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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended:
OR
For the transition period from ___ to ___
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
| (Address of principal executive offices) | (Zip code) |
(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 | ||
| The
|
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.
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).
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 ☐ | |
| 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of May 11, 2022, there were shares outstanding of Registrant’s Common Stock (par value $0.01 per share).
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Other assets: | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use operating lease asset | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Current portion of right-of-use operating lease obligation | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Non-current portion of right-of-use operating lease obligation | ||||||||
| Deferred tax liability | ||||||||
| Warrant liability | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| Commitments and contingencies (Note 6) | ||||||||
| Shareholders’ equity | ||||||||
| Preferred stock, $ par value, shares authorized; Series B preferred stock, $ par value, shares authorized, shares issued and outstanding as of March 31, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 1 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Operating expenses | ||||||||
| General and administrative | $ | $ | ||||||
| Research and development | ||||||||
| Depreciation and amortization | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Inducement expense | ( | ) | ||||||
| Change in fair value of warrant liabilities | ||||||||
| Interest expense | ( | ) | ||||||
| Total other income | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Other comprehensive gain | ||||||||
| Foreign currency translation | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding, basic and diluted | ||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 2 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
| Series B | Additional | Accumulated Other | ||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Accumulated | Comprehensive | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Total | |||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| January 2021 registered direct offering | — | |||||||||||||||||||||||||||||||
| February 2021 registered direct offering | — | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||
| Induced conversion of stock options into restricted stock awards | — | — | ||||||||||||||||||||||||||||||
| Conversion of Series B Preferred Stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Exercise of warrants | — | |||||||||||||||||||||||||||||||
| Foreign currency translation gain | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| February 2022 registered direct offering | — | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||
| Conversion of RSUs into common shares | — | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation gain | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 3 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities | ||||||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||
| Stock-based compensation | ||||||||
| Inducement expense | ||||||||
| Amortization of right-of-use asset | ||||||||
| Amortization of intangible assets | ||||||||
| Depreciation expense | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Right-of-use operating lease liability | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Purchase of license agreement | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from sale of common stock and warrants, net of offering costs | ||||||||
| Proceeds from warrant exercises | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of foreign exchange rate on cash | ( | ) | ||||||
| Net increase in cash | ||||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Warrants issued in conjunction with common stock issuance | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Operations
Enveric Biosciences, Inc. (“Enveric Biosciences, Inc.” “Enveric” or the “Company”) (formerly known as Ameri Holdings, Inc.) (“Ameri”) is a pharmaceutical company developing innovative, evidence-based cannabinoid medicines. The head office of the Company is located in Naples, Florida. The Company has the following wholly owned subsidiaries: Jay Pharma Inc. (“Jay Pharma”), 1306432 B.C. Ltd. (“HoldCo”), MagicMed Industries, Inc. (“MagicMed”), and Enveric Canada. The Company has an Amalgamation Agreement (“Amalgamation Agreement”) and tender agreement (“Tender Agreement”) with Jay Pharma, which were entered into in prior years.
On May 24, 2021, the Company entered into an Amalgamation Agreement (the “Amalgamation Agreement”) with 1306432 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of the Company (“HoldCo”), 1306436 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of HoldCo (“Purchaser”), and MagicMed Industries Inc., a corporation existing under the laws of the Province of British Columbia (“MagicMed”), pursuant to which, among other things, the Company, indirectly through Purchaser, acquired all of the outstanding securities of MagicMed in exchange for securities of the Company by way of an amalgamation under the British Columbia Business Corporations Act, upon the terms and conditions set forth in the Amalgamation Agreement, such that, upon completion of the Amalgamation (as defined herein), the amalgamated corporation (“Amalco”) will be an indirect wholly-owned subsidiary of the Company. The Amalgamation was completed on September 16, 2021.
At the effective time of the Amalgamation (the “Effective Time”), holders of outstanding common shares of MagicMed (the “MagicMed Shares”) received such number of shares of common stock of the Company (“Company Shares”) representing, together with the Company Shares issuable upon exercise of the Warrants and the Converted Options (each as defined herein), approximately % of the issued and outstanding Company Shares (on a fully diluted basis). The MagicMed Shares were initially converted into Amalco Redeemable Preferred Shares (as defined in the Amalgamation Agreement), which immediately following the Amalgamation were redeemed for of a Company Share. Following such redemption, the shareholders of MagicMed received additional Company Shares equal to the product of the Exchange Ratio (as defined in the Amalgamation Agreement) multiplied by the number of MagicMed Shares held by each such shareholder. Additionally, following the Effective Time (i) each outstanding MagicMed stock option was converted into and became an option to purchase (the “Converted Options”) the number of Company Shares equal to the Exchange Ratio multiplied by the number of MagicMed Shares subject to such MagicMed stock option, and (ii) each holder of an outstanding MagicMed warrant (including Company Broker Warrants (as defined in the Amalgamation Agreement), the “Warrants”) received upon exercise of such Warrant that number of Company Shares which the holder would have been entitled to receive as a result of the Amalgamation if, immediately prior to the date of the Amalgamation (the “Effective Date”), such holder had been the registered holder of the number of MagicMed Shares to which such holder would have been entitled if such holder had exercised such holder’s Warrants immediately prior to the Effective Time (the foregoing collectively, the “Amalgamation”). In aggregate, holders of MagicMed Shares received Company Shares, representing approximately % of the Company Shares following the consummation of the Amalgamation. The maximum number of Company Shares to be issued by the Company as in respect of the Warrants and Converted Options shall not exceed Company Shares.
The aggregate number of Company Shares that the Company issued in connection with the Amalgamation (collectively, the “Share Consideration”) was in excess of % of the Company’s pre-transaction outstanding Company Shares. Accordingly, the Company sought and received stockholder approval of the issuance of the Share Consideration in the Amalgamation in accordance with the Nasdaq Listing Rules.
Pursuant to the terms of the Amalgamation Agreement, the Company appointed, effective as of the Effective Time two individuals selected by MagicMed to the Company Board of Directors, Dr. Joseph Tucker and Dr. Brad Thompson.
The Amalgamation Agreement contained representations and warranties, closing deliveries and indemnification provisions customary for a transaction of this nature. The closing of the Amalgamation was conditioned upon, among other things, (i) the Share Consideration being approved for listing on Nasdaq, (ii) the effectiveness of a Registration Statement on Form S-4 registering the Share Consideration and (iii) the approval (a) of the MagicMed stockholders of the Amalgamation and (b) of the Company’s stockholders of each of the Amalgamation and the issuance of the Share Consideration in the Amalgamation. The closing of the Amalgamation occurred on September 16, 2021.
