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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

(Amendment No. 1)

 

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the annual period ended: December 31, 2022

 

OR

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from ___ to ___

 

Commission File Number 001-38286

 

ENVERIC BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   95-4484725

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

4851 Tamiami Trail N, Suite 200

Naples, FL

  34103
(Address of principal executive offices)   (Zip code)

 

(239) 302-1707

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.01 par value per share   ENVB   The Nasdaq Stock Market LLC

 

Securities registered under section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation of its management’s assessment of the effectiveness of its internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of June 30, 2022, the last day of the registrant’s most recently completed second fiscal quarter; the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based on a closing price of $10.72 per share, was approximately $11.0 million.

 

As of March 30, 2023, there were 2,078,271 shares outstanding of Registrant’s Common Stock (par value $0.01 per share).

 

DOCUMENTS INCORPORATED BY REFERENCE

 

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus if led pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

 

None.

 

 

 

 

 

 

EXPLANATORY NOTE

 

This Amendment No. 1 to our Annual Report on Form 10-K (this “Amendment”) amends the Annual Report of Enveric Biosciences, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2022, which was originally filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023 (the “Original Filing”). This Amendment is being filed solely to amend the reports of the Company’s independent registered public accounting firms included in the Original Filing with respect to the audited consolidated financial statements of the Company for the years ended December 31, 2022 and 2021, which inadvertently omitted which independent registered public accounting firm audited the adjustments made to the audited consolidated financial statements of the Company for the fiscal year ended December 31, 2021, to reflect the 1-for-50 reverse stock split of the shares of the Company’s common stock, which was effected on July 14, 2022.

 

In connection with the filing of this Amendment and pursuant to the rules of the SEC, we are including with this Amendment new certifications by our principal executive and principal financial officers. Accordingly, Item 15 of Part IV has also been amended to reflect the filing of these new certifications.

 

Accordingly, this Amendment consists of a cover page, this Explanatory Note, a revised Part II, Item 8, an updated Exhibit Index, new consents of the Company’s independent registered public accounting firms and new certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002.

 

This Amendment does not modify, amend or update in any way the financial statements and other disclosures set forth in the Original Filing and there have been no changes to the XBRL data filed in Exhibit 101 of the Original Filing. In addition, this Amendment does not reflect events occurring after the filing of the Original Filing, nor does it modify or update disclosures therein in any way other than as required to reflect the revisions described above. Among other things, forward-looking statements made in the Original Filing have not been revised to reflect events that occurred or facts that became known to us after the filing of the Original Filing, and any such forward looking statements should be read in their historical context. Accordingly, this Amendment should be read in conjunction with the Original Filing.

 

 
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

 

FORM 10-K

 

TABLE OF CONTENTS

 

    Page
EXPLANATORY NOTE  
     
  PART II  
Item 8. Financial Statements and Supplementary Data 2
     
  PART IV  
Item 15. Exhibits and Financial Statement Schedules 2
SIGNATURES 7

 

1
 

 

PART II

 

Item 8. Financial Statements and Supplementary Data

 

The information required by this Item 8 is included at the end of this Annual Report on Form 10-K beginning on page F-1.

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

 

The following documents are filed as part of this Annual Report on Form 10-K:

 

(1) Financial Statements:

 

Reports of Independent Registered Accounting Firm (PCAOB Firm ID : Marcum LLP #688 and Friedman LLP #711) F-1
Consolidated Balance Sheets F-4
Consolidated Statements of Operations and Comprehensive Loss F-5
Consolidated Statements of Changes in Temporary Equity and Shareholders’ Equity F-6
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9

 

2
 

 

(2) Financial Statement Schedules:

 

None. Financial statement schedules have not been included because they are not applicable, or the information is included in the consolidated financial statements or notes thereto.

 

(3) Exhibits:

 

See “Index to Exhibits” for a description of our exhibits.

 

INDEX TO EXHIBITS

 

Exhibit No.   Description
     
2.1   Share Purchase Agreement, dated January 10, 2020, by and between AMERI Holdings, Inc. and Ameri100, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2020)
2.2   Tender Offer Support Agreement and Termination of Amalgamation Agreement, dated August 12, 2020, by and among AMERI Holdings, Inc., Jay Pharma Merger Sub, Inc., Jay Pharma Inc., 1236567 B.C. Unlimited Liability Company and Barry Kostiner, as the Ameri representative (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on August 12, 2020)
2.3   Amendment No. 1 To Tender Offer Support Agreement and Termination of Amalgamation Agreement, dated December 18, 2020, by and among Ameri, Jay Pharma Merger Sub, Inc., Jay Pharma Inc., 1236567 B.C. Unlimited Liability Company and Barry Kostiner, as the Ameri representative (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 18, 2020)
2.4   Amalgamation Agreement, dated May 24, 2021, by and among Enveric Biosciences, Inc., 1306432 B.C. LTD., 1306436 B.C. LTD., and MagicMed Industries, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on May 24, 2021)
3.1   Amended and Restated Certificate of Incorporation of Enveric Biosciences, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021)
3.2   Certificate of Amendment to Amended and Restated Certificate of Incorporation of Enveric Biosciences, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021)
3.3   Certificate of Designations of Series B Preferred Stock of Enveric Biosciences, Inc. (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021)
3.4   Amended and Restated Bylaws of Enveric Biosciences, Inc. (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021)
3.5   Amendment to the Amended and Restated Bylaws of Enveric Biosciences, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on November 18, 2021)

 

3
 

 

