Series B
Preferred Stock converted their shares into 3,275,407 shares of common stock. Following those conversions, no Series B Preferred stock
shares remain outstanding.
Common
Stock Activity
On
February 15, 2022, the Company completed a public offering of 20,000,000 shares of Common Stock and warrants to purchase up to 20,000,000
shares of Common Stock for gross proceeds of approximately $10 million, before deducting underwriting discounts and commissions and other
offering expenses. A.G.P./Alliance Global Partners acted as sole book-running manager for the offering. In addition, Enveric granted
the underwriter a 45-day option to purchase up to an additional 3,000,000 shares of common stock and/or warrants to purchase up to an
additional 3,000,000 shares of common stock at the public offering price, which the underwriter has partially exercised for warrants
to purchase up to 3,000,000 shares of common stock. At closing, Enveric received net proceeds from the offering of approximately $9.1
million, after deducting underwriting discounts and commissions and estimated offering expenses with $5.8 million allocated to equity,
$3.6 million to warrant liability and the remaining $0.3 million recorded as an expense.
During
the three months ended March 31, 2022, a total of 44,932 shares of Common Stock were issued pursuant to the conversion of restricted
stock units.
Stock
Options
A
summary of activity under the Company’s incentive plan for the three months ended March 31, 2022 is presented below:
SCHEDULE
OF STOCK OPTION
| | |
Number
of Shares | | |
Weighted
Average Exercise Price | | |
Weighted
Average Grant Date Fair Value | | |
Weighted
Average Remaining Contractual Term (years) | | |
Aggregate
Intrinsic Value | |
| Outstanding at December 31, 2021 | |
| 1,191,434 | | |
$ | 1.58 | | |
$ | 2.07 | | |
| 5.3 | | |
$ | 34,333 | |
| Forfeited | |
| (50,000 | ) | |
| 3.50 | | |
| 2.81 | | |
| — | | |
| — | |
| Outstanding at March 31, 2022 | |
| 1,141,434 | | |
$ | 1.50 | | |
$ | 2.03 | | |
| 4.9 | | |
$ | — | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Exercisable at March 31, 2022 | |
| 958,915 | | |
$ | 1.50 | | |
$ | 2.01 | | |
| 4.2 | | |
$ | — | |
The
Company’s stock based compensation expense, recorded within general and administrative expense, related to stock options
for the three months ended March 31, 2022 and 2021 was $36,989
and $ ,
respectively. As of March 31, 2022, the Company
had $319,895
in unamortized stock option expense, which will
be recognized over a weighted average period of 1.8
years.
During
the three months ended March 31, 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
consolidated statement of operations and comprehensive income (loss).
Restricted
Stock Awards
The
Company’s activity in restricted common stock was as follows for the three months ended March 31, 2022:
SCHEDULE
OF RESTRICTED STOCK UNITS AND AWARDS ACTIVITY
| | |
Number
of shares | | |
Weighted
average fair value | |
| Non-vested at December 31, 2021 | |
| 51,509 | | |
$ | 2.83 | |
| Granted | |
| 1,872,215 | | |
$ | 0.67 | |
| Forfeited | |
| (35,000 | ) | |
$ | 2.93 | |
| Vested | |
| (10,032 | ) | |
$ | 3.05 | |
| Non-vested at March 31, 2022 | |
| 6,477 | | |
$ | 1.93 | |
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the three months ended March 31, 2022 and 2021, the Company recorded $11,863
and $32,112,
in stock-based compensation expense within general and administrative expense, related to restricted stock awards, respectively.
As of March 31, 2022, unamortized stock-based compensation costs related to restricted share awards was $12,500,
which will be recognized over a weighted average period of 0.5
years. The balance of Common Shares related to
the vested restricted stock awards as of March 31, 2022 will be issued during the 2022 calendar year. There are 42,131
vested and unissued shares of restricted stock
awards as of March 31, 2022.
Issuance
of Restricted Stock Units
The
Company’s activity in restricted stock units was as follows for the three months ended March 31, 2022:
SCHEDULE
OF RESTRICTED STOCK UNITS AND AWARDS ACTIVITY
| | |
Number
of shares | | |
Weighted
average fair value | |
| Non-vested at December 31, 2021 | |
| 3,100,613 | | |
$ | 2.52 | |
| Granted | |
| 1,872,215 | | |
$ | 0.67 | |
| Forfeited | |
| (134,794 | ) | |
$ | 3.99 | |
| Vested | |
| (44,932 | ) | |
$ | 3.99 | |
| Non-vested at March 31, 2022 | |
| 4,793,102 | | |
$ | 1.75 | |
For
the three months ended March 31, 2022 and 2021, the Company recorded $719,767 and $3,559,453, respectively, in stock-based compensation
expense related to restricted stock units. As of March 31, 2022, the Company had unamortized stock-based compensation costs related to
restricted stock units of $7,070,834 which will be recognized over a weighted average period of 3.4 years and unamortized stock-based
costs related to restricted stock units. As of March 31, 2022, 44,932 shares of Common Stock have been issued in relation to vested restricted
stock units and 2,785,820 restricted stock units are vested without shares of Common Stock being issued.