MagicMed Industries develops and commercializes psychedelic-derived pharmaceutical candidates. MagicMed’s psychedelic derivatives library, the Psybrary™, is an essential building block from which industry can develop new patented products. The initial focus of the Psybrary™ is on psilocybin and DMT derivatives, and it is then expected to be expanded to other psychedelics.
| 5 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Liquidity and Going Concern and Other Uncertainties
The
Company has incurred continuing losses from its operations. As of March 31, 2022, the Company had an accumulated deficit of $
The Company’s material cash requirements consist of working capital to fund capital expenditures incurred at their research facility in Calgary and their operations, which consist primarily of, without limitation, employee related expenses, product development activities conducted by third parties, research materials and lab supplies, facility related expenses including rent and maintenance, costs associated with preclinical studies, patent related costs, costs of regulatory and public company compliance, insurance costs, audit costs, consultants and legal fees. Additionally, the Company currently utilizes third-party contract CROs to assist with clinical development activities. If the Company obtains regulatory approval for any of their product candidates, they expect to incur significant expenses to engage third-party contract CMOs to carry out their clinical manufacturing activities as they do not yet have a commercial organization, and incur significant expenses related to developing their internal commercialization capability to support product sales, marketing and distribution. The Company’s current working capital resources are sufficient to fund these material cash requirements for the next twelve months.
The Company expects to finance future cash needs through public or private equity offerings, debt financings, or business development transactions. If adequate funds are not available, the Company may be required to delay, reduce the scope of or eliminate research and development programs or obtain funds through arrangements with collaborators or others that may require the Company to relinquish rights to certain pipeline candidates that they might otherwise seek to develop or commercialize independently. The Company’s ability to finance future cash needs through equity offerings may be limited by the amount of authorized and unissued shares. As of the date of filing of this Quarterly Report on Form 10-Q, the Company does not have sufficient unreserved, authorized shares to secure an equity investment of sufficient amount, based on the Company’s currently traded price per share. The Company intends to seek shareholder approval for an increase in authorized shares to remedy the insufficiency of unreserved authorized shares. There can be no assurances given as to shareholder approval of an increase in authorized shares.
Nasdaq Notice
On February 18, 2022, the Company received a letter from the Listing Qualifications Department of the Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between January 5, 2022, through February 17, 2022, the Company did not meet the minimum bid price of $ per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until August 17, 2022 (the “Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).
In order to regain compliance with Nasdaq’s minimum bid price requirement, the Company’s common stock must maintain a minimum closing bid price of $ for at least ten consecutive business days during the Compliance Period. In the event the Company does not regain compliance by the end of the Compliance Period, the Company may be eligible for additional time to regain compliance. To qualify, the Company will be required to meet the continued listing requirement for the market value of its publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split if necessary. If the Company meets these requirements, the Company may be granted an additional 180 calendar days to regain compliance. However, if it appears to Nasdaq that the Company will be unable to cure the deficiency, or if the Company is not otherwise eligible for the additional cure period, Nasdaq will provide notice that the Company’s common stock will be subject to delisting.
While the letter has no immediate impact on the listing of the Company’s common stock, which will continue to be listed and traded on The Nasdaq Capital Market, subject to the Company’s compliance with the other listing requirements of The Nasdaq Capital Market, a failure to cure this deficiency would result in a delisting from the Nasdaq, which would result in significantly increased uncertainty as to the Company’s ability to raise capital required to fund its cash requirements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principal of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Management’s opinion is that all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2021 and related notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022.
| 6 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company’s significant accounting policies and recent accounting standards are summarized in Note 2 of the Company’s financial statements for the year ended December 31, 2021. There were no significant changes to these accounting policies during the three months ended March 31, 2022.
Reclassification
Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. Certain amounts related to depreciation and amortization from the prior period were reclassified from General and administrative line item to Depreciation and amortization line item on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). These reclassifications had no net effect on loss from operations, net loss, or cash flows as previously reported.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and expenses during the periods reported. By their nature, these estimates are subject to measurement uncertainty and the effects on the financial statements of changes in such estimates in future periods could be significant. Significant areas requiring management’s estimates and assumptions include determining the fair value of transactions involving common stock and the valuation of stock-based compensation, accruals associated with third party providers supporting research and development efforts, estimated fair values of long lives assets used to record impairment charges related to intangible assets, acquired in-process research and development (“IPRD”), and goodwill, and allocation of purchase price in business acquisitions. Actual results could differ from those estimates.
Foreign Currency Translation
From inception through March 31, 2022, the reporting currency of the Company was the United States dollar while the functional currency of the Company’s subsidiaries was the Canadian dollar. For the reporting periods ended March 31, 2022 and March 31, 2021, the Company engaged in a number of transactions denominated in Canadian dollars. As a result, the Company is subject to exposure from changes in the exchange rates of the Canadian dollar and the U.S. dollar.
The Company translates the assets and liabilities of its Canadian subsidiaries into the U.S. dollar at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate in effect during each monthly period. Unrealized translation gains and losses are recorded as foreign currency translation gain (loss), which is included in the consolidated statements of shareholders’ equity as a component of accumulated other comprehensive income (loss).
The Company has not entered into any financial derivative instruments that expose it to material market risk, including any instruments designed to hedge the impact of foreign currency exposures. The Company may, however, hedge such exposure to foreign currency exchange fluctuations in the future.
Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss) as incurred.
Warrant Liability
The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company accounts for warrants for shares of the Company’s common stock that are not indexed to its own stock as derivative liabilities at fair value on the unaudited condensed consolidated balance sheets. The Company accounts for common stock warrants with put options as liabilities under ASC 480. Such warrants are subject to remeasurement at each unaudited condensed consolidated balance sheet date and any change in fair value is recognized as a component of other expense on the unaudited condensed consolidated statements of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of such common stock warrants. At that time, the portion of the warrant liability related to such common stock warrants will be reclassified to additional paid-in capital.
Offering Costs
The Company allocates offering costs to the different components of the capital raise on a pro rata basis. Any offering costs allocated to common stock are charged directly to additional paid-in capital. Any offering costs allocated to warrant liabilities are charged to general and administrative expenses on the Company’s unaudited condensed consolidated statement of operations.
| 7 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method). The computation of basic net loss per share for the three months ended March 31, 2022 and 2021 excludes potentially dilutive securities. The computations of net loss per share for each period presented is the same for both basic and fully diluted. In accordance with ASC 260-10-45-13, penny warrants were included in the calculation of weighted average shares outstanding for purposes of calculating basic and diluted earnings per share.
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Warrants to purchase shares of common stock | ||||||||
| Restricted stock units - vested and unissued | ||||||||
| Restricted stock units - unvested | ||||||||
| Restricted stock awards - vested and unissued | ||||||||
| Restricted stock awards - unvested | ||||||||
| Options to purchase shares of common stock | ||||||||
| Total potentially dilutive securities | ||||||||
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 - Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
For certain financial instruments, including cash, accounts receivable, and accounts payable, the carrying amounts approximate their fair values as of March 31, 2022 and December 31, 2021 because of their short-term nature.