3.6   Certificate of Designation of the Series C Preferred Stock of the Company, dated May 4, 2022 (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on May 4, 2022, File No. 000-26460)
3.7   Certificate of Amendment of Certificate of Designation of the Series C Preferred Stock of the Company, dated May 17, 2022 (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 8-A/A, filed with the Securities and Exchange Commission on May 17, 2022, File No. 000 26460)
3.8   Certificate of Amendment of Amended and Restated Certificate of Incorporation of Enveric Biosciences, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on July 14, 2022)
4.1   Description of Securities (incorporated by reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 31, 2023)
4.2   Form of Pre-Funded Warrant (issued in connection with January 2021 Registered Direct Offering) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 12, 2021)
4.3   Form of Warrant (issued in connection with January 2021 Registered Direct Offering) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the Commission on January 12, 2021)
4.4   Form of Warrant (issued in connection with February 2021 Registered Direct Offering) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 11, 2021)
4.5   Form of Series B Warrant (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2021)
4.6   Form of MagicMed Warrant Certificate (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 2021)
4.7   Form of Common Stock Purchase Warrant (in connection with February 2022 Offering) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 15, 2022)
4.8   Form of RD Pre-Funded Warrant (in connection with July 2022 Offering) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022)
4.9   Form of PIPE Pre-Funded Warrant (in connection with July 2022 Offering) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022)
4.10   Form of RD Preferred Investment Option (in connection with July 2022 Offering) (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022)
4.11   Form of PIPE Preferred Investment Option (in connection with July 2022 Offering) (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022)
4.12   Form of Wainwright Warrant (in connection with July 2022 Offering) (incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022)
10.1#   Employment Agreement between Kevin Coveney and the Company, effective March 13, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 28, 2023)
10.2   Form of Securities Purchase Agreement (entered into in connection with the May 5, 2022 Private Placement) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on May 11, 2022)
10.3   Certificate of the Designations, Preferences and Rights of Akos Series A Convertible Preferred Stock (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on May 11, 2022)
10.4   Form of Registration Rights Agreement (entered into in connection with the May 5, 2022 Private Placement) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Commission on May 11, 2022)
10.5   Form of Warrant (entered into in connection with the May 5, 2022 Private Placement) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the Commission on May 11, 2022)
10.6   Form of Warrant Amendment (in connection with the July 2022 Offerings) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022)
10.7   First Amendment to the Enveric Biosciences, Inc. 2020 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on July 14, 2022)
10.8   Form of Warrant Amendment (in connection with July 2022 Offering) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022)

 

4
 

 

10.9   Form of Securities Purchase Agreement (in connection with July 2022 Offering) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022)
10.10   Form of Securities Purchase Agreement (in connection with July 2022 Offering) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022)
10.11   Form of Registration Rights Agreement (in connection with July 2022 Offering) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022)
10.12   Assignment and Assumption Agreement (Non-U.S. GVHD Sublicense), dated January 10, 2020, by and among Tikkun Pharma, Inc., Jay Pharma Inc. and Tikun Olam IP Ltd. (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2021)
10.13   Amendment No. 1 to Assignment and Assumption Agreement (Non-U.S. GVHD Sublicense), dated August 12, 2020, by and among Tikkun Pharma, Inc., Jay Pharma Inc. and Tikun Olam IP Ltd. (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2021)
10.14   Amendment No. 2 to Assignment and Assumption Agreement (Non-U.S. GVHD Sublicense and Skincare), dated October 2, 2020, by and among Tikkun Pharma, Inc., Jay Pharma Inc. and Tikun Olam IP Ltd. (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2021)
10.15   Assignment and Assumption Agreement (U.S. GVHD Sublicense and Skincare), dated January 10, 2020, by and among Tikkun Pharma, Inc., Jay Pharma Inc. and TO Pharmaceuticals USA LLC (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2021)
10.16   Amendment No. 1 to Assignment and Assumption Agreement (U.S. GVHD Sublicense and Skincare), dated August 12, 2020, by and among Tikkun Pharma, Inc., Jay Pharma Inc. and TO Pharmaceuticals USA LLC (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2021)
10.17   Amendment No. 2 to Assignment and Assumption Agreement (U.S. GVHD Sublicense and Skincare), dated October 2, 2020, by and among Tikkun Pharma, Inc., Jay Pharma Inc. and TO Pharmaceuticals USA LLC (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2021)
10.18   License Agreement, dated January 10, 2020, by and among Tikun Olam LLC, Tikun Olam Hemp LLC and Jay Pharma Inc. (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2021)
10.19   Amendment No. 1 to License Agreement, dated August 12, 2020, by and among Tikun Olam LLC, Tikun Olam Hemp LLC and Jay Pharma Inc. (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2021)
10.20   Amendment No. 2 to License Agreement, dated October 2, 2020, by and among Tikun Olam LLC, Tikun Olam Hemp LLC and Jay Pharma Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2021)
10.21#   Employment Agreement, dated January 10, 2020, by and between the Company and David Johnson (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021)
10.22#   Employment Agreement, dated December 2, 2020, by and between the Company and Avani Kanubaddi (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021)
10.23#   Employment Agreement, dated December 22, 2020, by and between the Company and Robert Wilkins (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021)
10.24#   Consulting Agreement, dated December 29, 2020, by and between the Company and Barry Kostiner (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021)
10.25   Enveric Biosciences, Inc. 2020 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021)

 

5
 

 

