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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: September 30, 2023

 

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

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of November 9, 2023, there were 2,321,315 shares outstanding of Registrant’s Common Stock (par value $0.01 per share).

 

 

 

 

 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

 

FORM 10-Q

 

TABLE OF CONTENTS

 

    Page
  PART I - FINANCIAL INFORMATION  
Item 1. Financial Statements  
  Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022 1
  Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022 2
  Unaudited Condensed Consolidated Statements of Changes in Mezzanine Equity and Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022 3
  Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 5
  Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29
Item 4. Controls and Procedures 29
     
  PART II - OTHER INFORMATION  
Item 1. Legal Proceedings 30
Item 1A. Risk Factors 30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30
Item 3. Defaults Upon Senior Securities 30
Item 4. Mine Safety Disclosures 30
Item 5. Other Information 30
Item 6. Exhibits 31
  Signatures 32

 

 

 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30, 2023   December 31, 2022 
   (unaudited)     
ASSETS          
Current assets:          
Cash  $4,266,568   $17,723,884 
Prepaid expenses and other current assets   1,560,354    708,053 
Total current assets   5,826,922    18,431,937 
           
Other assets:          
Property and equipment, net   539,152    677,485 
Right-of-use operating lease asset       63,817 
Intangible assets, net   253,120    379,686 
Total other assets   792,272    1,120,988 
Total assets  $6,619,194   $19,552,925 
           
LIABILITIES, MEZZANINE EQUITY, AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $1,098,233   $463,275 
Accrued liabilities   1,533,829    1,705,655 
Current portion of right-of-use operating lease obligation       63,820 
Investment option liability   1,250,929    851,008 
Warrant liability   300,557    185,215 
Derivative liability       727,000 
Total current liabilities  $4,183,548   $3,995,973 
           
Commitments and contingencies (Note 9)   -    - 
           
Mezzanine equity          
Series C redeemable preferred stock, $0.01 par value, 100,000 shares authorized, and 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022        
Redeemable non-controlling interest       885,028 
Total mezzanine 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 September 30, 2023 and December 31, 2022        
Common stock, $0.01 par value, 100,000,000 shares authorized, 2,181,912 and 2,078,271 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively   21,818    20,782 
Additional paid-in capital   96,013,029    94,395,662 
Accumulated deficit   (93,063,582)   (79,207,786)
Accumulated other comprehensive loss   (535,619)   (536,734)
Total shareholders’ equity   2,435,646    14,671,924 
Total liabilities, mezzanine equity, and shareholders’ equity  $6,619,194   $19,552,925 

 

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 LOSS

 

   2023   2022   2023   2022 
   For the Three Months Ended September 30,   For the Nine Months Ended September 30, 
   2023   2022   2023   2022 
Operating expenses                    
General and administrative  $2,010,349   $3,514,547   $7,921,340   $8,783,619 
Research and development   1,351,750    2,055,656    5,883,440    6,134,421 
Depreciation and amortization   86,296    86,646    259,300    241,413 
Total operating expenses   3,448,395    5,656,849    14,064,080    15,159,453 
                     
Loss from operations   (3,448,395)   (5,656,849)   (14,064,080)   (15,159,453)
                     
Other income (expense)                    
Change in fair value of warrant liabilities   67,822    1,599,623    (115,342)   3,845,514 
Change in fair value of investment option liability   562,715    1,809,622    (399,921)   1,809,622 
Change in fair value of derivative liability       (231,000)   727,000    (284,000)
Interest income (expense)   2,237    (308)   3,142    (5,114)
Total other income   632,774    3,177,937    214,879    5,366,022 
                     
Net loss before income taxes   (2,815,621)   (2,478,912)   (13,849,201)   (9,793,431)
                     
Income tax expense   (6,595)       (6,595)    
                     
Net loss   (2,822,216)   (2,478,912)   (13,855,796)   (9,793,431)
Less preferred dividends attributable to non-controlling interest       12,603    19,041    20,411 
Less deemed dividends attributable to accretion of embedded derivative at redemption value       110,991    147,988    184,985 
Net loss attributable to shareholders   (2,822,216)   (2,602,506)   (14,022,825)   (9,998,827)
                     
Other comprehensive loss                    
Foreign currency translation   10,433    (417,390)   1,115    (609,695)
                     
Comprehensive loss  $(2,811,783)  $(3,019,896)  $(14,021,710)  $(10,608,522)
                     
Net loss per share - basic and diluted  $(1.30)  $(1.46)  $(6.62)  $(8.11)
                     
Weighted average shares outstanding, basic and diluted   2,164,656    1,787,235    2,117,153    1,232,936 

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

 

2

 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

 

  Shares   Amount   Equity   Shares   Amount   Capital   Deficit   Loss  

Equity

 
   Redeemable Non-controlling Interest   Total Mezzanine   Common Stock   Additional Paid-In   Accumulated   Accumulated Other Comprehensive  