The following table provides the financial liabilities measured on a recurring basis and reported at fair value on the balance sheet as of March 31, 2022 and indicates the fair value of the valuation inputs the Company utilized to determine such fair value:
| Level | March 31, 2022 | December 31, 2021 | ||||||||
| Warrant liabilities - January 2021 Warrants | 3 | $ | $ | |||||||
| Warrant liabilities - February 2021 Warrants | 3 | |||||||||
| Warrant liabilities - February 2022 Warrants | 3 | |||||||||
| Fair value as of March 31, 2022 | $ | $ | ||||||||
The warrant liabilities are all classified as Level 3, for which there is no current market for these securities such as the determination of fair value requires significant judgment or estimation. Changes in fair value measurement categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
| 8 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Initial measurement
The Company established the initial fair value of its warrant liabilities at the respective dates of issuance. The Company used a Black Scholes valuation model in order to determine their value. The key inputs into the Black Scholes valuation model for the initial valuations are below:
| February 2022 Warrants | ||||
| February 15, 2022 | ||||
| Term (years) | ||||
| Stock price | $ | |||
| Exercise price | $ | |||
| Dividend yield | % | |||
| Expected volatility | % | |||
| Risk free interest rate | % | |||
| Number of warrants | ||||
| Value (per share) | $ | |||
Subsequent measurement
The following table presents the changes in fair value of the warrant liabilities:
| Total Warrant Liabilities | ||||
| Fair value as of December 31, 2021 | $ | |||
| Issuance of February 2022 warrants | ||||
| Change in fair value | ( | ) | ||
| Fair value as of March 31, 2022 | $ | |||
The key inputs into the Black Scholes valuation model for the Level 3 valuations as of March 31, 2022 are below:
| January 2021 Warrants | February 2021 Warrants | February 2022 Warrants | ||||||||||
| Term (years) | ||||||||||||
| Stock price | $ | $ | $ | |||||||||
| Exercise price | $ | $ | $ | |||||||||
| Dividend yield | % | % | % | |||||||||
| Expected volatility | % | % | % | |||||||||
| Risk free interest rate | % | % | % | |||||||||
| Number of warrants | ||||||||||||
| Value (per share) | $ | $ | $ | |||||||||
Leases
Operating lease assets are included within right-of-use operating lease asset and operating lease liabilities are included in current portion of right-of-use operating lease obligation and non-current portion of right-of-use operating lease obligation on the consolidated balance sheet as of March 31, 2022. The Company has elected not to present short-term leases as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Company’s leases do not provide an implicit rate of return, the Company used an incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.
| 9 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. INTANGIBLE ASSETS AND GOODWILL
As of March 31, 2022, the Company’s intangible assets consisted of:
| Goodwill | ||||
| Balance at December 31, 2021 | $ | |||
| Gain on currency translation | ||||
| Balance at March 31, 2022 | $ | |||
| Indefinite lived intangible assets | ||||
| Balance at December 31, 2021 | $ | |||
| Gain on currency translation | ||||
| Balance at March 31, 2022 | $ | |||
| Definite lived intangible assets | ||||
| Balance at December 31, 2021 | $ | |||
| Amortization | ( | ) | ||
| Balance at March 31, 2022 | $ |
For
goodwill, identified indefinite lived assets, and identified definite lived intangible assets, there was no impairment expense during
the three months ended March 31, 2022 and 2021. For identified definite lived intangible assets, amortization expense amounted to $
The Company amortizes definite lived intangible assets on a straight-line basis over their estimated useful lives. Amortization expense of identified intangible assets based on the carrying amount as of March 31, 2022 is as follows:
| Year ending December 31, | ||||
| 2022 (excluding the three months ended March 31) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| $ | ||||
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following assets which are located in Calgary, Canada and placed in service by Enveric Biosciences Canada, Inc (“EBCI”), with all amounts translated into U.S. dollars:
| March 31, 2022 | December 31, 2021 | |||||||
| Lab equipment | $ | $ | ||||||
| Computer equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net of accumulated depreciation | $ | $ | ||||||
Depreciation
expense was $
| 10 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. SHARE CAPITAL AND OTHER EQUITY INSTRUMENTS
Authorized Capital
The holders of the Company’s common stock (“Common Stock”) are entitled to one vote per share. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds. Upon the liquidation, dissolution, or winding up of the Company, holders of common stock are entitled to share ratably in all assets of the Company that are legally available for distribution. As of March 31, 2022, shares of common stock were authorized under the Company’s articles of incorporation.
On December 30, 2020, the Company amended its articles of incorporation to designate and authorize shares of preferred stock. The Company issued Series B preferred stock (“Series B Preferred Stock), which has a certificate of designation authorizing issuance of preferred shares. During the three months ended March 31, 2021, holders of an aggregate of shares of Series B Preferred Stock converted their shares into shares of common stock. Following those conversions, Series B Preferred stock shares remain outstanding.
Common Stock Activity
On
February 15, 2022, the Company completed a public offering of shares of Common Stock and warrants to purchase up to
During the three months ended March 31, 2022, a total of shares of Common Stock were issued pursuant to the conversion of restricted stock units.
Stock Options
| Number of Shares | Weighted Average Exercise Price | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | ||||||||||||||||
| Outstanding at December 31, 2021 | $ | $ | $ | |||||||||||||||||
| Forfeited | ( | ) | — | — | ||||||||||||||||
| Outstanding at March 31, 2022 | $ | $ | $ | |||||||||||||||||
| Exercisable at March 31, 2022 | $ | $ | $ | |||||||||||||||||
The Company’s stock based compensation expense, recorded within general and administrative expense, related to stock options for the three months ended March 31, 2022 and 2021 was $and $ , respectively. As of March 31, 2022, the Company had $in unamortized stock option expense, which will be recognized over a weighted average period of years.
During
the three months ended March 31, 2021, the Company exchanged options to purchase shares of common stock for restricted
stock units and restricted stock awards. In connection with this exchange, the Company recognized $
Restricted Stock Awards
| Number of shares | Weighted average fair value | |||||||
| Non-vested at December 31, 2021 | $ | |||||||
| Forfeited | ( | ) | $ | |||||
| Vested | ( | ) | $ | |||||
| Non-vested at March 31, 2022 | $ | |||||||
| 11 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2022 and 2021, the Company recorded $and $, in stock-based compensation expense within general and administrative expense, related to restricted stock awards, respectively. As of March 31, 2022, unamortized stock-based compensation costs related to restricted share awards was $, which will be recognized over a weighted average period of years. The balance of Common Shares related to the vested restricted stock awards as of March 31, 2022 will be issued during the 2022 calendar year. There are vested and unissued shares of restricted stock awards as of March 31, 2022.