10.26   Form of RSU Award Agreement (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021)
10.27   Form of Securities Purchase Agreement, dated January 11, 2021, by and among the Company and the purchasers thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 12, 2021)
10.28   Form of Registration Rights Agreement, dated January 11, 2021, by and among the Company and the purchasers thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on January 12, 2021)
10.29   Letter Agreement, dated January 11, 2021, by and between the Company and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Commission on January 12, 2021)
10.30   Form of Securities Purchase Agreement, dated February 9, 2021, by and among the Company and the purchasers thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 11, 2021)
10.31   Form of Registration Rights Agreement, dated February 9, 2021, by and among the Company and the purchasers thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on February 11, 2021)
10.32   Development and Clinical Supply Agreement, between the Company and PureForm Global, Inc., dated February 22, 2021 (incorporated by reference to Exhibit 10.5 the Company’s Quarterly Report on Form 10-Q, filed with the Commission on May 17, 2021)
10.33   Exclusive License Agreement, between the Company and Diverse Biotech, Inc., dated March 5, 2021 (incorporated by reference to Exhibit 10.6 the Company’s Quarterly Report on Form 10-Q, filed with the Commission on May 17, 2021)
10.34#   Employment Agreement between Carter J. Ward and the Company, effective May 15, 2021 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 12, 2021)
10.35   Form of Voting and Support Agreement, dated as of May 24, 2021, by and among Enveric Biosciences, Inc. and certain shareholders of MagicMed Industries Inc. named therein (incorporated by reference to Annex B-1 to the Company’s Proxy Statement/Prospectus, filed with the Commission on August 6, 2021)
10.36   Form of Voting Agreement, dated as of May 24, 2021, by and among MagicMed Industries Inc. and certain shareholders of Enveric Biosciences, Inc. named therein (incorporated by reference to Annex B-2 to the Company’s Proxy Statement/Prospectus, filed with the Commission on August 6, 2021)
10.37   Form of Lock-Up Agreement, dated as of May 24, 2021, by and among Enveric Biosciences, Inc. and certain shareholders of MagicMed Industries Inc. named therein (incorporated by reference to Annex C-1 to the Company’s Proxy Statement/Prospectus, filed with the Commission on August 6, 2021)
10.38   Form of Lock-Up/Leak-Out Agreement, dated as of May 24, 2021, by and among Enveric Biosciences, Inc. and certain shareholders of MagicMed Industries Inc. named therein (incorporated by reference to Annex C-2 to the Company’s Proxy Statement/Prospectus, filed with the Commission on August 3, 2021)
10.39#   Employment Agreement between Joseph Tucker and Enveric Biosciences, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2021)
10.40#   Employment Agreement between Peter Facchini and Enveric Biosciences, Inc. (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2021)
10.41#   Employment Agreement between Jillian Hagel and Enveric Biosciences, Inc. (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2021)
10.42   MagicMed Stock Option Plan, as amended September 10, 2021 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 2021)
16.1   Letter dated January 6, 2021 from Ram Associates, CPA to the Securities and Exchange Commission. (incorporated by reference to Exhibit 16.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 6, 2021)
16.2   Letter of Marcum LLP to the Securities and Exchange Commission, dated June 29, 2021. (incorporated by reference to Exhibit 16.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 23, 2021)
21.1   Subsidiaries (incorporated by reference to Exhibit 21.1 of the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 31, 2023)
23.1   Consent of independent registered public accountant – Marcum LLP relating to the Original Filing (previously filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2023)
23.2   Consent of independent registered public accountant – Friedman LLP relating to the Original Filing (previously filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2023)
23.3*   Consent of independent registered public accountant – Marcum LLP relating to this Annual Report on Form 10-K/A
23.4*   Consent of independent registered public accountant – Friedman LLP relating to this Annual Report on Form 10-K/A
31.1   Certification pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 of Principal Executive Officer relating to the Original Filing (previously filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2023)
31.2   Certification pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 of Principal Financial and Accounting Officer relating to the Original Filing (previously filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2023)
31.3*   Certification pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 of Principal Executive Officer relating to this Annual Report on Form 10-K/A
31.4*   Certification pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 of Principal Financial and Accounting Officer relating to this Annual Report on Form 10-K/A
32.1   Certification pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 of Principal Executive Officer, Principal Financial and Accounting Officer relating to the Original Filing (previously furnished with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2023)
32.2**   Certification pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 of Principal Executive Officer, Principal Financial and Accounting Officer relating to this Annual Report on Form 10-K/A
101.INS   Inline XBRL Instance Document*
101.SCH   Inline XBRL Taxonomy Extension Schema*
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB   Inline XBRL Taxonomy Extension Labels Linkbase Document*
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

*   Filed herewith.
**   Furnished herewith.
#   Management contract or compensatory plan or arrangement.

 

6
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

ENVERIC BIOSCIENCES, INC.    
     
June 8, 2023 By: /s/ Joseph Tucker 
    Joseph Tucker
    Chief Executive Officer
    (Principal Executive Officer)

 

7
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

Enveric Biosciences, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Enveric Biosciences, Inc. (the “Company”) as of December 31, 2022, the related consolidated statements operations and comprehensive loss, changes in temporary equity and shareholders’ equity and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

 

We also audited adjustments to the 2021 financial statements to retroactively apply the effects of the reverse stock split as described in Note 1. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the Company’s 2021 financial statements other than with respect to the reverse stock split adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2021 financial statements as a whole.

 

Explanatory Paragraph – Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

F-1
 

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Impairment of Long-lived Assets

 

Critical Audit Matter Description

 

 

As discussed in Notes 2 and 4 to the financial statements, the Company reviews goodwill on an annual basis for impairment, or when circumstances indicate the assets might be impaired. Additionally, the Company reviews long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Due to a sustained decline in the Company’s market capitalization, the Company performed an impairment analysis and determined that an impairment of goodwill and long-lived assets existed at December 31, 2022.

 

Auditing the Company’s accounting for impairment of goodwill and long-lived assets required a high degree of subjective auditor judgment in evaluating the estimated discounted future cash flows used to test reporting units for recoverability and the determination of fair value of the relevant assets. The high degree of auditor judgement and increased extent of effort, including the need to involve valuation specialists, was required to evaluate the reasonableness of management’s analysis related to the impairment of goodwill and long-lived assets.

     

How We Addressed the Matter in Our Audit

 

 

  We obtained an understanding and evaluated the procedures over management’s impairment review process. We evaluated the reasonableness of management’s inputs inclusive of forecasts and discount rates used in the impairment analysis. With the assistance of our valuation specialists, we evaluated the reasonableness of the valuation methodology, tested the mathematical accuracy of the calculation and developed a range of independent estimates to determine reasonableness of valuation conclusions.

 

Redeemable Non-controlling Interest and Derivative Liability

 

Critical Audit Matter Description

 

 

As discussed in Notes 1, 2 and 8 to the financial statements, the Company announced plans to transfer and spin-off its cannabinoid clinical development pipeline assets to Akos Biosciences, Inc. (“Akos”) a majority owned subsidiary of the Company. Akos entered into a Securities Purchase Agreement, pursuant to which Akos agreed to sell to an investor 1,000 shares of Akos’ Series A Convertible Preferred Stock for $1.0 million during the year ended December 31, 2022. If the Spin-Off does not occur, the Company has guaranteed the redeemable non-controlling interest associated with the put right option as defined in the Series A Convertible Preferred Stock agreement. Fees associated with the spin-off including, but not limited to, placement agent fees, are contingent upon the spin-off occurring.