The
following table summarizes the Company’s recognition of stock-based compensation for restricted stock units for the following periods:
SCHEDULE
OF STOCK-BASED COMPENSATION FOR RESTRICTED STOCK UNITS
| | |
| | |
| |
| | |
Three
months ended March 31, | |
| Stock-based compensation for RSU | |
2022 | | |
2021 | |
| General and administrative | |
$ | 358,818 | | |
$ | 3,559,453 | |
| Research and development | |
| 360,949 | | |
| — | |
| Total | |
$ | 719,767 | | |
$ | 3,559,453 | |
| Stock-based compensation | |
$ | 719,767 | | |
$ | 3,559,453 | |
Warrants
On
February 11, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with A.G.P./Alliance
Global Partners (the “Underwriter”). Pursuant to the Underwriting Agreement, the Company agreed to sell, in a firm commitment
offering, 20,000,000 shares of the Company’s common stock (“Common Stock”), $0.01 par value per share, and accompanying
warrants to purchase up to an aggregate of 20,000,000 shares of its common stock (“Warrants”), as well as up to 3,000,000
additional shares of common stock and/or warrants to purchase an aggregate of up to 3,000,000 shares of its common stock that may be
purchased by the Underwriter pursuant to a 45-day option granted to the Underwriter by the Company (the “Offering”). Each
share of common stock is being sold together with a common warrant to purchase one share of common stock, at an exercise price of $0.55
per share. Such common warrants are immediately exercisable and will expire five years from the date of issuance. There is not expected
to be any trading market for the common warrants issued in the Offering. The combined public offering price of each share of common stock
and accompanying common warrant sold in the Offering was $0.50. On February 14, 2022, the Underwriter exercised its option to purchase
an additional 3,000,000 warrants.
The
following table summarizes information about shares issuable under warrants outstanding at March 31, 2022:
SCHEDULE
OF WARRANTS
| | |
Warrant
shares outstanding | | |
Weighted
average exercise price | | |
Weighted
average remaining life | | |
Intrinsic
value | |
| Outstanding at December 31, 2021 | |
| 9,768,766 | | |
$ | 2.62 | | |
| 3.4 | | |
$ | 801,024 | |
| Granted | |
| 23,000,000 | | |
| 0.55 | | |
| — | | |
| — | |
| Outstanding at March 31, 2022 | |
| 32,768,766 | | |
$ | 1.17 | | |
| 4.4 | | |
$ | 35,729 | |
| | |
| | | |
| | | |
| | | |
| | |
| Exercisable at March 31, 2022 | |
| 32,768,766 | | |
$ | 1.17 | | |
| 4.4 | | |
$ | 35,729 | |
The
warrants assumed pursuant to the acquisition of MagicMed contain certain down round features, which were not triggered by the February
2022 public offering, that would require adjustment to the exercise price upon certain events when the offering price is less than the
stated exercise price.
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6.
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.
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 December 31, 2021, as a result of the milestone criteria being achieved. Payment was made during
January 2022. 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 equaling 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.
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Agreement
with Tikkun
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.
7.
INCOME TAXES
On
September 16, 2021, the Company acquired MagicMed. In connection with the acquisition, the Company recorded intangible assets from IPR&D
valued at $35,500,000,
which would be tested for impairment for book purposes, but without a tax basis, creating a deferred tax liability of $9,061,927.
The deferred tax liability decreased to $1,607,122
due to an impairment on intangible assets
of $29,048,164
and an impairment of goodwill of $8,225,862
for the year ended December 31, 2021. As of March
31, 2022, the balance of the deferred tax liability is $1,630,552.
8.
SUBSEQUENT EVENTS
Spin-Off and Related Private Placement
On May 11, 2022, the Company
announced plans to transfer and spin-off its cannabinoid clinical development pipeline assets to a wholly-owned subsidiary, Acanna Therapeutics,
Inc. (“Acanna”), which was incorporated on April 13, 2022, by way of dividend to Enveric shareholders (the “Spin-Off”).
The Spin-Off will be subject to various conditions, including Acanna meeting the qualifications for listing on The Nasdaq Stock Market,
and if successful, would result in two standalone public companies.