Issuance of Restricted Stock Units
| Number of shares | Weighted average fair value | |||||||
| Non-vested at December 31, 2021 | $ | |||||||
| Granted | $ | |||||||
| Forfeited | ( | ) | $ | |||||
| Vested | ( | ) | $ | |||||
| Non-vested at March 31, 2022 | $ | |||||||
For the three months ended March 31, 2022 and 2021, the Company recorded $ and $, respectively, in stock-based compensation expense related to restricted stock units. As of March 31, 2022, the Company had unamortized stock-based compensation costs related to restricted stock units of $ which will be recognized over a weighted average period of years and unamortized stock-based costs related to restricted stock units. As of March 31, 2022, shares of Common Stock have been issued in relation to vested restricted stock units and restricted stock units are vested without shares of Common Stock being issued.
The following table summarizes the Company’s recognition of stock-based compensation for restricted stock units for the following periods:
| Three months ended March 31, | ||||||||
| Stock-based compensation for RSU | 2022 | 2021 | ||||||
| General and administrative | $ | $ | ||||||
| Research and development | ||||||||
| Total | $ | $ | ||||||
Warrants
On
February 11, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with A.G.P./Alliance
Global Partners (the “Underwriter”). Pursuant to the Underwriting Agreement, the Company agreed to sell, in a firm commitment
offering, shares of the Company’s common stock (“Common Stock”), $ par value per share, and accompanying
warrants to purchase up to an aggregate of
The following table summarizes information about shares issuable under warrants outstanding at March 31, 2022:
| Warrant shares outstanding | Weighted average exercise price | Weighted average remaining life | Intrinsic value | |||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
| Granted | — | — | ||||||||||||||
| Outstanding at March 31, 2022 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2022 | $ | $ | ||||||||||||||
The warrants assumed pursuant to the acquisition of MagicMed contain certain down round features, which were not triggered by the February 2022 public offering, that would require adjustment to the exercise price upon certain events when the offering price is less than the stated exercise price.
| 12 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES
The Company is periodically involved in legal proceedings, legal actions and claims arising in the normal course of business. Management believes that the outcome of such legal proceedings, legal actions and claims will not have a significant adverse effect on the Company’s financial position, results of operations or cash flows.
Development and Clinical Supply Agreement
On February 22, 2021, the Company entered into a Development and Clinical Supply Agreement (the “PureForm Agreement”) with PureForm Global, Inc. (“PureForm”), pursuant to which PureForm will be the exclusive provider of synthetic cannabidiol (“API”) for the Company’s development plans for cancer treatment and supportive care. Under the terms of the PureForm Agreement, PureForm has granted the Company the exclusive right to purchase API and related product for cancer treatment and supportive care during the term of the Agreement (contingent upon an initial minimum order of 1 kilogram during the first thirty (30) days from the effective date) and has agreed to manufacture, package and test the API and related product in accordance with specifications established by the parties. All inventions that are developed jointly by the parties in the course of performing activities under the PureForm Agreement will be owned jointly by the parties in accordance with applicable law; however, if the Company funds additional research and development efforts by PureForm, the parties may enter into a further agreement whereby PureForm would assign any resulting inventions or technical information to the Company.
The initial term of the PureForm Agreement is three (3) years commencing on the effective date of the Agreement, subject to extension by mutual agreement of the parties. The PureForm Agreement may be terminated by either party upon thirty (30) days written notice of an uncured material breach or immediately in the event of bankruptcy or insolvency. The Agreement contains, among other provisions, representation and warranties, indemnification obligations and confidentiality provisions in favor of each party that are customary for an agreement of this nature.
The Company has met the minimum purchase requirement of 1 kilogram during the first thirty days of the PureForm Agreement’s effectiveness.
Purchase agreement with Prof. Zvi Vogel and Dr. Ilana Nathan
On
December 26, 2017, Jay Pharma entered into a purchase agreement with Prof. Zvi Vogel and Dr. Ilana Nathan (the “Vogel-Nathan Purchase
Agreement”), pursuant to which Jay Pharma was assigned ownership rights to certain patents, which were filed and unissued as of
the date of the Vogel-Nathan Purchase Agreement. The Vogel-Nathan Purchase Agreement includes a commitment to pay a one-time milestone
totaling $
| 13 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Agreement with Tikkun
License Agreement
On August 12, 2020, Jay Pharma, TO LLC and TOH entered into the First Amendment to the License Agreement, pursuant to which all references to the Original Amalgamation Agreement and the amalgamation were revised to be references to the Tender Agreement and the Offer, as applicable.
On October 2, 2020, Jay Pharma, TO LLC and TOH entered into the Second Amendment to the License Agreement, pursuant to which the effective date of the transactions was revised to occur as of October 2, 2020.
7. INCOME TAXES
On
September 16, 2021, the Company acquired MagicMed. In connection with the acquisition, the Company recorded intangible assets from IPRD
valued at $
8. SUBSEQUENT EVENTS
Spin-Off and Related Private Placement
On May 11, 2022, the Company announced plans to transfer and spin-off its cannabinoid clinical development pipeline assets to a wholly-owned subsidiary, Acanna Therapeutics, Inc. (“Acanna”), which was incorporated on April 13, 2022, by way of dividend to Enveric shareholders (the “Spin-Off”). The Spin-Off will be subject to various conditions, including Acanna meeting the qualifications for listing on The Nasdaq Stock Market, and if successful, would result in two standalone public companies.
In connection with the Spin-Off,
on May 5, 2022, Acanna and the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an accredited
investor (the “Investor”), pursuant to which Acanna agreed to sell up to an aggregate of shares of Acanna’s Series
A Convertible Preferred Stock, par value $ per share (the “Acanna Series A Preferred Stock”), at price of $ per
share, and warrants (the “Warrants”) to purchase shares of Acanna’s common stock, par value $ per share (the “Acanna
Common Stock”), for an aggregate purchase price of up to $
Palladium Capital Advisors,
LLC (“Palladium”) acted as placement agent for the Private Placement. Pursuant to the Purchase Agreement, Acanna has agreed
to pay Palladium a cash fee equal to
Terms of Acanna Series A Preferred Stock
Under the Certificate of the
Designations, Preferences and Rights of Series A Convertible Preferred Stock (the “Certificate of Designations”), on or immediately
prior to the Spin-Off Date, the outstanding Acanna Series A Preferred Stock will be automatically converted into a number of shares of
Acanna Common Stock equal to
The Certificate of Designations
contains limitations that prevent the holder thereof from acquiring shares of Acanna Common Stock upon conversion that would result in
the number of shares of Acanna Common Stock beneficially owned by such holder and its affiliates exceeding
| 14 |
The Certificate of Designations
provides that upon the earlier of (i) the one-year anniversary of May 5, 2022, and only in the event that the Spin-Off has not occurred;
or (ii) such time that Acanna and the Company have abandoned the Spin-Off or the Company is no longer pursuing the Spin-Off in good faith,
the holders of the Acanna Series A Preferred Stock shall have the right (the “Put Right”), but not the obligation, to cause
Acanna to purchase all or a portion of the Acanna Series A Preferred Stock for a purchase price equal to $ per share, subject to
certain adjustments as set forth in the Certificate of Designations (the “Stated Value”), plus all the accrued but unpaid
dividends per share. Starting on the execution date of the Purchase Agreement pursuant to which it is sold, each share of Acanna Series
A Preferred Stock shall accrue cumulative dividends at the rate of
Registration Rights Agreement
In connection with the Private Placement, Acanna entered into a registration rights agreement, dated as of May 5, 2022 (the “Registration Rights Agreement”), with the Investor, pursuant to which Acanna shall, on such date that Acanna files a registration statement with the SEC in connection with the Spin-Off, file such a registration statement to register the shares of Acanna Common Stock issuable upon: (i) the conversion of the Acanna Series A Preferred Stock sold in the Private Placement, (ii) the exercise of the Warrants sold in the Private Placement, and (iii) the conversion or exercise, as applicable, of the Palladium Securities (the “Registrable Securities”); and to cause such registration statement to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as promptly as possible after the filing thereof, but in any event no later than the Spin-Off Date, and shall use its reasonable best efforts to keep such registration statement continuously effective under the Securities Act until the date that all Registrable Securities covered by such registration statement have been sold or are otherwise able to be sold pursuant to Rule 144 promulgate under the Securities Act. The Registration Rights Agreement provides for liquidated damages to the extent that Acanna does not file or maintain a registration statement in accordance with the terms thereof.
