SEC Form 10-Q filed by Enveric Biosciences Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the quarterly period ended:
OR
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from ___ to ___
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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
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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
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As of August 9, 2024, there were shares outstanding of Registrant’s Common Stock (par value $ per share).
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Other assets: | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES, MEZZANINE EQUITY, AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Investment option liability | ||||||||
| Warrant liability | ||||||||
| Total current liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Mezzanine equity | ||||||||
| Series C redeemable preferred stock, $ par value, shares authorized, and shares issued and outstanding as of June 30, 2024 and December 31, 2023 | ||||||||
| Total mezzanine equity | ||||||||
| Shareholders’ equity | ||||||||
| Preferred stock, $ par value, shares authorized; Series B preferred stock, $ par value, shares authorized, shares issued and outstanding as of June 30, 2024 and December 31, 2023 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of June 30, 2024 and December 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Stock subscription receivable | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities, mezzanine equity, and shareholders’ equity | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 2 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||||||||||
| Change in fair value of investment option liability | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Interest income (expense), net | ( | ) | ||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Net loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ( | ) | ||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less preferred dividends attributable to non-controlling interest | ||||||||||||||||
| Less deemed dividends attributable to accretion of embedded derivative at redemption value | ||||||||||||||||
| Net loss attributable to shareholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive loss | ||||||||||||||||
| 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.
| 3 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
| Common Stock | Additional Paid-In | Subscription | Accumulated | Accumulated Other Comprehensive | Total Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | Receivable | Deficit | Loss | Equity | ||||||||||||||||||||||
| Balance at January 1, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||
| Common stock sold under
the Equity Distribution Agreement, net of offering costs of $ | ||||||||||||||||||||||||||||
| Issuance of direct offering shares (see Note 7) | ||||||||||||||||||||||||||||
| Exercise of Inducement Warrants for common stock | ||||||||||||||||||||||||||||
| Proceeds from the subscription
receivable related to the issuance of Inducement Warrants, net of offering costs of $ | — | ( | ) | |||||||||||||||||||||||||
| Proceeds from the subscription receivable related to the exercise of warrants and preferred investment options and issuance of common stock in abeyance | ( | ) | ||||||||||||||||||||||||||
| Foreign exchange translation gain | — | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||
| Common stock sold under
the Purchase Agreement, net of offering costs of $ | ( | ) | ||||||||||||||||||||||||||
| Issuance of direct offering shares (see Note 7) | ||||||||||||||||||||||||||||
| Issuance of common shares for vested RSU | ( | ) | ||||||||||||||||||||||||||
| Foreign exchange translation loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Preferred dividends attributable to redeemable non-controlling interest | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Accretion of embedded derivative to redemption value | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Foreign exchange translation gain | — | — | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Preferred dividends attributable to redeemable | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Accretion of embedded derivative to redemption value | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Redemption of Series A preferred stock | ( | ) | ( | ) | ( | ) | — | |||||||||||||||||||||||||||||
| Issuance of common shares in exchange for RSU conversions from the reduction in force | — | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign exchange translation loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| 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 | ( | ) | ||||||
| Change in fair value of investment option liability | ( | ) | ||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Amortization of right of use asset | ||||||||
| Amortization of intangibles | ||||||||
| Depreciation expense | ||||||||
| Gain on disposal of property and equipment | ( | ) | ||||||
| Change in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Right-of-use operating lease asset and obligation | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Proceeds from disposal of property and equipment | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from the subscription receivable related to the issuance of Inducement Warrants and the exercise of warrants and preferred investment options | ||||||||
| Proceeds from exercise of Inducement Warrants | ||||||||
| Proceeds from common stock sold under the Equity Distribution Agreement, net of offering costs | ||||||||
| Proceeds from common stock sold under the Purchase Agreement, net of offering costs | ||||||||
| Payment for offering costs previously accrued | ( | ) | ||||||
| Redemption of Series A Preferred Stock | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of Foreign Exchange Rate on Changes on Cash | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
Supplemental disclosure of cash and non-cash transactions: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Offering costs accrued not paid | $ | $ | ||||||
| Deferred offering costs charged to offering costs | $ | |||||||
| Issuance of common shares for offering costs | $ | $ | ||||||
| Preferred dividends attributable to redeemable non-controlling interest | $ | $ | ||||||
| Accretion of embedded derivative to redemption value | $ | $ | ||||||
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., MagicMed Industries, Inc. (“MagicMed”), Enveric Biosciences Canada, Inc., Akos Biosciences, Inc. (“Akos”), 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-002 (formerly EB-373) – for the treatment of psychiatric disorders. Enveric is also advancing its product EB-003 from the EVM301 Series, which is 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.