Total

Shareholders’

 
   Shares   Amount   Equity   Shares   Amount   Capital   Deficit   Loss   Equity 
Balance at January 1, 2023 -  1,000   $885,028   $885,028    2,078,271   $20,782   $94,395,662   $(79,207,786)  $(536,734)  $14,671,924 
Stock-based compensation                       532,835            532,835 
Preferred dividends attributable to redeemable non-controlling interest       12,329    12,329            (12,329)           (12,329)
Accretion of embedded derivative to redemption value       110,991    110,991            (110,991)           (110,991)
Foreign exchange translation gain                               1,968    1,968 
Net loss -                          (4,677,527)       (4,677,527)
Balance at March 31, 2023 -  1,000   $1,008,348   $1,008,348    2,078,271   $20,782   $94,805,177   $(83,885,313)  $(534,766)  $10,405,880 
Stock-based compensation                       879,738            879,738 
Preferred dividends attributable to redeemable non-controlling interest       6,712    6,712            (6,712)           (6,712)
Accretion of embedded derivative to redemption value       36,997    36,997            (36,997)           (36,997)
Redemption of Series A preferred stock   (1,000)   (1,052,057)   (1,052,057)                        
Issuance of common shares in exchange for RSU conversions from the reduction in force               63,511    635    (635)            
Foreign exchange translation loss                               (11,286)   (11,286)
Net loss -                          (6,356,053)       (6,356,053)
Balance at June 30, 2023-      $   $    2,141,782   $21,417   $95,640,571   $(90,241,366)  $(546,052)  $4,874,570 
Stock-based compensation                       372,859            372,859 
Issuance of common shares in exchange for RSU conversions               40,130    401    (401)            
Foreign exchange translation loss                               10,433    10,433 
Net loss -                          (2,822,216)       (2,822,216)
Balance at September 30, 2023-      $   $    2,181,912   $21,818   $96,013,029   $(93,063,582)  $(535,619)  $2,435,646 

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

 

3

 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

 

   Shares   Amount   Shares   Amount   Equity   Shares   Amount   Capital   Deficit   Income (Loss)  

Equity

 
   Series C Preferred Stock   Redeemable Non-controlling Interest   Total Mezzanine   Common Stock   Additional Paid-In   Accumulated    Accumulated Other Comprehensive   Total Shareholders’  
   Shares   Amount   Shares   Amount   Equity   Shares   Amount   Capital   Deficit   Income (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                       400,000    4,000    5,798,464            5,802,464 
Stock-based compensation                               768,619            768,619 
Conversion of RSUs into common shares                       899    9    (9)            
Foreign exchange translation gain                                       88,709    88,709 
Net loss                                   (4,524,014)       (4,524,014)
Balance at March 31, 2022      $       $   $    1,052,820   $10,528   $89,633,730   $(65,260,467)  $57,907   $24,441,698 
Stock-based compensation                               677,543            677,543 
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 non-controlling Series C preferred stock   52,685    527            527            (527)           (527)
Preferred dividends attributable to redeemable non-controlling interest               7,808    7,808            (7,808)           (7,808)
Accretion of embedded derivative to redemption value               73,994    73,994            (73,994)           (73,994)
Conversion of RSAs into common shares                       1,223    12    (12)            
Foreign exchange translation gain                                       (281,014)   (281,014)
Net loss                                   (2,790,505)       (2,790,505)
Balance at June 30, 2022   52,685   $527    1,000   $637,840   $638,367    1,054,043   $10,540   $90,228,932   $(68,050,972)  $(223,107)  $21,965,393 
Stock-based compensation                               645,137            645,137 
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    3,239,125            3,249,125 
Issuance of rounded shares as a result of the reverse stock split                       24,228    242    (242)            
Preferred dividends attributable to redeemable non-controlling interest               12,603    12,603            (12,603)           (12,603)
Accretion of embedded derivatives to redemption value               110,991    110,991            (110,991)           (110,991)
Redemption of Series C preferred stock   (52,685)   (527)           (527)           527            527 
Foreign exchange translation loss                                       (417,390)   (417,390)
Net loss                                   (2,478,912)       (2,478,912)
Balance at September 30, 2022      $    1,000   $761,434   $761,434    2,078,271   $20,782   $93,989,885   $(70,529,884)  $(640,497)  $22,840,286 

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

 