Series C Preferred Stock
On May 3, 2022, the Board of Directors (the “Board”) declared a dividend of one one-thousandth of a share of Series C Preferred Stock (“Series C Preferred Stock”) for each outstanding share of Common Stock (the “Common Stock”) held of record as of 5:00 p.m. Eastern Time on May 13, 2022 (the “Record Date”). The outstanding shares of Series C Preferred Stock will vote together with the outstanding shares of the Company’s Common Stock, as a single class, exclusively with respect to a proposal to increase the number of authorized shares of the Company’s Common Stock, a proposal giving the Board of Directors the authority, as it determines appropriate, to implement a reverse stock split within twelve months following the approval of such proposal by the Company’s stockholders, as well as any proposal to adjourn any meeting of stockholders called for the purpose of voting on the foregoing matters. If these proposals do not receive approval at a meeting of stockholders duly called for the purpose of voting thereon, the Company may be unable to regain compliance with Nasdaq’s minimum bid price requirement within the required period of time, which could lead to our Common Stock being delisted. If we are unable to maintain the listing of our Common Stock on Nasdaq, we may face difficulty raising additional capital.
No shares of Series C Preferred Stock may be transferred by the holder thereof except in connection with a transfer by such holder of any shares of Common Stock held by such holder.
The holder of Series C Preferred Stock, as such, will not be entitled to receive dividends of any kind.
The Series C Preferred Stock will rank senior to the Common Stock as to any distribution of assets upon a liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily (a “Dissolution”).
| 15 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
All shares of Series C Preferred Stock that are not present in person or by proxy at any meeting of stockholders held to vote on the Reverse Stock Split, the Share Issuance Proposal and the Adjournment Proposal as of immediately prior to the opening of the polls at such meeting (the “Initial Redemption Time”) will automatically be redeemed in whole, but not in part, by the Company at the Initial Redemption Time without further action on the part of the Company or the holder of shares of Series C Preferred Stock (the “Initial Redemption”).
The Series C Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Series C Preferred Stock has no stated maturity and is not subject to any sinking fund. The Series C Preferred Stock is not subject to any restriction on the redemption or repurchase of shares by the Company while there is any arrearage in the payment of dividends or sinking fund installments.
The Certificate of Designation was filed with the Delaware Secretary of State and became effective on May 4, 2022.
Departure of Directors or Certain Officers
On May 3, 2022, Brad Thompson, PhD resigned from the board of directors of the Company. Dr. Thompson’s resignation was not the result of any disagreement regarding any matter relating to the Company’s operations, policies, or practices.
Issuance of Shares
In April 2022, the Company issued an aggregate of 61,141 shares of Common Stock to its Directors, with such shares being the vested components of restricted stock awards granted to the Company’s Directors in accordance with the Company’s Director compensation policies. The shares were issued with legends which restrict their trading on the Nasdaq exchange .
| 16 |
Item 2. Management’s discussion and analysis of financial condition and results of operations
The information set forth below should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Unless stated otherwise, references in this Quarterly Report on Form 10-Q to “us,” “we,” “our,” or our “Company” and similar terms refer to Enveric Biosciences, Inc., a Delaware corporation.
Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terms such as “anticipates,” “assumes,” “believes,” “can,” “could,” “estimates,” “expects,” “forecasts,” “guides,” “intends,” “is confident that,” “may,” “plans,” “seeks,” “projects,” “targets,” and “would” or the negative of such terms or other variations on such terms or comparable terminology. Such forward-looking statements include, but are not limited to, future financial and operating results, the company’s plans, objectives, expectations and intentions and other statements that are not historical facts. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Form 10-Q and are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from our historical experience and our present expectations, or projections described under the sections in this Form 10-Q entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These risks and uncertainties include, but are not limited to:
| ● | our dependence on the success of our prospective product candidates, which are in early stages of development and may not reach a particular stage in development, receive regulatory approval or be successfully commercialized; | |
| ● | potential difficulties that may delay, suspend, or scale back our efforts to advance additional early research programs through preclinical development and investigational new drug (“IND”) application filings and into clinical development; | |
| ● | the risk that the cost savings, synergies and growth from our combination with MagicMed Industries Inc. and the successful use of the rights and technologies acquired in the combination may not be fully realized or may take longer to realize than expected; | |
| ● | the impact of the novel coronavirus (COVID-19) on our business, including our current plans for product development, as well as any currently ongoing preclinical studies and clinical trials and any future studies or other development or commercialization activities; | |
| ● | the limited study on the effects of medical cannabinoids and psychedelics, and the chance that future clinical research studies may lead to conclusions that dispute or conflict with our understanding and belief regarding the medical benefits, viability, safety, efficacy, dosing, and social acceptance of cannabinoids or psychedelics; | |
| ● | the expensive, time-consuming, and uncertain nature of clinical trials, which are susceptible to change, delays, termination, and differing interpretations; | |
| ● | the ability to establish that potential products are efficacious or safe in preclinical or clinical trials; | |
| ● | the fact that our current and future preclinical and clinical studies may be conducted outside the United States, and the United States Food and Drug Administration may not accept data from such studies to support any new drug applications we may submit after completing the applicable developmental and regulatory prerequisites; | |
| ● | our ability to effectively and efficiently build, maintain and legally protect our molecular derivatives library so that it can be an essential building block from which those in the biotech industry can develop new patented products; | |
| ● | our ability to establish or maintain collaborations on the development of therapeutic candidates; | |
| ● | our ability to obtain appropriate or necessary governmental approvals to market potential products; | |
| ● | our ability to manufacture product candidates on a commercial scale or in collaborations with third parties; | |
| ● | our significant and increasing liquidity needs and potential requirements for additional funding; | |
| ● | our ability to obtain future funding for developing products and working capital and to obtain such funding on commercially reasonable terms; | |
| ● | legislative changes related to and affecting the healthcare system, including, without limitation, changes and proposed changes to the Patient Protection and Affordable Care Act (“PPACA”); | |
| ● | the intense competition we face, often from companies with greater resources and experience than us; | |
| ● | our ability to retain key executives and scientists; | |
| ● | the ability to secure and enforce legal rights related to our products, including intellectual property rights and patent protection; and | |
| ● | political, economic, and military instability in Israel which may impede our development programs. |
For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those projected in these forward-looking statements, see the risk factors and uncertainties set forth in Part II, Item 1A of this Form 10-Q and Part I, Item 1A of the annual report on Form 10-K filed with the SEC on March 31, 2022. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise, except as required by law.