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, N,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™ the Company has three different types of molecules, Generation 1 (classic psychedelics), Generation 2 (new chemical entity pro-drugs of psilocin), and Generation 3 (new chemical entity analogs). The Company has created over 1000 novel psychedelic molecular compounds and derivatives that are housed in the Psybrary™. The Company’s current focus is to develop its lead molecules, EB-002 and EB-003, and to outlicense other molecules from 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.
Going Concern, Liquidity and Other Uncertainties
The
Company has incurred a loss since inception resulting in an accumulated deficit of $
| 6 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In
assessing the Company’s ability to continue as a going concern, the Company monitors and analyzes its cash and its ability to generate
sufficient cash flow in the future to support its operating and capital expenditure commitments. At June 30, 2024, the Company had cash
of $
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 unaudited condensed consolidated 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.
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.
Nasdaq Notice
On
November 21, 2023, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”)
stating that as of September 30, 2023, the Company did not meet the minimum of $
On May 16, 2024, the Company received a letter from Nasdaq’s Listing Qualifications Department stating that because the closing bid price for the Company’s common stock listed on Nasdaq was below $ for 30 consecutive business days, the Company no longer meets the minimum bid price requirement for continued listing on the Nasdaq Capital Market (the “Minimum Bid Price Requirement”). The Company has a period of 180 calendar days from May 16, 2024, or until November 12, 2024, to regain compliance with the Minimum Bid Price Requirement. If at any time before November 12, 2024, the bid price of the Company’s common stock closes at or above $ per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement.
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 six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2023, 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 26, 2024.
| 7 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2023. There were no significant changes to these accounting policies during the three and six months ended June 30, 2024.
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, the valuation of warrants and preferred investment options, and the valuation of stock-based compensation and accruals associated with third party providers supporting research and development efforts. Actual results could differ from those estimates.
Reclassification
Certain reclassifications have been made to the prior period’s unaudited condensed consolidated financial statements in order to conform to the current year presentation. In the prior year, the Company included certain investor related expenses were included within research and development on the unaudited condensed consolidated statements of operations. These expenses were reclassified to general and administrative expenses in the current year. This reclassification had no effect on the Company’s previously reported results of operations, changes in equity, or cash flows.
Foreign Currency Translation
From inception through June 30, 2024, 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 June 30, 2024 and 2023, 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 unaudited condensed consolidated statements of shareholders’ equity as a component of accumulated other comprehensive 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 loss in the unaudited 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 $
| 8 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Research and Development
Research and development expenses are charged to operations as incurred. Research and development expenses include, among other things, internal and external costs associated with preclinical development, pre-commercialization manufacturing expenses, and clinical trials. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or services provided and the invoices received from its external service providers. In the case of clinical trials, a portion of the estimated cost normally relates to the projected cost to treat a patient in the trials, and this cost is recognized based on the number of patients enrolled in the trial. As actual costs become known, the Company adjusts its accruals accordingly.
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.
Research and Development Tax Incentive Receivable
The Company, through its wholly-owned subsidiary in Australia, participates in the Australian research and development tax incentive program, such that a percentage of the Company’s qualifying research and development expenditures are reimbursed by the Australian government, and such incentives are reflected as a reduction of research and development expense. The Australian research and development tax incentive is recognized when there is reasonable assurance that the incentive will be received, the relevant expenditure has been incurred and the amount of the consideration can be reliably measured. At each period end, management estimates the reimbursement available to the Company based on available information at the time.