 

Auditing the accounting conclusions for the issuance of the Series A Convertible Preferred Stock discussed above was challenging because of the complex provisions affecting classification and required extensive audit effort. The accounting for the Series A Convertible Preferred Stock involved an assessment of the particular features in the agreement and Certificate of Designation and the impact of those features on the accounting and classification of the Series A Convertible Preferred Stock. The determination of fair value requires significant judgement by management and third-party valuation specialists to develop significant estimates and assumptions including the probability of the spin off occurring. Auditing management’s judgements involved especially challenging auditor judgement due to the nature and extent of audit effort required.

     

How We Addressed the Matter in Our Audit

 

 

  We obtained an understanding and evaluated the procedures over management’s technical accounting analysis and valuation process. We inspected the governing agreements for the transaction and evaluated the application of the Company’s technical accounting analyses including evaluating the terms and management’s conclusion on the interpretation and application of the relevant accounting literature. With the assistance of our valuation specialists, we evaluated the reasonableness of the valuation methodology used, we evaluated the reasonableness of the inputs subject to assumptions and verified the accuracy and completeness of those inputs to the underlying transaction data utilized in the valuation of the preferred stock and derivative liability; we performed sensitivity analyses of the significant assumptions used in the valuation model to evaluate the change in fair value resulting from changes in the significant assumptions to determine reasonableness of the valuation conclusions.

 

/s/ Marcum LLP

 

We have served as the Company’s auditor since 2021 (such date takes into account the acquisition of certain assets of Friedman LLP by Marcum LLP effective September 1, 2022).

 

East Hanover, New Jersey

March 31, 2023

 

F-2
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors of Enveric Biosciences, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Enveric Biosciences, Inc. (the Company) as of December 31, 2021, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

We were not engaged to audit, review or apply any procedures to retroactively apply the effects of the reverse stock split described in Note 1, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Marcum LLP.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ Friedman LLP
   
We have served as the Company’s auditor from 2021 through 2022.
East Hanover, New Jersey
March 31, 2022  

 

F-3
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   2022   2021 
   As of December 31, 
   2022   2021 
ASSETS        
Current assets:          
Cash  $17,723,884   $17,355,999 
Prepaid expenses and other current assets   708,053    380,838 
Total current assets   18,431,937    17,736,837 
           
Other assets:          
Property and equipment, net   677,485    294,430 
Right-of-use operating lease asset   63,817    176,304 
Intangible assets, net   379,686    6,923,928 
Goodwill       1,587,634 
Total other assets   1,120,988    8,982,296 
Total assets  $19,552,925   $26,719,133 
           
LIABILITIES, TEMPORARY EQUITY, AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $463,275   $683,393 
Accrued liabilities   1,705,655    1,292,721 
Current portion of right-of-use operating lease obligation   63,820    107,442 
Investment option liability   851,008     
Warrant liability   185,215    653,674 
Derivative liability   727,000     
Total current liabilities   3,995,973    2,737,230 
           
Non-current liabilities:          
Non-current portion of right-of-use operating lease obligation       68,861 
Deferred tax liability       1,607,122 
Total non-current liabilities       1,675,983 
Total liabilities  $3,995,973   $4,413,213 
           
Commitments and contingencies (Note 9)   -     -  
           
Temporary equity          
Series C redeemable preferred stock, $0.01 par value, 100,000 shares authorized, and 52,684.548 and 0 shares issued and outstanding as of December 31, 2022 and 2021, respectively        
Redeemable non-controlling interest   885,028     
Total temporary equity   885,028     
           
Shareholders’ equity          
Preferred stock, $0.01 par value, 20,000,000 shares authorized; Series B preferred stock, $0.01 par value, 3,600,000 shares authorized, 0 shares issued and outstanding as of December 31, 2022 and 2021, respectively        
Common stock, $0.01 par value, 100,000,000 shares authorized, 2,078,271 and 651,921 shares issued and outstanding as of December 31, 2022 and 2021, respectively   20,782    6,519 
Additional paid-in capital   94,395,662    83,066,656 
Accumulated deficit   (79,207,786)   (60,736,453)
Accumulated other comprehensive loss   (536,734)   (30,802)
Total shareholders’ equity   14,671,924    22,305,920 
Total liabilities, temporary equity, and shareholders’ equity  $19,552,925   $26,719,133 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

   2022   2021 
   For the Years Ended December 31, 
   2022   2021 
Operating expenses          
General and administrative  $11,605,761   $20,499,052 
Research and development   8,027,773    4,788,807 
Impairment of intangible assets and goodwill   7,453,662    38,678,918 
Depreciation and amortization   327,910    656,643 
Total operating expenses   27,415,106    64,623,420 
           
Loss from operations   (27,415,106)   (64,623,420)
           
Other income (expense)          
Inducement expense       (1,125,291)
Change in fair value of warrant liabilities   4,315,236    9,327,326 
Change in fair value of investment option liability   3,472,726     
Change in fair value of derivative liability   (325,000)    
Interest expense   (5,249)   (10,316)
Total other income   7,457,713    8,191,719 
           
Net loss before income taxes   (19,957,393)   (56,431,701)
           
Income tax benefit   1,486,060    7,454,805 
           
Net loss   (18,471,333)   (48,976,896)
Less preferred dividends attributable to non-controlling interest   33,014     
Less deemed dividends attributable to accretion of embedded derivative at redemption value   295,976     
Net loss attributable to shareholders   (18,800,323)   (48,976,896)
           
Other comprehensive loss          
Foreign currency translation   (505,932)   150,475 
           
Comprehensive loss  $(19,306,255)  $(48,826,421)
           
Net loss per share - basic and diluted  $(13.00)  $(103.69)
           