| 17 |
Business Overview
We are an early-development-stage biosciences company that is developing innovative, evidence-based prescription products and combination therapies containing cannabinoids to address unmet needs in cancer care. We seek to improve the lives of patients suffering from cancer, initially by developing palliative and supportive care products for people suffering from certain side effects of cancer and cancer treatment such as pain or skin irritation. We currently intend to offer such palliative and supportive care products in the United States, following approval through established regulatory pathways.
Psychedelics
Following our amalgamation with MagicMed completed in September 2021 (the “Amalgamation”), we have continued to pursue the development of MagicMed’s proprietary psychedelic derivatives library, the Psybrary™ which we believe will help us to identify and develop the right drug candidates needed to address mental health challenges, including cancer-related distress. We synthesize novel versions of classic psychedelics, such as psilocybin, N-dimethyltryptamine (DMT), mescaline and MDMA, using a mixture of chemistry and synthetic biology, resulting in the expansion of the Psybrary™, which includes 15 patent families with over a million potential variations and hundreds of synthesized molecules. Within the Psybrary™ we have three different types of molecules, Generation 1 (classic psychedelics), Generation 2 (pro-drugs), and Generation 3 (new chemical entities). The Company is working to add novel psychedelic molecular compounds and derivatives (“Psychedelic Derivatives”) on a regular basis through our work at Enveric Labs in Calgary, Alberta, Canada, where we have a team of PhD scientists with expertise in synthetic biology and chemistry. To date we have created over 500 molecules that are housed in the Psybrary.
We screen newly synthesized molecules in the Psybrary™ through PsyAI™, a proprietary artificial intelligence (AI) tool. Leveraging AI systems is expected to reduce the time and cost of pre-clinical, clinical, and commercial development. We believe it streamlines pharmaceutical design by predicting ideal binding structures of molecules, manufacturing capabilities, and pharmacological effects to help determine ideal drug candidates, tailored to each indication. Each of these molecules that we believe are patentable can then be further screened to see how changes to its makeup alter its effects in order to synthesize additional new molecules. New compounds of sufficient purity are undergoing pharmacological screening, including non-clinical (receptors/cell lines), preclinical (animal), and ultimately clinical (human) evaluations. We intend to utilize our Psybrary™ and the AI tool to categorize and characterize the Psybrary™ substituents to focus on bringing more psychedelics-inspired molecules from discovery to the clinical phase.
Cannabinoids
We are also aiming to advance a pipeline of novel cannabinoid combination therapies for the side effects of cancer treatments, such as chemotherapy and radiotherapy.
We intend to bring together leading oncology clinicians, researchers, academic and industry partners to develop both external proprietary products and a robust internal pipeline of product candidates aimed at improving quality of life and outcomes for cancer patients. We intend to evaluate options to out-license our proprietary technology as it moves along the regulatory pathway.
In developing our product candidates, we intend to focus on cannabinoids derived from non-hemp botanical sources, and synthetic materials containing no tetrahydrocannabinol (THC) in order to comply with U.S. federal regulations. Of the potential cannabinoids to be used in therapeutic formulations, THC, which is responsible for the psychoactive properties of marijuana, can result in undesirable mood effects. Selected cannabidiol (CBD) and cannabigerol (CBG) candidates, on the other hand, have amounts of THC well below 0.1% and are not psychotropic and therefore more attractive candidates for translation into therapeutic practice. Drugs with less than 0.1% THC have a history, when approved as drugs by FDA, of being able to be rescheduled by DEA from Schedule I to Schedule V, as in the case of Epidiolex and Marinol. In the future, we may utilize cannabinoids that are derived from cannabis plants, which may contain higher amounts of THC; however, we only intend to do so in jurisdictions where THC is legal. However, synthetic THC is a Schedule I controlled substance; so, the use of any APIs (Active Pharmaceutical Ingredients) containing synthetic THC (or naturally derived THC in concentrations greater than 0.3%) may increase regulatory scrutiny and require additional expenses and authorizations. All current and future product candidates that we are developing or may develop will be tested for safety and efficacy under an IND application and subject to the Food and Drug Administration (“FDA”) pre-market approval process for new drugs.
While we continue to pursue the development of our cannabinoid-based product candidates, our principal focus is on the development of psychedelic-based treatments.
Recent Developments
February 2022 Offering
On February 15, 2022, we completed a public offering of 20,000,000 shares of Common Stock and warrants to purchase up to 20,000,000 shares of Common Stock for gross proceeds of approximately $10 million, before deducting underwriting discounts and commissions and other offering expenses. A.G.P./Alliance Global Partners acted as sole book-running manager for the offering. In addition, we granted the underwriter a 45-day option to purchase up to an additional 3,000,000 shares of common stock and/or warrants to purchase up to an additional 3,000,000 shares of common stock at the public offering price, which the underwriter has partially exercised for warrants to purchase up to 3,000,000 shares of common stock. At closing, we received net proceeds from the offering of approximately $9.1 million, after deducting underwriting discounts and commissions and estimated offering expenses with $5.8 million allocated to equity, $3.6 million to warrant liability and the remaining $0.3 million recorded as an expense.
| 18 |
Series C Preferred Stock
On May 3, 2022, the Board of Directors declared a dividend of one one-thousandth of a share of Series C Preferred Stock, par value $0.01 per share (“Series C Preferred Stock”), for each outstanding share of Company common stock, par value $0.01 per share (“Common Stock”), to stockholders of record at 5:00 p.m. Eastern Time on May 13, 2022.