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 six months ended June 30, 2024 and 2023 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.
| For the three and six months ended June 30, 2024 | For the three and six months ended June 30, 2023 | |||||||
| Warrants to purchase shares of common stock | ||||||||
| Restricted stock units - vested and unissued | ||||||||
| Restricted stock units - unvested | ||||||||
| Restricted stock awards - vested and unissued | ||||||||
| Investment options to purchase shares of common stock | ||||||||
| Options to purchase shares of common stock | ||||||||
| Total potentially dilutive securities | ||||||||
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for all entities for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently assessing the potential impacts of ASU 2023-07, however as the Company currently has one reportable segment, does not expect this guidance will not have a material impact on its unaudited condensed consolidated financial statements.
| 9 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which amends the disclosure to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information and includes certain other amendments to improve the effectiveness of income tax disclosures. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted. Early adoption is permitted. The Company is currently assessing potential impacts of ASU 2023-09 and does not expect the adoption of this guidance will have a material impact on its unaudited condensed consolidated financial statements and disclosures.
NOTE 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of June 30, 2024 and December 31, 2023, the prepaid expenses and other current assets of the Company consisted of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Prepaid research and development | $ | $ | ||||||
| Prepaid value-added taxes | ||||||||
| Prepaid insurance | ||||||||
| Prepaid other | ||||||||
| Deferred offering costs (see Note 7) | ||||||||
| Franchise tax receivable | ||||||||
| R&D tax incentive receivable | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
NOTE 4. INTANGIBLE ASSETS
As of June 30, 2024, the Company’s intangible assets consisted of:
| Definite lived intangible assets | ||||
| Balance at January 1, 2024 | $ | |||
| Amortization | ( | ) | ||
| Balance at June 30, 2024 | $ |
For
identified definite lived intangible assets, there was
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following assets which are located in Calgary, Canada, with all amounts converted into U.S. dollars:
| June 30, 2024 | December 31, 2023 | |||||||
| Lab equipment | $ | $ | ||||||
| Computer equipment and leasehold improvements | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net of accumulated depreciation | $ | $ | ||||||
Depreciation
expense was $
| 10 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. ACCRUED LIABILITIES
As of June 30, 2024 and December 31, 2023, the accrued liabilities of the Company consisted of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Product development | $ | $ | ||||||
| Accrued salaries, wages, and bonuses | ||||||||
| Professional fees | ||||||||
| Accrued restructuring costs (see Note 8) | ||||||||
| Accrued income taxes | ||||||||
| Patent costs | ||||||||
| Total accrued expenses | $ | $ | ||||||
NOTE 7. SHARE CAPITAL AND OTHER EQUITY INSTRUMENTS
Equity Distribution Agreement
On
September 1, 2023, the Company entered into the Equity Distribution Agreement (the “Distribution Agreement”), with Canaccord
Genuity LLC (“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 $ per share having an aggregate offering price of up to
$
During
the six months ended June 30, 2024, the Company issued shares of common stock for gross proceeds of $
On
December 28, 2023, the Company entered into warrant exercise inducement offer letters (the “Inducement Letters”) with certain
holders (the “Holders”) of the February 2022 Post-Modification Warrants and RD and PIPE preferred investment options to purchase
shares of the Company’s common stock (the “Existing Warrants and Investment Options”) pursuant to which the Holders
agreed to exercise for cash their Existing Warrants and Investment Options to purchase shares of the Company’s common
stock, in the aggregate, at a reduced exercised price of $
| 11 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On December 28, 2023, the Company entered into warrant exercise inducement offer letters (the “Inducement Letters”) with certain holders of warrants and preferred investment options. The Inducement Letters prohibit the Company from entering into any variable rate transaction as defined in the Inducement Letters, including the issuance of (1) any variable priced debt or equity securities or (2) transactions whereby the Company may issue securities at a future determined price, such as through an at-the-market offering or an equity line of credit. The variable rate transaction restriction would have expired after six-months from the closing date of December 28, 2023 for the Inducement Letters for an issuance through an at-the-market offering, and one-year for the remaining variable rate transactions, however the restriction was waived for the at-the-market offering on March 8, 2024 and the equity line on May 3, 2024.