Weighted average shares outstanding, basic and diluted   1,446,007    472,343 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY

 

    Shares   Amount   Shares   Amount   Capital   Deficit   Income (Loss)   Total 
         Series B Preferred Stock   Common Stock   Additional Paid-In   Accumulated   Accumulated Other Comprehensive    
         Shares   Amount   Shares   Amount   Capital   Deficit   Income (Loss)   Total 
Balance at January 1, 2021    -  3,275,407   $32,754    202,249   $2,022   $15,321,699   $(11,759,557)  $(181,277)  $3,415,641 
January 2021 registered direct offering, net of offering costs                 44,427    444    4,616,643            4,617,087 
February 2021 registered direct offering, net of offering costs                 60,141    601    7,015,800            7,016,401 
Consideration paid pursuant to amalgamation agreement                 199,025    1,990    39,040,292            39,042,282 
Exercise of warrants                 52,861    530    3,284,641            3,285,171 
Exercise of options                 2,685    27    (27)            
Induced conversion of stock options into restricted stock awards                 20,307    203    1,125,088            1,125,291 
Stock-based compensation                         12,597,001            12,597,001 
Common stock issued in lieu of cash for services                 283    3    33,464            33,467 
Common stock issued pursuant to exercise of warrant put rights                 4,434    44    (44)            
Conversion of Series B preferred shares         (3,275,407)   (32,754)   65,509    655    32,099             
Foreign exchange translation gain                                 150,475    150,475 
Net loss   -  --                       (48,976,896)       (48,976,896)
Balance at December 31, 2021    -     $    651,921   $6,519   $83,066,656   $(60,736,453)  $(30,802)  $22,305,920 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY

 

   Shares   Amount   Shares   Amount   Equity   Shares   Amount   Capital   Deficit   Loss   Equity 
   Series C Redeemable Preferred Stock   Redeemable Non-controlling Interest   Total Temporary   Common Stock   Additional Paid-In   Accumulated   Accumulated Other Comprehensive   Total Shareholders’ 
   Shares   Amount   Shares   Amount   Equity   Shares   Amount   Capital   Deficit   Loss   Equity 
Balance at January 1, 2022      $       $   $    651,921   $6,519   $83,066,656   $(60,736,453)  $(30,802)  $22,305,920 
February 2022 registered direct offering, net of offering costs                       400,000    4,000    5,798,464            5,802,464 
Stock-based compensation                               2,620,671            2,620,671 
Conversion of RSUs into common shares                       899    9    (9)            
Redeemable non-controlling interest, net of $402,000 embedded derivative and net of issuance costs of $41,962           1,000    556,038    556,038                         
Issuance of redeemable Series C preferred stock   52,685    527            527            (527)           (527)
Preferred dividends attributable to redeemable non-controlling interest               33,014    33,014            (33,014)           (33,014)
Accretion of embedded derivative to redemption value               295,976    295,976            (295,976)           (295,976)
Conversion of RSAs into common shares                       1,223    12    (12)            
July 2022 registered direct offering, PIPE offering, modification of warrants and exercise of pre-funded warrants, net of offering costs                       1,000,000    10,000    3,239,124            3,249,124 
Issuance of rounded shares as a result of the reverse stock split                       24,228    242    (242)            
Redemption of Series C preferred stock   (52,685)   (527)           (527)           527            527 
Foreign exchange translation loss                                       (505,932)   (505,932)
Net loss                                   (18,471,333)       (18,471,333)
Balance at December 31, 2022      $    1,000   $885,028   $885,028    2,078,271   $20,782   $94,395,662   $(79,207,786)  $(536,734)  $14,671,924 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-7
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   2022   2021 
   For the Years Ended December 31, 
   2022   2021 
Cash Flows From Operating Activities:          
Net loss  $(18,471,333)  $(48,976,896)
Adjustments to reconcile net loss to cash used in operating activities          
Change in fair value of warrant liability   (4,315,236)   (9,327,326)
Change in fair value of investment option liability   (3,472,726)    
Change in fair value of derivative liability   325,000     
Stock-based compensation   2,620,671    12,597,001 
Stock issued in lieu of cash for services       33,467 
Impairment of intangible assets and goodwill   7,453,662    38,678,918 
Non-cash income tax benefit   (1,504,302)    (7,454,805)
Inducement expense       1,125,291 
Amortization of right-of-use asset   107,291    24,969 
Amortization of intangible assets   168,750    643,333 
Depreciation expense   159,160    13,310 
Change in operating assets and liabilities:          
Prepaid expenses and other current assets   (374,058)   826,837 
Accounts payable and accrued liabilities   263,686    383,199 
Right-of-use operating lease liability   (107,288)   (24,969)
Net cash used in operating activities   (17,146,723)   (11,457,671)
           
Cash Flows From Investing Activities:          
Purchases of property and equipment   (584,165)   (189,719)
Purchase of Diverse Bio license agreement       (675,000)
Cash accretive acquisition of MagicMed       3,055,328 
Net cash (used in) provided by investing activities   (584,165)   2,190,609 
           
Cash Flows From Financing Activities:          
Proceeds from sale of common stock, warrants, and investment options, net of offering costs   17,222,099    21,614,488 
Proceeds from the sale of redeemable non-controlling interest, net of offering costs (see Note 8)   958,038     
Proceeds from warrant exercises, net of fees       3,285,171 
Net cash provided by financing activities   18,180,137    24,899,659 
           
Effect of foreign exchange rate on cash   (81,364)   144,942 
           
Net increase in cash   367,885    15,777,539 
Cash at beginning of year   17,355,999    1,578,460 
Cash at end of year  $17,723,884   $17,355,999 
           
Supplemental disclosure of cash and non-cash transactions:          
Cash paid for interest  $5,249   $10,316 
Income taxes paid  $   $ 
Investment options issued in conjunction with common stock issuance  $4,323,734   $ 
Modification of warrants as part of share capital raise  $251,357   $ 
Warrants issued in conjunction with common stock issuance  $3,595,420   $ 
Issuance of embedded derivative  $402,000   $ 
Preferred dividends attributable to redeemable non-controlling interest  $33,014   $ 
Accretion of embedded derivative to redemption value  $295,976   $ 
Issuance of Common Stock pursuant to MagicMed amalgamation  $   $39,042,282 
Deferred tax liability incurred due to MagicMed amalgamation  $   $9,061,927 
Conversion of preferred stock to common stock  $   $32,754 
Fair value of warrants issued  $   $9,981,000 
Right-of-use assets obtained in exchange for lease liabilities  $   $201,653 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-8
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. BUSINESS AND LIQUIDITY AND OTHER UNCERTAINTIES

 

Nature of Operations

 

Enveric Biosciences, Inc. (“Enveric Biosciences, Inc.” “Enveric” or the “Company”) 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.