Spin-Off and related Private Placement
On May 11, 2022, the Company announced plans to transfer and spin-off its cannabinoid clinical development pipeline assets to a wholly-owned subsidiary, Acanna Therapeutics, Inc. (“Acanna”), by way of dividend to Enveric shareholders (the “Spin-Off”). The Spin-Off will be subject to various conditions, including Acanna meeting the qualifications for listing on The Nasdaq Stock Market, and if successful, would result in two standalone public companies.
In connection with the Spin-Off, on May 5, 2022, Acanna and the Company entered into a securities purchase agreement with an accredited investor. Under the Securities Purchase Agreement, Acanna received $1,000,000 in exchange for 1,000 shares of Acanna’s Series A Convertible Preferred Stock, par value $0.01 per share (the “Acanna Series A Preferred Stock”). Following the Spin-Off, Acanna is expected to, subject to certain other conditions, receive an additional $4,000,000 from the investor in exchange for an addition 4,000 shares of Acanna Series A Preferred Stock and warrants to purchase shares of Acanna’s common stock. On or immediately prior to the Spin-Off, the outstanding Acanna Series A Preferred Stock will be automatically converted into a number of shares of Acanna common stock equal to 25% of the then issued and outstanding Acanna common stock.
In connection with the securities purchase agreement, on May 5, 2022, Acanna entered into a registration rights agreement with the investor in the securities purchase agreement. Under the registration rights agreement, Acanna shall on such date that Acanna files a registration statement with the SEC in connection with the Spin-Off, file a registration statement to register the shares of common stock (i) issuable upon conversion of the Acanna Series A Preferred Stock, (ii) issuable upon exercise of the warrants to purchase shares of Acanna’s common stock sold in the private placement (iii) issuable upon exercise of the warrants to purchase shares of Acanna’s common stock issued to the placement agent in the private placement, and (iv) issuable upon conversion of convertible preferred stock issued to the placement agent in the private placement. Acanna must also to cause such registration statement to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as promptly as possible after the filing thereof, but in any event no later than the date of the Spin-Off.
Key Components of Our Results of Operations
Operating Expenses
Our operating expenses include financial statement preparation services, tax compliance, various consulting and director fees, legal services, auditing fees, stock-based compensation, and research and development expenses.
Results of Operations
The following table sets forth information comparing the components of net loss for the three months ended March 31, 2022 and the comparable period in 2021:
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Operating expenses | ||||||||
| General and administrative | $ | 2,767,866 | $ | 6,470,405 | ||||
| Research and development | 1,958,714 | 157,952 | ||||||
| Depreciation and amortization | 69,265 | 136,640 | ||||||
| Total operating expenses | 4,795,845 | 6,764,997 | ||||||
| Loss from operations | (4,795,845 | ) | (6,764,997 | ) | ||||
| Other income (expense) | ||||||||
| Inducement expense | — | (298,714 | ) | |||||
| Change in fair value of warrant liabilities | 275,969 | 3,813,000 | ||||||
| Interest expense | (4,138 | ) | — | |||||
| Total other income | 271,831 | 3,514,286 | ||||||
| Net loss | (4,524,014 | ) | (3,250,711 | ) | ||||
| Other comprehensive gain | ||||||||
| Foreign currency translation | 88,709 | 35,736 | ||||||
| Comprehensive loss | $ | (4,435,305 | ) | $ | (3,214,975 | ) | ||
| Net loss per share - basic and diluted | $ | (0.11 | ) | $ | (0.20 | ) | ||
| Weighted average shares outstanding, basic and diluted | 42,356,752 | 16,220,661 | ||||||
General and Administrative Expenses
Our general and administrative expenses decreased to $2,767,866 for the three months ended March 31, 2022 from $6,470,405 for the three months ended March 31, 2021, a decrease of $3,702,539, or 57%. This change was primarily driven by a decrease in stock-based compensation of $3,183,895 and a decrease in legal expenses of $207,894, offset by an increase in salaries and wages of $282,453.
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Research and Development Expenses
Our research and development expense for the three months ended March 31, 2022 was $1,958,714 compared to $157,952 for the three months ended March 31, 2021. This increase was primarily driven by increased product development activities during the current year, as compared to the prior year, in particular, research relating to psychedelic molecules, activities which the Company was not engaged in during the comparable quarter of the prior year.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three months ended March 31, 2022 was $69,265 as compared to $136,640 for the three months ended March 31, 2021, with a decrease of $67,375, or approximately 49%. The decrease is due to amortization expense in the prior year including charges totaling $136,640 and relating to definite lived intangible assets which were fully impaired as of December 31, 2021, offset by amortization of $42,188 for definite lived intangible assets not affected by the prior year impairment and depreciation expense of $27,077 incurred in relation to fixed assets acquired subsequent to March 31, 2021.
Change in Fair Value of Warrant Liabilities
The Company’s change in gain in fair value warrant liabilities was a decrease of $3,537,031 for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, due primarily to a decrease in the Company’s stock price within each period.
Inducement Expense
Inducement expense was $ for the for the three months ended March 31, 2022 as compared to $298,714 for the three months ended March 31, 2021 representing a decrease of 100%. The expenses recorded in 2021 were related to inducement incurred related to the conversion of warrants and options. The Company did not incur such expenses in the current period.
Foreign Currency Translation
Our foreign currency translation gain (loss) was $88,709 for the three months ended March 31, 2022 as compared to $35,736 for the three months ended March 31, 2021, for an increase in $52,973. The increase in foreign exchange gain is primarily due to the U.S. Dollar weakening against the Canadian Dollar and the conversion of the Canadian Dollars into United States Dollars for payment of United States Dollar denominated expenses.
Liquidity and Capital Resources
The Company has incurred continuing losses from its operations. As of March 31, 2022, the Company has had an accumulated deficit of $65,260,467 and working capital of $20,571,914. Since inception, the Company’s operations have been funded principally through the issuance of debt and equity.
On February 15, 2022, the Company completed a registered direct offering of 20,000,000 shares of Common Stock at approximately $0.50 per share for gross proceeds of approximately $10.0 million. The net proceeds to the Company after deducting financial advisory fees and other costs and expenses were approximately $9.1 million.
We believe that, as a result of February offering, we currently have sufficient cash and financing commitments to meet our funding requirements over the next year. Notwithstanding, we expect that we will need to raise additional financing to accomplish our development plan over the next several years. We may seek to obtain additional funding through debt or equity financing in the future. There are no assurances that we will be able to raise capital on terms acceptable to us or at all, or that cash flows generated from our operations will be sufficient to meet our current operating costs. Our ability to obtain additional capital may depend on prevailing economic conditions and financial, business and other factors beyond our control. The COVID-19 pandemic has caused an unstable economic environment globally. Disruptions in the global financial markets may adversely impact the availability and cost of credit, as well as our ability to raise money in the capital markets. Current economic conditions have been and continue to be volatile. Continued instability in these market conditions may limit our ability to access the capital necessary to fund and grow our business. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our financial condition and operating results.