On
March 8, 2024, the Company entered into a series of common stock purchase agreements for the issuance in a registered direct offering
of shares of the Company’s common stock to the Holders of the Inducement Warrants. The issuance was made in exchange for
the permanent and irrevocable waiver of the variable rate transaction limitation solely with respect to the entry into and/or issuance
of shares of common stock in an at the market offering contained in the Inducement Letters. The fair value of the shares issued for consideration
of waiving the variable rate transaction limitation was $
Lincoln Park Equity Line
On
November 3, 2023, the Company entered into a Purchase Agreement (the “Purchase Agreement”) and a registration rights agreement
(the “Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which
Lincoln Park has committed to purchase up to $
Under
the terms and subject to the conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln
Park, and Lincoln Park is obligated to purchase up to $
Because the purchase price per share to be paid by Lincoln Park for the shares of Common Stock that the Company may elect to sell to Lincoln Park under the Purchase Agreement, if any, will fluctuate based on the market prices of the Company’s Common Stock at the time the Company elects to sell shares to Lincoln Park pursuant to the Purchase Agreement, if any, it is not possible for us to predict the number of shares of Common Stock that the Company will sell to Lincoln Park under the Purchase Agreement, the purchase price per share that Lincoln Park will pay for shares purchased from us under the Purchase Agreement, or the aggregate gross proceeds that the Company will receive from those purchases by Lincoln Park under the Purchase Agreement.
On
May 3, 2024, the Company entered into a series of common stock purchase agreements for the issuance in a registered direct offering of
an aggregate of shares of the Company’s common stock, to certain institutional investors. The issuance was made in exchange
for the permanent and irrevocable waiver of the variable rate transaction limitation with respect to any existing or future agreement
by the Company to effect any issuance of shares and issue such shares thereunder, as contained in those certain Inducement Offer Letters,
dated December 28, 2023, between the Company and those certain institutional investors. The Company will not receive any net proceeds
in connection with the offering. The fair value of the shares issued for consideration of waiving the variable rate transaction limitation
was $
| 12 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The common stock purchase agreements contain customary representations and warranties and certain indemnification obligations of the Company. The common stock purchase agreements also restrict the Company from issuing, entering into any agreement to issue, or announcing the issuance of the Company’s common stock from the date of the common stock purchase agreements until the earlier of 30 days after entering into the agreements or at such time as fifteen million () shares of the Company’s common stock have traded in the open market. The closing of the issuance of the Shares pursuant to the common stock purchase agreements closed on May 3, 2024.
During
the three and six months ended June 30, 2024, the Company had issued shares of common stock through the Purchase Agreement for
gross cash proceeds of $
Stock Options
Amendment to 2020 Long-Term Incentive Plan
On November 2, 2023, the stockholders approved the amendments to the 2020 Long-Term Incentive Plan, which was approved by the Board on August 8, 2023 (the “Amended Incentive Plan”). The Amended Incentive Plan (i) increased the number of authorized shares reserved for issuance under the Amended Incentive Plan to a maximum of , subject to adjustment, and (ii) removed the Evergreen Provision implemented in the Plan Amendment. During the first quarter of 2024, the Board approved an equitable adjustment to increase the number of shares available under the Plan by shares. As of June 30, 2024, the total number of shares available for grant under the Incentive Plan was .
| 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, 2023 | $ | $ | $ | |||||||||||||||||
| Granted | $ | $ | — | |||||||||||||||||
| Forfeited | ( | ) | $ | $ | — | |||||||||||||||
| Outstanding at June 30, 2024 | $ | $ | $ | |||||||||||||||||
| Exercisable at June 30, 2024 | $ | $ | $ | |||||||||||||||||
The Company’s stock based compensation expense, recorded within general and administrative expense in the unaudited condensed consolidated statement of operations and comprehensive loss, related to stock options for the three months ended June 30, 2024 and 2023 was $and $, respectively.