4

 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   2023   2022 
   For the Nine Months Ended 
   2023   2022 
Cash Flows From Operating Activities:          
Net loss  $(13,855,796)  $(9,793,431)
Adjustments to reconcile net loss to cash used in operating activities          
Change in fair value of warrant liability   115,342    (3,845,514)
Change in fair value of investment option liability   399,921    (1,809,622)
Change in fair value of derivative liability   (727,000)   284,000 
Stock-based compensation   1,785,432    2,091,299 
Amortization of right-of-use asset   64,246    103,365 
Amortization of intangible assets   126,566    126,563 
Depreciation expense   132,734    114,850 
Gain on disposal of property and equipment   (4,219)    
Change in operating assets and liabilities:          
Prepaid expenses and other current assets   (746,033)   (758,419)
Accounts payable and accrued liabilities   429,688    (106,675)
Right-of-use operating lease liability   (64,244)   (91,022)
Net cash used in operating activities   (12,343,363)   (13,684,606)
           
Cash Flows From Investing Activities:          
Purchases of property and equipment   (5,195)   (577,972)
Proceeds from disposal of property and equipment   16,900     
Net cash provided by (used in) investing activities   11,705    (577,972)
           
Cash Flows From Financing Activities:          
Payment for the deferred offering costs from the equity distribution agreement   (105,000)    
Proceeds from sale of common stock, warrants, and investment options, net of offering costs       17,222,100 
Redemption of Series A Preferred Stock (see Note 8)   (1,052,057)    
Proceeds from the sale of redeemable non-controlling interest, net of offering       958,038 
Net cash (used in) provided by financing activities   (1,157,057)   18,180,138 
           
Effect of foreign exchange rate on cash   31,399    (72,554)
           
Net (decrease) increase in cash   (13,457,316)   3,845,006 
Cash at beginning of period   17,723,884    17,355,999 
Cash at end of period  $4,266,568   $21,201,005 
           
Supplemental disclosure of cash and non-cash transactions:          
Cash paid for interest  $   $5,114 
Income taxes paid  $6,595   $ 
Warrants issued in conjunction with common stock issuance  $   $3,595,420 
Issuance of embedded derivative  $   $402,000 
Issuance of redeemable non-controlling Series C preferred stock  $   $ 
Offering costs accrued not paid  $20,800   $ 
Preferred dividends attributable to redeemable non-controlling interest  $19,041   $20,411 
Accretion of embedded derivative to redemption value  $147,988   $184,985 
Investment options issued in conjunction with common stock issuance  $   $4,323,734 
Modification of warrants as part of share capital raise  $   $251,357 

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

 

5

 

 

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. BUSINESS AND LIQUIDITY AND OTHER UNCERTAINTIES

 

Nature of Operations

 

Enveric Biosciences, Inc. (“Enveric” or the “Company”) is a biotechnology company developing novel neuroplastogenic small-molecule therapeutics for the treatment of depression, anxiety, and addiction disorders. 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”), Enveric Canada Inc., and Enveric Therapeutics, Pty. Ltd. (“Enveric Therapeutics”).

 

Leveraging its unique discovery and development platform, The Psybrary™, Enveric has created a robust Intellectual Property portfolio of New Chemical Entities for specific mental health indications. Enveric’s lead program, the EVM201 Series, comprises next generation synthetic prodrugs of the active metabolite, psilocin. Enveric is developing the first product from the EVM201 Series – EB-373 – for the treatment of psychiatric disorders. Enveric is also advancing its second program, the EVM301 Series, expected to offer a first-in-class, new approach to the treatment of difficult-to-address mental health disorders, mediated by the promotion of neuroplasticity without also inducing hallucinations in the patient.

 

Following the Company’s amalgamation with MagicMed completed in September 2021 (the “Amalgamation”), the Company has continued to pursue the development of MagicMed’s proprietary Psychedelic Derivatives library, the Psybrary™ which the Company believes will help to identify and develop the right drug candidates needed to address mental health challenges, including cancer-related distress. The Company synthesizes novel versions of classic psychedelics, such as psilocybin, 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™ the Company has 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 its work at the Company’s labs in Calgary, Alberta, Canada, where the Company has a team of PhD scientists with expertise in synthetic biology and chemistry. To date the Company has created over 500 molecules that are housed in the Psybrary™.

 

The Company screens 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. The Company believes 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 the Company believes 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. The Company intends to utilize the 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.

 

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”). As of May 12, 2023, the holders of the Company’s Akos Series A Preferred Stock, par value $0.01 per share (“Akos Series A Preferred Stock”) have exercised this right to force redemption of all of the Akos Series A Preferred Stock for $1,000 per share, plus accrued but unpaid dividends of $52,057 for a total of $1,052,057. The Company made full payment on May 19, 2023. See Note 8.

 

Australian Subsidiary

 

On March 21, 2023, the Company established Enveric Therapeutics, an Australia-based subsidiary, to support the Company’s plans to advance its lead program, the EVM201 Series, comprised of the next generation synthetic prodrugs of the active metabolite, psilocin (“EVM201 Series”), towards the clinic. Enveric Therapeutics will oversee the Company’s preclinical, clinical, and regulatory activities in Australia, including ongoing interactions with the local Human Research Ethics Committees (HREC) and the Therapeutic Goods Administration (TGA), Australia’s regulatory authority.