 

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.

 

Akos Spin-Off

 

On May 11, 2022, the Company announced plans to transfer and spin-off its cannabinoid clinical development pipeline assets to Akos Biosciences, Inc. (formerly known as Acanna Therapeutics, Inc.), a majority owned subsidiary of the Company (hereafter referred to as “Akos”), 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 Akos meeting the qualifications for listing on the Nasdaq Stock Market, and if successful, would result in two standalone public companies. The new company as a result of the Spin-Off will be referred to as Akos. If the Spin-Off does not occur, the Company has guaranteed the redeemable non-controlling interest (“RNCI”).

 

On May 5, 2022, the Company and Akos entered into a Securities Purchase Agreement (the “Akos Purchase Agreement”) with an accredited investor (the “Akos Investor”), pursuant to which Akos agreed to sell to the Akos Investor up to an aggregate of 5,000 shares of Akos’ Series A Convertible Preferred Stock (the “Akos Series A Preferred Stock”), par value $0.01 per share at a price of $1,000 per share, and warrants (the “Akos Warrants”) to purchase shares of Akos’ common stock (the “Akos Common Stock”), par value $0.01 per share, for an aggregate purchase price of up to $5,000,000 (the “Akos Private Placement”). Pursuant to the Akos Purchase Agreement, Akos has issued 1,000 shares of the Akos Series A Preferred Stock to the Akos Investor in exchange for $1,000,000 on May 5, 2022 (See Note 8).

 

Reverse Stock Split

 

On July 14, 2022 the Company affected a 1-for-50 reverse stock split. All historical share and per share amounts reflected throughout this report have been adjusted to reflect the Reverse Stock Split.

 

Going Concern, Liquidity and Other Uncertainties

 

The Company has incurred a loss since inception resulting in an accumulated deficit of $79,207,786 as of December 31, 2022 and further losses are anticipated in the development of its business. Further, the Company has operating cash outflows of $17,146,723 for the year ended December 31, 2022. For the year ended December 31, 2022, the Company had a loss from operations of $27,415,106. Since inception, being a research and development company, the Company has not yet generated revenue and the Company has incurred continuing losses from its operations. The Company’s operations have been funded principally through the issuance of debt and equity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.

 

F-9
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

In assessing the Company’s ability to continue as a going concern, the Company monitors and analyzes its cash and its ability to generate sufficient cash flow in the future to support its operating and capital expenditure commitments. At December 31, 2022, the Company had cash of $17,723,884 and working capital of $14,435,964. The Company’s current cash on hand is not sufficient enough to satisfy its operating cash needs for the 12 months from the filing of this Annual Report on Form 10-K. The Company believes that it has adequate cash on hand to cover anticipated outlays through December 31, 2023. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date the financial statements are issued. Management’s plan to alleviate the conditions that raise substantial doubt include raising additional working capital through public or private equity or debt financings or other sources, which may include collaborations with third parties as well as disciplined cash spending. Adequate additional financing may not be available to us on acceptable terms, or at all. Should the Company be unable to raise sufficient additional capital, the Company may be required to undertake cost-cutting measures including delaying or discontinuing certain operating activities.

 

As a result of these factors, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date of the financial statements are issued. The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Inflation Risks

 

The current inflationary trend existing in the North American economic environment is considered by the Company to be reasonably likely to have a material unfavorable impact on results of continuing operations. Higher rates of price inflation, as compared to recent prior levels of price inflation have caused a general increase the cost of labor and materials. In addition, there is an increased risk of the Company experiencing labor shortages as a result of a potential inability to attract and retain human resources due to increased labor costs resulting from the current inflationary environment.

 

Recent Developments

 

Nasdaq Notice

 

On February 18, 2022, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market 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 (“Nasdaq”) 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).

On July 29, 2022, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market stating that for the last ten consecutive business days, from July 15 to July 28, 2022, the closing bid price of the Company’s common stock had been at $1.00 per share or greater. Accordingly, the Company has regained compliance with Listing Rule 5550(a)(2).

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principal of Consolidation

 

The accompanying consolidated financial statements have been prepared in accordance and in conformity with GAAP and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding consolidated financial information. All intercompany transactions have been eliminated in consolidation.

 

Reclassification

 

Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.

 

F-10
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Use of Estimates

 

The preparation of the 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 December 31, 2022, the reporting currency of the Company was the United States dollar while the functional currency of certain of the Company’s subsidiaries was the Canadian dollar. For the reporting periods ended December 31, 2022 and December 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.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents as of December 31, 2022 and 2021.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the federal depository insurance coverage of $250,000 in the United States and $100,000 in Canada. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts. As of December 31, 2022, the Company had greater than $250,000 and $100,000 at US and Canadian financial institutions, respectively.

 

Comprehensive Loss

 

Comprehensive loss consists of two components, net loss and other comprehensive income (loss). Other comprehensive loss refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net loss. Other comprehensive loss consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency.

 

F-11
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Business Combinations

 

The Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations” (“ASC 805”) 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 the Psybrary™ and Patent Applications, In Process Research and Development (“IPR&D”) and license agreements. Psybrary™ and Patent Applications intangible assets are valued using the relief from royalty method. The cost of license agreements is amortized over the economic life of the license. The Company assesses the carrying value of its intangible assets for impairment each year.