The Company’s stock-based compensation expense, recorded within general and administrative expense, related to stock options for the six months ended June 30, 2024 and 2023 was $() and $, respectively.
As of June 30, 2024, the Company had $ in unamortized stock option expense, which will be recognized over a weighted average period of years.
| 13 |
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 six months ended June 30, 2024:
| Number of shares | Weighted average fair value | |||||||
| Non-vested at December 31, 2023 | $ | |||||||
| Granted | $ | |||||||
| Forfeited | ( | ) | $ | |||||
| Vested | ( | ) | $ | |||||
| Non-vested at June 30, 2024 | $ | |||||||
For the three months ended June 30, 2024 and 2023, the Company recorded $ and $, 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 unaudited condensed consolidated statement of operations and comprehensive loss. For the six months ended June 30, 2024 and 2023, the Company recorded $ and $, 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 June 30, 2024, 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. As of June 30, 2024, restricted stock units are vested without shares of common stock being issued, with all of these shares due as of June 30, 2024.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| Stock-based compensation expense for RSUs: | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Warrants and Preferred Investment Options
The following table summarizes information about shares issuable under warrants outstanding at June 30, 2024:
| Warrant shares outstanding | Weighted average exercise price | Weighted average remaining life | Intrinsic value | |||||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Exercised | ( | ) | — | $ | — | |||||||||||
| Outstanding at June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2024 | $ | $ | ||||||||||||||
The following table summarizes information about investment options outstanding at June 30, 2024:
| Investment options outstanding | Weighted average exercise price | Weighted average remaining life | Intrinsic value | |||||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Outstanding at June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2024 | $ | $ | ||||||||||||||
| 14 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. 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.
Australian Subsidiary Research and Development
On
March 23, 2023, the Company issued a press release announcing the selection of Australian CRO, Avance Clinical, in preparation for
Phase 1 Study of EB-002, the Company’s lead candidate targeting the treatment of anxiety disorders. Under the agreement,
Avance Clinical will manage the Phase 1 clinical trial of EB-002 in coordination with the Company’s newly established
Australian subsidiary, Enveric Therapeutics Pty, Ltd. The Phase 1 clinical trial is designed as a multi-cohort, dose-ascending study
to measure the safety and tolerability of EB-002. EB-002, a next-generation proprietary psilocin prodrug, has been recognized as a
New Chemical Entity (NCE) by Australia’s Therapeutic Goods Administration and is currently in preclinical development
targeting the treatment of anxiety disorder. The total cost of the Avance Clinical contract is approximately
According
to Australian tax law, the Company is allowed an R&D tax credit that reduces a company’s tax bill in Australia for expenses
incurred in R&D subject to certain requirements. The Company’s Australian subsidiary submits R&D tax credit requests annually
for research and development expenses incurred. At June 30, 2024 and December 31, 2023, the Company had a research and development tax
credit receivable of $
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 patent portfolio acquired and developed under the Vogel-Nathan Purchase Agreement was sold to undisclosed buyers for an undisclosed sum in the first quarter of 2024. No additional financial or other obligations exist regarding the Vogel-Nathan Purchase Agreement.
Other Consulting and Vendor Agreements
The
Company has entered into a number of agreements and work orders for future consulting, clinical trial support, and testing services,
with terms ranging between one and 12 months. These agreements, in aggregate, commit the Company to approximately $
Reduction in Force/Restructuring
In
May 2023, the Company entered into a cost reduction plan, including a reduction in force (“RIF”) of approximately
In June 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 received salary and benefits that is paid out in twelve monthly installments beginning in July 2023, was eligible for his 2023 performance bonus, which was not achieved, and any outstanding restricted stock units retained their vesting conditions.