 

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ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Going Concern, Liquidity and Other Uncertainties

 

The Company has incurred a loss since inception resulting in an accumulated deficit of $93,063,582 as of September 30, 2023, and further losses are anticipated in the development of its business. Further, the Company had operating cash outflows of $12,343,363 for the nine months ended September 30, 2023. For the nine months ended September 30, 2023, the Company had a loss from operations of $14,064,080. Since its 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.

 

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 September 30, 2023, the Company had cash of $4,266,568 and working capital of $1,643,374. The Company’s current cash on hand is insufficient to satisfy its operating cash needs for the 12 months following the filing of this Quarterly Report on Form 10-Q. 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 reducing the Company’s rate of spend, managing its cash flow, advancing its programs, and raising additional working capital through public or private equity or debt financings or other sources, which has included the Equity Distribution Agreement with Canaccord for proceeds of up to $2.4 million (see Note 7) and the Purchase Agreement with Lincoln Park (see Note 10), subject to registration, and may include collaborations with additional third parties, as well as disciplined cash spending, to increase the Company’s cash runway. Adequate additional financing may not be available to the Company 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.

 

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 research organizations (“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 manufacturing organizations (“CMOs”) to carry out their clinical manufacturing activities as it does not yet have a commercialization infrastructure, and incur significant expenses related to developing its internal commercialization capability to support product sales, marketing and distribution. The Company’s current working capital resources are insufficient to fund these material cash requirements for the next twelve months.

 

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 unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Reduction in Force/Restructuring

 

In May 2023, the Company entered into a cost reduction plan, including a reduction in force of approximately 35% of its full-time employees to streamline its operations and conserve cash resources. Additionally, contracts with seven consultants that were focused on the Akos cannabinoid spin-out were terminated. The Company recognized severance charges of approximately $453,059 through September 30, 2023. The plan included a focus on progressing the Company’s existing non-cannabinoid pipeline while reducing the rate of spend and managing cash flow. In June 2023, the Company completed the reduction in force, with such severance expenses recorded in general and administrative accounts.

 

On June 16, 2023, the Company entered into a separation agreement with Avani Kanubaddi, the Company’s President and Chief Operating Officer (the “Kanubaddi Separation Agreement”). In accordance with the Kanubaddi Separation Agreement, Mr. Kanubaddi’s outstanding restricted stock units (“RSUs”) will retain their vesting conditions. Mr. Kanubaddi’s 2023 salary and benefits of $550,974 were accrued and will be paid out in twelve equal monthly installments beginning in July 2023. Upon termination, any unvested time-based RSUs became fully vested. The Company accelerated expense recognized related to these shares that vested was $231,273. Of the 11,278 market performance-based RSUs previously granted, 3,759 will continue to be subject to the original terms and conditions of Mr. Kanubaddi’s employment agreement and the remainder were forfeited.

 

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ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

   Accrued Restructuring Costs 
January 1, 2023 Beginning balance  $ 
Restructuring costs incurred   1,004,033 
Restructuring costs paid   (396,431)
September 30, 2023 ending balance  $607,602 

 

Inflation Risks

 

The Company considers the current inflationary trend existing in the North American economic environment 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 in the cost of labor and materials. In addition, there is an increased risk of the Company experiencing labor shortages due to a potential inability to attract and retain human resources due to increased labor costs resulting from the current inflationary environment.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principal of Consolidation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with 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 the information and footnotes required by U.S. GAAP for complete financial statements. Management’s opinion is that all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2022, 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, 2023 and subsequently amended on Form 10-K/A Amendment No. 1 filed with the SEC on June 9, 2023 (as amended, the “Annual Report”).

 

The Company’s significant accounting policies and recent accounting standards are summarized in Note 2 of the Company’s consolidated financial statements for the year ended December 31, 2022. There were no significant changes to these accounting policies during the three and nine months ended September 30, 2023.

 

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, and estimated fair values of long lived assets used to record impairment charges related to intangible assets. Actual results could differ from those estimates.

 

Foreign Currency Translation

 

From inception through September 30, 2023, 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 and Australian dollar. For the reporting periods ended September 30, 2023 and 2022, the Company engaged in a number of transactions denominated in Canadian dollars and Australian dollars. As a result, the Company is subject to exposure from changes in the exchange rates of the Canadian dollar and Australian dollar against the United States dollar.

 

The Company translates the assets and liabilities of its Canadian subsidiaries and Australian subsidiary into the United States 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 condensed consolidated statements of shareholders’ equity as a component of accumulated other comprehensive loss.

 

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ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 loss in the condensed consolidated statements of operations and comprehensive loss as incurred.

 

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 Australia 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 September 30, 2023, the Company had greater than $250,000 at United States financial institutions, less than $250,000 at Australian financial institutions, and greater than $100,000 at Canadian financial institutions.