 

IPR&D intangible assets are acquired in conjunction with the acquisition of a business and are assigned a fair value, using the multi-period excess earnings method, related to incomplete research projects which, at the time of acquisition, have not reached technological feasibility. The amounts are capitalized and are accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, the Company will make a determination as to the then-useful life of the intangible asset, generally determined by the period in which the substantial majority of the cash flows are expected to be generated, and begin amortization. The Company tests its intangible assets for impairment at least annually and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others and without limitation: a significant decline in the Company’s expected future cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant adverse change in legal factors or in the business climate of the Company’s segments; unanticipated competition; and slower growth rates. If the fair value determined is less than the carrying amount, an impairment loss is recognized in operating results.

 

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.

 

F-12
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Property & Equipment

 

Property and equipment 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.

 

Warrant Liability and Investment Options

 

The Company evaluates all of its financial instruments, including issued stock purchase warrants and investment options, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC 815. The Company accounts for warrants and investment options for shares of the Company’s common stock that are not indexed to its own stock as derivative liabilities at fair value on the consolidated balance sheets. The Company accounts for common stock warrants and investment options with put options as liabilities under ASC 480. Such warrants and investment options are subject to remeasurement at each consolidated balance sheet date and any change in fair value is recognized as a component of other expense on the 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 and investment options. At that time, the portion of the warrant liability and investment options related to such common stock warrants will be reclassified to additional paid-in capital.

 

Modification of Warrants

 

A change in any of the terms or conditions of warrants is accounted for as a modification. For a warrant modification accounted for under ASC 815, the effect of a modification shall be measured as the difference between the fair value of the modified warrant over the fair value of the original warrant immediately before its terms are modified, measured based on the fair value of the shares and other pertinent factors at the modification date. The accounting for incremental fair value of warrants is based on the specific facts and circumstances related to the modification. When a modification is directly attributable to equity offerings, the incremental change in fair value of the warrants are accounted for as equity issuance costs.

 

Derivative Liability

 

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. For derivative financial instruments that are accounted for as assets or liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations and comprehensive loss. The classification of derivative instruments, including whether such instruments should be recorded as assets or liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the consolidated balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

 

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 consolidated statement of operations and comprehensive loss.

 

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.

 

F-13
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liabilities. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of December 31, 2022 and 2021, 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, 2022 and 2021. The Company does not expect its uncertain tax positions to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

 

The Company has identified its United States and Canadian federal tax return, its state and provincial tax returns in Florida and Ontario, CA as its “major” tax jurisdictions. The Company is in the process of filing its corporate tax returns for the years ended December 31, 2022 and 2021. Net operating losses for these periods will not be available to reduce future taxable income until the returns are filed.

 

Stock-Based Compensation

 

The Company follows 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 certain stock-based awards under ASC 718. The assumptions used in calculating the fair value of stock-based awards represent management’s reasonable estimates and involve inherent uncertainties and the application of management’s judgment. Fair value of restricted stock units or restricted stock awards is determined by the closing price per share of the Company’s common stock on the date of award grant.

 

The estimated fair value is amortized as a charge to earnings on a straight-line basis, for awards or portions of awards that do not require specified milestones or performance criteria as a vesting condition and also depending on the terms and conditions of the award, and the nature of the relationship of the recipient of the award to the Company. The Company records the grant date fair value in line with the period over which it was earned. For employees and consultants, this is typically considered to be the vesting period of the award. The Company accounts for forfeitures as they occur.

 

The estimated fair value of awards that require specified milestones or recipient performance are charged to expense when such milestones or performance criteria are probable to be met.

 

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. A significant portion of these awards may include vesting terms that include, without limitation, defined volume weighted average price levels being achieved by the Company’s Common Stock, specific performance milestones, employment, or engagement by the Company, with no assurances of achievement of any such vesting conditions, if applicable.

 

The value of RSU’s is equal to the product of the number of units awarded, multiplied by the closing price per share of the Company’s Common Stock on the date of the award. The terms and conditions of each RSU is defined in the RSU agreement and includes vesting terms that consist of any or all of the following: immediate vesting, vesting over a defined period of time, vesting based on achievement of a defined volume weighted average price levels at specified times, vesting based on achievement of specific performance milestones within a specific time frame, change of control, termination of the employee without cause by the Company, resignation of the employee with good cause. The value assigned to each RSU is charged to expense based on the vesting terms, as follows: value of RSU’s that vest immediately are charged to expense on the date awarded, value of RSU’s that vest based upon time, or achievement of stock price levels over a period of time are charged to expense on a straight line basis over the time frame specified in the RSU and the value of RSU’s that vest based upon achievement of specific performance milestones are charged to expense during the period that such milestone is achieved. Vested RSU’s may be converted to shares of Common Stock of an equivalent number upon either the termination of the recipient’s employment with the Company, or in the event of a change in control. If the recipient is not an employee, such person’s engagement with the Company must either be terminated prior to such conversion of RSU’s to shares of Common Stock, or in the event of a change in control. Furthermore, as required by Section 409A of the Internal Revenue Code, if the recipient is a “specified employee” (generally, certain officers and highly compensated employees of publicly traded companies), such recipient may only convert vested RSU’s into shares of Common Stock no earlier than the first day of the seventh month following such recipients termination of employment with the Company, or the event of change in control.

 

F-14
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The value of RSA’s is equal to the product of the number of restricted shares awarded, multiplied by the closing price per share of the Company’s Common Stock on the date of the award. The terms and conditions of each RSA is defined in the RSA agreement and includes vesting terms that consist of any or all of the following: immediate vesting, vesting over a defined period of time, or vesting based on achievement of a defined volume weighted average price levels at specified times. Upon vesting, the recipient may receive restricted stock which includes a legend prohibiting sale of the shares during a restriction period that is defined in the RSA agreement. Termination of employment by or engagement with the Company is not required for the recipient to receive restricted shares of Common Stock. The value assigned to each RSA is charged to expense based on the vesting terms, as follows: value of RSA’s that vest immediately are charged to expense on the date awarded, value of RSA’s that vest based upon time, or achievement of stock price levels over a period of time are charged to expense on a straight-line basis over the time frame specified in the RSU.