| 15 |
ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the Reduction in Force/Restructuring activity and ending balance at June 30, 2024 for the remaining severance payments included in accrued expenses in the consolidated balance sheet:
| Accrued Restructuring Costs | ||||
| January 1, 2024 beginning balance | $ | |||
| Restructuring costs paid | ( | ) | ||
| June 30, 2024 ending balance | $ | |||
NOTE 9. SUBSEQUENT EVENTS
Subsequent
to June 30, 2024, the Company issued shares of common stock through the Purchase Agreement
with Lincoln Park for gross cash proceeds of $
On July 10, 2024, Akos entered into an Exclusive License Agreement (the “License Agreement”) with Aries Science and Technology, LLC, an Ohio limited liability company (“Aries”), pursuant to which Akos granted Aries a license of Akos’s patented radiation dermatitis topical product. The license allows Akos to use the patented formulation to develop pharmaceutical or non-pharmaceutical products for treating radiation dermatitis suitable for administration to humans or animals. The license is exclusive (subject to certain exceptions contained in the License Agreement), worldwide, royalty-bearing, and includes the right to sublicense. Akos is entitled to potential license payments, milestone payments and royalties based on net revenues of the Licensed Product on a licensed product-by-licensed product and country-by-country basis pursuant to the terms of the Agreement. Aries has the option during the license term, to purchase the rights to each licensed product (on a licensed product-by-licensed product basis) in the form of an exclusive (as to the applicable licensed product), fully paid, transferable right and license to the licensed product.
| 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, and its subsidiaries.
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,” “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 the 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 limited study on the effects of medical 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 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; |
| 17 |
| ● | 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; |
| ● | 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; |
| ● | political, economic, and military instability in Israel which may impede our development programs; |
| ● | our success at managing the risks involved in the foregoing; and |
| ● | the risk of loss in excess of insurance limitations on funds held in U.S Banking Institutions. |
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 for the year ended December 31, 2023. 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.
Business Overview
We are a biotechnology company dedicated to the development of novel neuroplastogenic small-molecule therapeutics for the treatment of depression, anxiety, and addiction disorders. Leveraging our unique discovery and development platform, The Psybrary™, we have created a robust intellectual property portfolio of new chemical entities for specific mental health indications. Our lead program, the EVM201 Series, comprises next generation synthetic prodrugs of the active metabolite, psilocin. We are developing the first product from the EVM201 Series – EB-002 – for the treatment of psychiatric disorders. We are also advancing its second program, the EVM301 Series – EB 003 – 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.
Psychedelics
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 anxiety. We synthesize 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™ we have three different types of molecules, Generation 1 (classic psychedelics), Generation 2 (new chemical entity pro-drugs of psilocin), and Generation 3 (new chemical entity analogs). The Company has created over 1,000 novel psychedelic molecular compounds and derivatives (“Psychedelic Derivatives”) that are housed in the Psybrary™. Our current focus is develop our lead molecules EB-002 and EB-003 and to out-license other molecules from the Psybrary™.
| 18 |
Recent Developments
Equity Distribution Agreement
During the six months ended June 30, 2024, the Company issued 1,668,000 shares of common stock for gross proceeds of $2,392,502 under the Distribution Agreement, and charged offering costs of $583,713 to additional paid in capital on the unaudited condensed consolidated balance sheet. As of June 30, 2024 and December 31, 2023, there were deferred offering costs related to the Distribution Agreement of $0 and $171,944, respectively.