 

Deferred Offering Costs

 

The Company complies with the requirements of ASC Topic 340, Other Assets and Deferred Costs (“ASC 340”) and SAB 5A - Expenses of Offering. Offering costs, which consist mainly of legal, accounting and consulting fees directly attributable to the issuance of an equity contract to be classified in equity are recorded as a reduction in equity. During September 2023, the Company incurred $125,800 in deferred offering costs in connection with the Equity Distribution Agreement (the “Distribution Agreement”), with Canaccord Genuity LLC (“Canaccord”) and the Purchase Agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). These deferred offering costs will be proportionately offset against the total proceeds from the issuance of common stock available under the agreements and the Company will expense any remaining balance of deferred offering costs if the agreements are terminated. For the three and nine months ended September 30, 2023, there were no issuances of common stock under the agreements resulting in the deferral of offering costs.

 

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 “Distinguishing Liabilities from Equity” (“ASC 480”) and FASB ASC Topic 815, “Derivatives and Hedging” (“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 unaudited condensed 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 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 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.

 

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 unaudited condensed consolidated statements of operations. 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 unaudited condensed 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.

 

Income Taxes

 

The Company files U.S. federal and state returns. The Company’s foreign subsidiary also files a local tax return in their local jurisdiction. From a U.S. federal, state, and Canadian perspective, the years that remain open to examination are consistent with each jurisdiction’s statute of limitations.

 

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ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Net Loss per Share

 

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method). The computation of basic net loss per share for the three and nine months ended September 30, 2023 and 2022 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 “Earnings per Share” (“ASC 260”), penny warrants were included in the calculation of weighted average shares outstanding for the purposes of calculating basic and diluted earnings per share.

 

Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share the three and nine months ended September 30, 2023 and 2022 because the effect of their inclusion would have been anti-dilutive.

 

   For the three and nine months ended September 30, 2023   For the three and nine months ended September 30, 2022 
Warrants to purchase shares of common stock   609,893    655,463 
Restricted stock units - vested and unissued   20,847    61,428 
Restricted stock units - unvested   148,251    65,117 
Restricted stock awards - vested and unissued       974 
Investment options to purchase shares of common stock   1,070,000    1,070,000 
Options to purchase shares of common stock   31,852    22,829 
Total potentially dilutive securities   1,880,843    1,875,811 

 

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 and accounts payable, the carrying amounts approximate their fair values as of September 30, 2023, and December 31, 2022 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 September 30, 2023, and December 31, 2022, 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  September 30, 2023   December 31, 2022 
Warrant liabilities - January 2021 Warrants  3  $18   $81 
Warrant liabilities - February 2021 Warrants  3   59    79 
Warrant liabilities - February 2022 Warrants  3   300,480    185,055 
Fair value of warrant liability     $300,557   $185,215 

 

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ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

   Level  September 30, 2023   December 31, 2022 
Derivative liability - May 2022  3  $   $727,000 
Fair value of derivative liability     $   $727,000 

 

   Level  September 30, 2023   December 31, 2022 
H.C. Wainwright & Co., LLC investment options  3  $70,521   $44,904 
RD investment options  3   442,653    302,289 
PIPE investment options  3   737,755    503,815 
Fair value of investment option liability     $1,250,929   $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 within other income (expense) on the condensed consolidated statements of operations and comprehensive loss.

 

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, 2022  $185,215 
Change in fair value   115,342 
Fair value as of September 30, 2023  $300,557 

 

   Total Derivative Liability 
Fair value as of December 31, 2022  $727,000 
Change in fair value arising from redemption of Akos Series A Preferred Stock - See Note 8   (727,000)
Fair value of derivative liability as of September 30, 2023  $ 

 

   Total Investment Option Liability 
Fair value as of December 31, 2022  $851,008 
Change in fair value   399,921 
Fair value of investment option liability as of September 30, 2023  $1,250,929 

 

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ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The key inputs into the Black Scholes valuation model for the Level 3 valuations of the warrant liabilities as of September 30, 2023 are below:

 

   January 2021 Warrants   February 2021 Warrants   February 2022 Warrants   February 2022 Post-Modification Warrants 
Term (years)   2.3    2.4    3.4    4.3 
Stock price  $2.38   $2.38   $2.38   $2.38 
Exercise price  $247.50   $245.00   $27.50   $7.78 
Dividend yield   %   %   %   %
Expected volatility   80.0%   85.0%   96.0%   94.0%
Risk free interest rate   5.00%   4.90%   4.80%   4.70%
Number of warrants   36,429    34,281    338,000    122,000 
Value (per share)  $   $   $0.46   $1.18 

 

The key inputs into the Black Scholes valuation model for the Level 3 valuations of the investment options as of September 30, 2023 are below:

 