 

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 years ended December 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.

 

During the year ended December 31, 2022 the Company issued 767,500 pre-funded common stock warrants, which were exercised on various dates during the year ended December 31, 2022. The pre-funded common stock warrants became exercisable on July 26, 2022 based on the terms and conditions of the agreements. As the pre-funded common stock warrants are exercisable for $0.0001, these shares are considered outstanding common shares and are included in the computation of basic and diluted Earnings Per Share as the exercise of the pre-funded common stock warrants is virtually assured. The Company included these pre-funded common stock warrants in basic and diluted earnings per share when all conditions were met on July 26, 2022.

 

Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share the years ended December 31, 2022 and 2021 because the effect of their inclusion would have been anti-dilutive.

 

   2022   2021 
   For the years ended December 31, 
   2022   2021 
Warrants to purchase shares of common stock   655,463    195,463 
Restricted stock units - vested and unissued   62,492    55,717 
Restricted stock units - unvested   64,053    62,013 
Restricted stock awards - vested and unissued   708    642 
Restricted stock awards - unvested       1,031 
Investment options to purchase shares of common stock   1,070,000     
Options to purchase shares of common stock   48,329    23,829 
Total potentially dilutive securities   1,901,045    338,695 

 

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.

 

F-15
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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 and accounts payable, the carrying amounts approximate their fair values as of December 31, 2022 and 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 sheets as of December 31, 2022 and 2021 and indicates the fair value of the valuation inputs the Company utilized to determine such fair value of warrant liabilities, derivative liability, and investment options:

 

   Level   December 31, 2022   December 31, 2021 
   Level   December 31, 2022   December 31, 2021 
Warrant liabilities - January 2021 Warrants   3   $81   $333,471 
Warrant liabilities - February 2021 Warrants   3    79    320,203 
Warrant liabilities - February 2022 Warrants   3    185,055     
Fair value of warrant liability as of December 31, 2022       $185,215   $653,674 

 

   Level   December 31, 2022   December 31, 2021 
   Level   December 31, 2022   December 31, 2021 
Derivative liability - May 2022   3   $727,000   $ 
Fair value of derivative liability as of December 31, 2022       $727,000   $ 

 

   Level   December 31, 2022   December 31, 2021 
Wainwright investment options   3   $44,904   $ 
RD investment options   3    302,289     
PIPE investment options   3    503,815     
Fair value of investment option liability as of December 31, 2022       $851,008   $ 

 

The warrant liabilities, derivative liability, and investment options 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.

 

F-16
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO 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 of the warrant liabilities are below:

 

   February 2022 Warrants   February 2022 Post-Modification Warrants (See Note 7) 
   February 15, 2022   July 26, 2022 
Term (years)   5.0    5.5 
Stock price  $15.75   $6.33 
Exercise price  $27.50   $7.78 
Dividend yield   %   %
Expected volatility   74.1%   80.0%
Risk free interest rate   1.9%   2.9%
           
Number of warrants   460,000    122,000 
Value (per share)  $8.00   $4.07 

 

The Company established the initial fair value of its derivative liability at the respective date of issuance. The Company used a Weighted Expected Return valuation model in order to determine their value. The key inputs into the Weighted Expected Return valuation model for the initial valuations of the warrant liabilities are below:

 

  

May 2022

Derivative Liability

 
   May 5, 2022 
Principal  $1,000,000 
Dividend rate   5.0%
Market rate   4.4%

 

F-17
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Company established the initial fair value of its investment options 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 of the investment options are below:

 

   Wainwright Options   RD Options   PIPE Options 
   July 26, 2022   July 26, 2022   July 26, 2022 
Term (years)   5.0    5.5    5.5 
Stock price  $6.33   $6.33   $6.33 
Exercise price  $10.00   $7.78   $7.78 
Dividend yield   %   %   %
Expected volatility   80.0%   80.0%   80.0%
Risk free interest rate   2.9%   2.9%   2.9%
                
Number of investment options   70,000    375,000    625,000 
Value (per share)  $3.60   $4.07   $4.07 

 

Subsequent measurement

 

The following table presents the changes in fair value of the warrant liabilities, derivative liability, and investment options that are classified as Level 3:

 

   Total Warrant Liabilities 
Fair value as of December 31, 2020  $ 
Initial value of warrant liability   9,981,000 
Change in fair value   (9,327,326)
Fair value as of December 31, 2021  $653,674 
Issuance of February 2022 warrants   3,595,420 
Change in fair value due to modification of February 2022 warrants as part of July 2022 raise   251,357 
Change in fair value   (4,315,236)
Fair value of warrant liability as of December 31, 2022  $185,215 

 

   Total Derivative Liability 
Fair value as of December 31, 2021  $ 
Issuance of May 2022 convertible preferred stock   402,000 
Change in fair value   325,000 
Fair value of derivative liability as of December 31, 2022  $727,000 

 

   Total Investment Options 
Fair value as of December 31, 2021  $ 
Issuance of July 2022 investment options   4,323,734 
Change in fair value   (3,472,726)
Fair value of investment option liability as of December 31, 2022  $851,008 

 

F-18
 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The key inputs into the Black Scholes valuation model for the Level 3 valuations of the warrant liabilities as of December 31, 2022 are below:

 

 

   January 2021 Warrants   February 2021 Warrants   February 2022 Warrants   February 2022
Post-Modification Warrants
 
Term (years)   3.0    3.1    4.1    5.1 
Stock price  $2.08   $2.08   $2.08   $2.08 
Exercise price  $247.50   $245.00   $27.50   $7.78 
Dividend yield   %   %   %   %
Expected volatility   79.0%   78.0%   79.0%   77.0%
Risk free interest rate   4.20%   4.20%   4.10%   4.00%
                     
Number of warrants   36,429    34,281    338,000    122,000 
Value (per share)  $