In connection with the Spin-Off,
on May 5, 2022, Acanna and the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an accredited
investor (the “Investor”), pursuant to which Acanna agreed to sell up to an aggregate of 5,000 shares of Acanna’s Series
A Convertible Preferred Stock, par value $0.01 per share (the “Acanna Series A Preferred Stock”), at price of $1,000 per
share, and warrants (the “Warrants”) to purchase shares of Acanna’s common stock, par value $0.01 per share (the “Acanna
Common Stock”), for an aggregate purchase price of up to $5,000,000 (the “Private Placement”). Pursuant to the Purchase
Agreement, Acanna has issued 1,000 shares of the Acanna Series A Preferred Stock to the Investor in exchange for $1,000,000 on May 5,
2022, with the remaining Acanna Series A Preferred Stock and Warrants to be issued for a price of $4,000,000 upon the completion of the
Spin-Off (such date that Acanna commences trading on the Nasdaq Stock Market, the “Spin-Off Date”). Pursuant the terms of
the Purchase Agreement and the Certificate of the Designations (as defined below), the holders of the Acanna Series A Preferred Stock
have a Put Right (as defined below) under certain circumstances described below, with Acanna’s payment obligations under the Put
Right guaranteed by the Company. The Purchase Agreement contains customary representations and warranties, agreements, obligations, conditions
to closing and termination provisions.
Palladium Capital Advisors,
LLC (“Palladium”) acted as placement agent for the Private Placement. Pursuant to the Purchase Agreement, Acanna has agreed
to pay Palladium a cash fee equal to 9% of the aggregate gross proceeds raised from the sale of the shares of the Acanna Series A Preferred
Stock and a non-accountable expense allowance of 1% of the aggregate gross proceeds raised the sale of the Acanna Series A Preferred
Stock in the Private Placement. In addition, Acanna will issue to Palladium warrants equal to 8% of the shares issuable upon conversion
of the Acanna Series A Preferred Stock (the “Palladium Warrants”). The fee due in connection with the Private Placement shall
be paid to Palladium in the form of convertible preferred stock and warrants on similar terms to the securities issued in the Private
Placement (together with the Palladium Warrants, the “Palladium Securities”).
Terms of Acanna Series A Preferred Stock
Under the Certificate of the
Designations, Preferences and Rights of Series A Convertible Preferred Stock (the “Certificate of Designations”), on or immediately
prior to the Spin-Off Date, the outstanding Acanna Series A Preferred Stock will be automatically converted into a number of shares of
Acanna Common Stock equal to 25% of the then issued and outstanding Acanna Common Stock, subject to the Beneficial Ownership Limitation
(as defined below).
The Certificate of Designations
contains limitations that prevent the holder thereof from acquiring shares of Acanna Common Stock upon conversion that would result in
the number of shares of Acanna Common Stock beneficially owned by such holder and its affiliates exceeding 9.99% of the total number
of shares of Acanna Common Stock outstanding immediately after giving effect to the conversion (the “Beneficial Ownership Limitation”),
except that upon notice from the holder to Acanna, the holder may increase or decrease the amount of ownership of outstanding shares
of Acanna Common Stock after converting the holder’s shares of Acanna Series A Preferred Stock, provided that any change in the
Beneficial Ownership Limitation shall not be effective until 61 days following notice to Acanna.
The Certificate of Designations
provides that upon the earlier of (i) the one-year anniversary of May 5, 2022, and only in the event that the Spin-Off has not occurred;
or (ii) such time that Acanna and the Company have abandoned the Spin-Off or the Company is no longer pursuing the Spin-Off in good faith,
the holders of the Acanna Series A Preferred Stock shall have the right (the “Put Right”), but not the obligation, to cause
Acanna to purchase all or a portion of the Acanna Series A Preferred Stock for a purchase price equal to $1,000 per share, subject to
certain adjustments as set forth in the Certificate of Designations (the “Stated Value”), plus all the accrued but unpaid
dividends per share. Starting on the execution date of the Purchase Agreement pursuant to which it is sold, each share of Acanna Series
A Preferred Stock shall accrue cumulative dividends at the rate of 5% per annum on the Stated Value, whether or not such dividends are
declared by the Board of Directors and whether or not the Corporation has the funds available to pay such dividends. These cumulative
dividends will automatically cease accruing on the Spin-Off Date. In addition, after the one-year anniversary of May 5, 2022, and only
in the event that the Spin-Off has not occurred and Acanna is not in material default of any of the transaction documents, Acanna may,
at its option, at any time and from time to time, redeem the outstanding shares of Acanna Series A Preferred Stock, in whole or in part,
for a purchase price equal to the aggregate Stated Value of the shares of Acanna Series A Preferred Stock being redeemed and the accrued
and unpaid dividends on such shares.