   H.C. Wainwright & Co., LLC Options   RD Offering Options   PIPE Offering Options 
Term (years)   3.8    4.3    4.3 
Stock price  $2.38   $2.38   $2.38 
Exercise price  $10.00   $7.78   $7.78 
Dividend yield   %   %   %
Expected volatility   97.0%   94.0%   94.0%
Risk free interest rate   4.70%   4.70%   4.70%
Number of investment options   70,000    375,000    625,000 
Value (per share)  $1.01   $1.18   $1.18 

 

The key inputs into the Weighted Expected Return valuation model for the Level 3 valuations of the derivative liability as of redemption, are below:

 

    May 2022 Derivative Liability 
Principal  $ 
Dividend rate   %
Market rate   %

 

At the date of the redemption of the of Akos Series A Preferred Stock in May 2023, the derivative liability fair value was $0 due to the probability of a spin-off occurring was zero. See Note 8

 

Redeemable Non-controlling Interest

 

In connection with the issuance of Akos Series A Preferred Stock, the Akos Purchase Agreement (as defined below in Note 8) and certificate of designation contain a put right guaranteed by the Company as defined in Note 8. Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer. As a result of this feature, the Company recorded the non-controlling interests as redeemable non-controlling interests and classified them in mezzanine equity within its unaudited condensed consolidated balance sheet initially at its acquisition-date estimated redemption value or fair value. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument by accreting the embedded derivative at each reporting period over 12 months.

 

In May 2023, pursuant to the Akos Series A Preferred Certificate of Designations, the holders of the Akos Series A Preferred Stock exercised the Put Right (as defined below) requiring Akos to force redemption of all of the Akos Series A Preferred Stock. See Note 8.

 

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ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Segment Reporting

 

The Company determines its reporting units in accordance with FASB ASC 280, “Segment Reporting” (“ASC 280”). The Company evaluates a reporting unit by first identifying its operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has multiple operations related to psychedelics and cannabinoids. Both of these operations exist under one reporting unit: Enveric. The Company has one operating segment and reporting unit. The Company is organized and operated as one business. Management reviews its business as a single operating segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate.

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and should be applied on a full or modified retrospective basis. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company early adopted ASU 2020-06 effective January 1, 2023, and has determined that the adoption of this guidance had no impact on its condensed consolidated financial statements.

 

NOTE 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

As of September 30, 2023 and December 31, 2022, the prepaid expenses and other current assets of the Company consisted of the following:

 

   September 30, 2023   December 31, 2022 
Prepaid research and development  $651,623   $268,686 
Prepaid value-added taxes   229,909    159,782 
Prepaid professional fees   74,500     
Prepaid insurance   332,508    174,406 
Prepaid other   146,014    105,179 
Deferred offering costs   125,800     
Total prepaid expenses and other current assets  $1,560,354   $708,053 

 

NOTE 4. INTANGIBLE ASSETS

 

As of September 30, 2023, the Company’s intangible assets consisted of:

 

Definite lived intangible assets     
Balance at December 31, 2022  $379,686 
Amortization   (126,566)
Balance at September 30, 2023  $253,120 

 

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ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

For identified definite lived intangible assets, there was no impairment expense during the three and nine months ended September 30, 2023 and 2022. For identified definite lived intangible assets, amortization expense amounted to $42,191 during the three months ended September 30, 2023, and 2022, respectively. For identified definite lived intangible assets, amortization expense amounted to $126,566 and $126,563 during the nine months ended September 30, 2023 and 2022.

 

NOTE 5. 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:

 

   September 30, 2023   December 31, 2022 
Lab equipment  $818,460   $831,123 
Computer equipment and leasehold improvements   27,759    25,137 
Less: Accumulated depreciation   (307,067)   (178,775)
Property and equipment, net of accumulated depreciation  $539,152   $677,485 

 

Depreciation expense was $44,105 and $44,458 for the three months ended September 30, 2023, and 2022, respectively. Depreciation expense was $132,734 and $114,850 for the nine months ended September 30, 2023 and 2022, respectively.

 

NOTE 6. ACCRUED LIABILITIES

 

As of September 30, 2023 and December 31, 2022, the accrued liabilities of the Company consisted of the following:

 

   September 30, 2023   December 31, 2022 
Product development  $94,663   $195,104 
Accrued salaries and wages   729,616    1,175,963 
Professional fees   74,499    83,255 
Accrued restructuring costs   607,602     
Accrued franchise taxes   9,449     
Patent costs   18,000    251,333 
Total accrued expenses  $1,533,829   $1,705,655 

 

NOTE 7. SHARE CAPITAL AND OTHER EQUITY INSTRUMENTS

 

Authorized Capital

 

The holders of the Company’s 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 September 30, 2023, 100,000,000 shares of common stock and 20,000,000 shares of Preferred Stock were authorized under the Company’s articles of incorporation.