On May 3, 2022, the Board of Directors declared a dividend of one one-thousandth of a share of Series C Preferred Stock for each outstanding share of Common Stock held of record as of 5:00 p.m. Eastern Time on May 13, 2022. The outstanding shares of Series C Preferred Stock will vote together with the outstanding shares of the Company’s Common Stock, as a single class, exclusively with respect to a proposal to increase the number of authorized shares of the Company’s Common Stock, a proposal giving the Board of Directors the authority, as it determines appropriate, to implement a reverse stock split within twelve months following the approval of such proposal by the Company’s stockholders, as well as any proposal to adjourn any meeting of stockholders called for the purpose of voting on the foregoing matters. If these proposals do not receive approval at a meeting of stockholders duly called for the purpose of voting thereon, the Company may be unable to regain compliance with Nasdaq’s minimum bid price requirement within the required period of time, which could lead to our Common Stock being delisted. If we are unable to maintain the listing of our Common Stock on Nasdaq, we may face difficulty raising additional capital.
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Cash Flows
Since inception, we have primarily used our available cash to fund our product development and operations expenditures.
Cash Flows for the Three Months Ended March 31, 2022 and 2021
The following table sets forth a summary of cash flows for the periods presented:
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (4,548,941 | ) | $ | (3,162,278 | ) | ||
| Net cash used in investing activities | (505,507 | ) | (675,000 | ) | ||||
| Net cash provided by financing activities | 9,397,884 | 24,881,733 | ||||||
| Effect of foreign exchange rate on cash | (4,900 | ) | 34,235 | |||||
| Net increase in cash | $ | 4,338,536 | $ | 21,078,690 | ||||
Operating Activities
Net cash used in operating activities was $4,548,941 during the three months ended March 31, 2022, which consisted primarily of a net loss of $4,524,014, prepaid expenses of $588,975, and change in fair value of warrant liabilities of $275,969 offset by stock based compensation of $768,619.
Net cash used in operating activities was $3,162,278 during the three months ended March 31, 2021, which consisted primarily of a net loss of $3,250,711 and change in fair value of warranty liability of $3,813,000 offset by stock-based compensation of $3,591,565.
Investing Activities
Net cash used in investing activities was $505,507 during the three months ended March 31, 2022, which consisted of the purchase of property and equipment of $505,507.
Net cash used in investing activities was $675,000 during the three months ended March 31, 2021, which consisted of the acquisition of intellectual property from Diverse Bio.
Financing Activities
Net cash provided by financing activities was $9,397,884 during the three months ended March 31, 2022, which consisted of $9,397,884 in proceeds from the sale of common stock and warrants.
Net cash provided by financing activities was $24,881,733 during the three months ended March 31, 2021, which consisted primarily of $21,614,488 in proceeds from the sale of common stock and proceeds from the exercise of warrants of $3,267,245.
Critical Accounting Policies and Significant Judgments and Estimates
The Company’s accounting policies are fundamental to understanding its management’s discussion and analysis. The Company’s significant accounting policies are presented in Note 2 to its financial statements for the year ended December 31, 2021 and included in the Annual Report on Form 10-K filed with the SEC on March 31, 2022. The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP. However, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of the financial position and operating results have been included in the Company’s unaudited condensed consolidated financial statements.
Warrant Liability
The Company accounts for warrants for shares of the Company’s common stock that are not indexed to its own stock as liabilities at fair value on the balance sheet. Such warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of other expense on the statement of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of such common stock warrants. At that time, the portion of the warrant liability related to such common stock warrants will be reclassified to additional paid-in capital.
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Foreign Currency Risk
The reporting currency of the Company is the United States dollar, while the functional currency of our subsidiaries, Enveric Biosciences Canada Inc. and Jay Pharma, Inc., is the Canadian dollar. As a result, the Company is subject to exposure from changes in the exchange rates of the Canadian dollar and the United States dollar.
The Company has not entered into any financial derivative instruments that expose it to material market risk, including any instruments designed to hedge the impact of foreign currency exposures. The Company may, however, hedge such exposure to foreign currency fluctuations in the future.
Item 3. Quantitative and qualitative disclosures about market risk
From inception through March 31, 2022, the reporting currency of the Company is the United States dollar while the functional currency of the Company’s Canadian subsidiaries is the Canadian dollar. As a result, the Company is subject to exposure from changes in the exchange rates of the Canadian dollar and the U.S. dollar.
The Company has not entered into any financial derivative instruments that expose it to material market risk, including any instruments designed to hedge the impact of foreign currency exposures. The Company may, however, hedge such exposure to foreign currency exchange fluctuations in the future.
Item 4. Controls and procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified under the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The matters that management identified in our Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 31, 2022, continued to exist and were still considered material weaknesses in our internal control over financial reporting at March 31, 2022.
As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer (our principal executive) and Chief Financial Officer (our principal financial officer and principal accounting officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2022. Based on this evaluation, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) were not effective as of March 31, 2022.
Management’s Remediation Plan
As previously discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 31, 2022, management had concluded that our internal control over financial reporting was not effective as of December 31, 2021, because management identified inadequate segregation of duties to ensure the processing, review, and authorization of all transactions, including non-routine transactions resulting in deficiencies, which, in aggregate, amounted to a material weakness in the Company’s internal control over financial reporting.
As of March 31, 2022, there were control deficiencies which constituted a material weakness in our internal control over financial reporting. Management has taken, and is taking steps to strengthen our internal control over financial reporting: we have conducted evaluation of the material weakness to determine the appropriate remedy and have established procedures for documenting disclosures and disclosure controls.
While we have taken certain actions to address the material weaknesses identified, additional measures may be necessary as we work to improve the overall effectiveness of our internal controls over financial reporting.
Changes in Internal Control over Financial Reporting
Other than the changes discussed above in the Remediation Plan, there have been no other changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-(f) of the Exchange Act) that occurred during the first quarter ending March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal proceedings
The Company is periodically involved in legal proceedings, legal actions and claims arising in the ordinary course of business. Other than as described below, we do not have any pending litigation that, separately or in the aggregate, would, in the opinion of management, have a material adverse effect on our financial position, results of operations or cash flows.
Item 1A. Risk factors
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in the Company’s annual report on Form 10-K as filed with the SEC on March 31, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations of financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in the Company’s annual report on Form 10-K as filed with the SEC on March 31, 2022.
Item 2. Unregistered sales of equity securities and use of proceeds
None.
Item 3. Defaults upon senior securities
None.
Item 4. Mine safety disclosures
Not applicable.
Item 5. Other information
None.
INDEX TO EXHIBITS
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ENVERIC BIOSCIENCES, INC | ||
| May 13, 2022 | ||
| By: | /s/ Dr. Joseph Tucker | |
| Dr. Joseph Tucker | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| May 13, 2022 | ||
| By: | /s/ Carter J. Ward | |
| Carter J. Ward | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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