Registration Rights Agreement
In connection with the Private
Placement, Acanna entered into a registration rights agreement, dated as of May 5, 2022 (the “Registration Rights Agreement”),
with the Investor, pursuant to which Acanna shall, on such date that Acanna files a registration statement with the SEC in connection
with the Spin-Off, file such a registration statement to register the shares of Acanna Common Stock issuable upon: (i) the conversion
of the Acanna Series A Preferred Stock sold in the Private Placement, (ii) the exercise of the Warrants sold in the Private Placement,
and (iii) the conversion or exercise, as applicable, of the Palladium Securities (the “Registrable Securities”); and to cause
such registration statement to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”),
as promptly as possible after the filing thereof, but in any event no later than the Spin-Off Date, and shall use its reasonable best
efforts to keep such registration statement continuously effective under the Securities Act until the date that all Registrable Securities
covered by such registration statement have been sold or are otherwise able to be sold pursuant to Rule 144 promulgate under the Securities
Act. The Registration Rights Agreement provides for liquidated damages to the extent that Acanna does not file or maintain a registration
statement in accordance with the terms thereof.
Series
C Preferred Stock
On May 3, 2022, the Board
of Directors (the “Board”) declared a dividend of one one-thousandth of a share of Series C Preferred Stock (“Series
C Preferred Stock”) for each outstanding share of Common Stock (the “Common Stock”) held of record
as of 5:00 p.m. Eastern Time on May 13, 2022 (the “Record Date”). The outstanding shares of Series C Preferred
Stock will vote together with the outstanding shares of the Company’s Common Stock, as a single class, exclusively with respect
to a proposal to increase the number of authorized shares of the Company’s Common Stock, a proposal giving the Board of Directors
the authority, as it determines appropriate, to implement a reverse stock split within twelve months following the approval of such proposal
by the Company’s stockholders, as well as any proposal to adjourn any meeting of stockholders called for the purpose of voting
on the foregoing matters. If these proposals do not receive approval at a meeting of stockholders duly called for the purpose of voting
thereon, the Company may be unable to regain compliance with Nasdaq’s minimum bid price requirement within the required
period of time, which could lead to our Common Stock being delisted. If we are unable to maintain the listing of our Common Stock on
Nasdaq, we may face difficulty raising additional capital.
No shares of Series C Preferred Stock may be transferred by the holder
thereof except in connection with a transfer by such holder of any shares of Common Stock held by such holder.
Each share of Series C Preferred
Stock will entitle the holder thereof to 1,000,000 votes per share (and, for the avoidance of doubt, each fraction of a share of Series
C Preferred Stock will have a ratable number of votes). Thus, each one-thousandth of a share of Series C Preferred Stock would entitle
the holder thereof to 1,000 votes. The outstanding shares of Series C Preferred Stock will vote together with the outstanding shares
of Common Stock of the Company as a single class with respect to certain proposals to amend the Certificate of Incorporation (“Certificate
of Incorporation”) and to adjourn meetings of stockholders called for the purpose of voting on Reverse Stock Split (“Reverse
Stock Split”) or Share Increase Proposal (the “Adjournment Proposal”).
The holder of Series C Preferred
Stock, as such, will not be entitled to receive dividends of any kind.
The Series C Preferred Stock
will rank senior to the Common Stock as to any distribution of assets upon a liquidation, dissolution or winding up of the Company, whether
voluntarily or involuntarily (a “Dissolution”).
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
All
shares of Series C Preferred Stock that are not present in person or by proxy at any meeting
of stockholders held to vote on the Reverse Stock Split, the Share Issuance Proposal and
the Adjournment Proposal as of immediately prior to the opening of the polls at such meeting
(the “Initial Redemption Time”) will automatically be redeemed in whole, but
not in part, by the Company at the Initial Redemption Time without further action on the
part of the Company or the holder of shares of Series C Preferred Stock (the “Initial
Redemption”).
The Series C Preferred Stock
is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Series
C Preferred Stock has no stated maturity and is not subject to any sinking fund. The Series C Preferred Stock is not subject to any restriction
on the redemption or repurchase of shares by the Company while there is any arrearage in the payment of dividends or sinking fund installments.
The Certificate of Designation
was filed with the Delaware Secretary of State and became effective on May 4, 2022.
Departure of Directors or Certain Officers
On May 3, 2022, Brad Thompson,
PhD resigned from the board of directors of the Company. Dr. Thompson’s resignation was not the result of any disagreement regarding
any matter relating to the Company’s operations, policies, or practices.
Issuance of Shares
In April 2022, the Company
issued an aggregate of 61,141 shares of Common Stock to its Directors, with such shares being the vested components of restricted stock
awards granted to the Company’s Directors in accordance with the Company’s Director compensation policies. The shares were
issued with legends which restrict their trading on the Nasdaq exchange .