 

Equity Distribution Agreement

 

On September 1, 2023, the Company entered into the Distribution Agreement, with Canaccord, pursuant to which the Company may offer and sell from time to time, through Canaccord as sales agent and/or principal, shares of common stock of the Company, par value $0.01 per share having an aggregate offering price of up to $10.0 million. Due to the offering limitations applicable to the Company and in accordance with the terms of the Distribution Agreement, the Company may offer Common Stock having an aggregate gross sales price of up to $2,392,514 pursuant to the prospectus supplement dated September 1, 2023 (the “Prospectus Supplement”). Subject to the terms and conditions of the Distribution Agreement, Canaccord may sell the Common Stock by any method permitted by law deemed to be an “at-the-market offering”. The Company will pay Canaccord a commission equal to 3.0% of the gross sales price of the Common Stock sold through Canaccord under the Distribution Agreement and has also agreed to reimburse Canaccord for certain expenses. The Company may also sell Common Stock to Canaccord as principal for Canaccord’s own account at a price agreed upon at the time of sale. Any sale of Common Stock to Canaccord as principal would be pursuant to the terms of a separate terms agreement between the Company and Canaccord.

 

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ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

During the three and nine months ended September 30, 2023, the Company has issued no shares of common stock through the Distribution Agreement. The Company had capitalized deferred offering costs of $125,800 related to establishing the Distribution Agreement with Canaccord and the Purchase Agreement with Lincoln Park and no reductions to additional paid in capital.

 

Common Stock Activity

 

On February 15, 2022, the Company completed a public offering of 400,000 shares of Common Stock and warrants to purchase up to 400,000 shares of Common Stock for gross proceeds of approximately $10.0 million, before deducting underwriting discounts and commissions and other offering expenses. A.G.P./Alliance Global Partners acted as sole book-running manager for the offering. In addition, Enveric granted the underwriter a 45-day option to purchase up to an additional 60,000 shares of Common Stock and/or warrants to purchase up to an additional 60,000 shares of Common Stock at the public offering price, which the underwriter has partially exercised for warrants to purchase up to 60,000 shares of common stock. At closing, Enveric received net proceeds from the offering of approximately $9.1 million, after deducting underwriting discounts and commissions and estimated offering expenses with $5.8 million allocated to equity, $3.6 million to warrant liability and the remaining $0.3 million recorded as an expense.

 

On July 22, 2022, the Company entered into a securities purchase agreement (the “Registered Direct Securities Purchase Agreement”) with an institutional investor for the purchase and sale of 116,500 shares of the Company’s common stock, pre-funded warrants to purchase up to 258,500 shares of common stock (the “RD Pre-Funded Warrants”), and unregistered preferred investment options (the “RD Preferred Investment Options”) to purchase up to 375,000 shares of common stock (the “RD Offering”). The gross proceeds from the RD Offering were approximately $3,000,000. Subject to certain ownership limitations, the RD Pre-Funded Warrants became immediately exercisable at an exercise price equal to $0.0001 per share of common stock. On August 3, 2022, all of the issued RD Pre-Funded Warrants were exercised.

 

Concurrently with the RD Offering, the Company entered into a securities purchase agreement (the “PIPE Securities Purchase Agreement”) with institutional investors for the purchase and sale of 116,000 shares of common stock, pre-funded warrants to purchase up to 509,000 shares of common stock (the “PIPE Pre-Funded Warrants”), and preferred investment options (the “PIPE Preferred Investment Options”) to purchase up to 625,000 shares of the common stock in a private placement (the “PIPE Offering”). The gross proceeds from the PIPE Offering were approximately $5,000,000. Subject to certain ownership limitations, the PIPE Pre-Funded Warrants became immediately exercisable at an exercise price equal to $0.0001 per share of common stock. All of the issued PIPE Pre-Funded Warrants were exercised on various dates prior to August 18, 2022.

 

The RD Offering and PIPE Offering closed on July 26, 2022, with aggregate gross proceeds of approximately $8 million. The aggregate net proceeds from the offerings, after deducting the placement agent fees and other estimated offering expenses, were approximately $7.1 million, with $3.2 million allocated to equity, $4.3 million to investment option liability, and the remaining $0.4 million recorded as an expense.

 

During the nine months ended September 30, 2023, a total of 103,641 shares of Common Stock were issued pursuant to the conversion of restricted stock units. During the nine months ended September 30, 2022, a total of 2,122 shares of Common Stock were issued pursuant to the conversion of restricted stock units.

 

Stock Options

 

Amendment to 2020 Long-Term Incentive Plan

 

On May 3, 2022, our board of directors (“Board”) adopted the First Amendment (the “Plan Amendment”) to the Enveric Biosciences, Inc. 2020 Long-Term Incentive Plan (the “Incentive Plan”) to (i) increase the aggregate number of shares available for the grant of awards by 146,083 shares to a total of 200,000 shares, and (ii) add an “evergreen” provision whereby the number of shares authorized for issuance pursuant to awards under the Incentive Plan will be automatically increased on the first trading date immediately following the date the Company issues any share of Common Stock (defined below) to any person or entity, to the extent necessary so that the number of shares of the Company’s Common Stock authorized for issuance under the Incentive Plan will equal the greater of (x) 200,000 shares, and (y) 15% of the total number of shares of the Company’s Common Stock outstanding as of such issuance date. The Plan Amendment was approved by the Company’s shareholders at a special meeting of the Company’s shareholders held on July 14, 2022.

 

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ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

A summary of activity under the Company’s incentive plan for the nine months ended September 30, 2023, is presented below:

 

   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, 2022   48,329   $37.05   $44.82    4.1   $     
Forfeited   (16,476)  $5.79   $5.80       $ 
Outstanding at September 30, 2023   31,852   $53.18   $74.04    3.4   $ 
Exercisable at September 30, 2023   24,626   $63.72   $86.52    3.0   $ 

 

The Company’s stock-based compensation expense, recorded within general and administrative expense in the condensed consolidated statement of operations and comprehensive loss, related to stock options for the three months ended September 30, 2023, and 2022 was $44,606 and $48,697, respectively. The Company’s stock-based compensation expense, recorded within general and administrative expense, related to stock options for the nine months ended September 30, 2023 and 2022 was $147,067 and $134,383, respectively. As of September 30, 2023, the Company had $93,697 in unamortized stock option expense, which will be recognized over a weighted average period of 1 year.

 

Restricted Stock Awards

 

For the three months ended September 30, 2023, and 2022, the Company recorded $0 and $6,250, respectively, in stock-based compensation expense within general and administrative expense, related to restricted stock awards. For the nine months ended September 30, 2023 and 2022, the Company recorded $0 and $24,363, respectively, in stock-based compensation expense within general and administrative expense, related to restricted stock awards. As of September 30, 2023, there were no unamortized stock-based compensation costs related to restricted share awards. During the three months ended September 30, 2023, the Company settled the 708 vested and unissued shares for cash of $14,250. As of September 30, 2023, there are 0 vested and unissued shares of restricted stock awards.

 

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ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Issuance of Restricted Stock Units

 

The Company’s activity in restricted stock units was as follows for the nine months ended September 30, 2023:

 

   Number of shares   Weighted average
fair value
 
Non-vested at December 31, 2022   64,053   $92.57 
Granted   182,500   $2.73 
Vested   (62,636)  $19.80 
Forfeited   (35,666)  $27.45 
Non-vested at September 30, 2023   148,251   $28.39 

 

For the three months ended September 30, 2023, and 2022, the Company recorded $328,253 and $590,190, respectively, in stock-based compensation expense related to restricted stock units. For the nine months ended September 30, 2023 and 2022, the Company recorded $1,638,365 and $1,932,553 respectively, in stock-based compensation expense related to restricted stock units, which is a component of both general and administrative and research and development expenses in the condensed consolidated statement of operations and comprehensive loss. As of September 30, 2023, the Company had unamortized stock-based compensation costs related to restricted stock units of $2,388,221 which will be recognized over a weighted average period of 2.3 years and unamortized stock-based costs related to restricted stock units which will be recognized upon achievement of specified milestones. As of September 30, 2023, 20,847 restricted stock units are vested without shares of common stock being issued, with all of these shares due as of September 30, 2023.

 

The following table summarizes the Company’s recognition of stock-based compensation for restricted stock units for the following periods:

 

   2023   2022   2023   2022 
   Three months ended
September 30,
   Nine months ended
September 30,
 
   2023   2022   2023   2022 
Stock-based compensation expense for RSUs:                    
General and administrative  $101,607   $357,756   $946,851   $1,138,080 
Research and development   226,646    232,434    691,514    794,473 
Total  $328,253   $590,190   $1,638,365   $1,932,553 

 

Warrants

 

The following table summarizes information about shares issuable under warrants outstanding on September 30, 2023:

 

   Warrant shares outstanding   Weighted average exercise price   Weighted average remaining life   Intrinsic value 
Outstanding at December 31, 2022   655,463   $58.36    3.6   $5,514 
Expired   (45,570)  $111.50       $ 
Outstanding at September 30, 2023   609,893   $50.46    2.9   $ 
Exercisable at September 30, 2023   609,893   $50.46    2.9   $ 

 

The warrants assumed pursuant to the acquisition of MagicMed contain certain down round features, which were not triggered by the February 2022 public offering and July 2022 RD Offering, that would require adjustment to the exercise price upon certain events when the offering price is less than the stated exercise price.

 

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ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Preferred Investment Options

 

The following table summarizes information about investment options outstanding on September 30, 2023:

 

   Investment options outstanding