On December 28, 2023, the Company entered into warrant exercise inducement offer letters (the “Inducement Letters”) with certain holders (the “Holders”) of the February 2022 Post-Modification Warrants and RD and PIPE preferred investment options to purchase shares of the Company’s common stock (the “Existing Warrants and Investment Options”) pursuant to which the Holders agreed to exercise for cash their Existing Warrants and Investment Options to purchase 1,122,000 shares of the Company’s common stock, in the aggregate, at a reduced exercised price of $1.37 per share (from an original exercise price of $7.78 per share), in exchange for the Company’s agreement to issue new warrants (the “Inducement Warrants”) to purchase up to 2,244,000 shares of the Company’s common stock (the “Inducement Warrant Shares”), and the Holders to make a cash payment of $0.125 per Inducement Warrant share for total proceeds of $280,500. In January 2024, the Company received aggregate gross proceeds of $1,817,640 from the exercise of the Existing Warrants and Investment Options by the Holders and the sale of the Inducement Warrants. Because the Existing Warrants and Investment Options by the Holders and the sale of the Inducement Warrants that exercised on December 28, 2023 and unsettled until January 2024, the proceeds are included in the condensed consolidated balance sheet as a subscription receivable as of December 31, 2023. As of December 31, 2023, 418,000 shares of the Existing Warrants and Investment Options exercised were considered issued as the Company had the enforceable right to the obtain the cash proceeds, which were in-transit, and the Holders were no longer able to rescind the exercise election. Due to the beneficial ownership limitation provisions, 704,000 shares of the Existing Warrants and Investment Options exercised were initially unissued and held in abeyance for the benefit of the Holder until notice is received from the Holder that the shares may be issued in compliance with such limitation. During the six months ended June 30, 2024, the Company issued all 704,000 shares of common stock of the 704,000 shares of Existing Warrants and Investment Options exercised that were held in abeyance due to the beneficial ownership limitation provisions.
On December 28, 2023, the Company entered into warrant exercise inducement offer letters (the “Inducement Letters”) with certain holders of warrants and preferred investment options. The Inducement Letters prohibit the Company from entering into any variable rate transaction as defined in the Inducement Letters, including the issuance of (1) any variable priced debt or equity securities or (2) transactions whereby the Company may issue securities at a future determined price, such as through an at-the-market offering or an equity line of credit. The variable rate transaction restriction would have expired after six-months from the closing date of December 28, 2023 for the Inducement Letters for an issuance through an at-the-market offering, and one-year for the remaining variable rate transactions, however the restriction was waived for the at-the-market offering on March 8, 2024 and the equity line on May 3, 2024.
On March 8, 2024, the Company entered into a series of common stock purchase agreements for the issuance in a registered direct offering of 228,690 shares of the Company’s common stock, par value $0.01 per share to the Holders of the Inducement Warrants. The issuance was made in exchange for the permanent and irrevocable waiver of the variable rate transaction limitation solely with respect to the entry into and/or issuance of shares of common stock in an at the market offering contained in the Inducement Letters. The fair value of the shares issued for consideration of waiving the variable rate transaction limitation was $322,453 and was charged to additional paid in capital on the unaudited condensed consolidated balance sheet as an offering cost related to the Distribution Agreement.
| 19 |
Lincoln Park Equity Line
During the three and six months ended June 30, 2024, the Company had issued 125,000 shares of common stock through the Purchase Agreement for gross cash proceeds of $82,850 and the Company charged offering costs of $82,850 to additional paid in capital on the unaudited condensed consolidated balance sheet. As of June 30, 2024 and December 31, 2023, the Company has capitalized deferred offering costs of $763,173 and $395,660, respectively.
On May 3, 2024, the Company entered into a series of common stock purchase agreements for the issuance in a registered direct offering of an aggregate of 458,000 shares of the Company’s common stock, to certain institutional investors. The issuance was made in exchange for the permanent and irrevocable waiver of the variable rate transaction limitation with respect to any existing or future agreement by the Company to effect any issuance of shares and issue such shares thereunder, as contained in those certain Inducement Offer Letters, dated December 28, 2023, between the Company and those certain institutional investors. The Company will not receive any net proceeds in connection with the offering. The fair value of the shares issued for consideration of waiving the variable rate transaction limitation was $448,840 and was recorded as deferred offering costs within prepaid expenses and other current assets on the unaudited condensed consolidated balance sheet related to the Purchase Agreement.
During July 2024, the Company issued 1,015,477 shares of common stock through the Purchase Agreement with Lincoln Park for gross cash proceeds of $494,887. As of July 30, 2024, there were no remaining shares available to be issued in connection with this agreement.
Inducement Warrants
On February 29, 2024, a Holder of the Inducement Warrants, exercised 1,954,000 Inducement Warrants at an exercise price of $1.37 per share for 1,954,000 shares of the Company’s common stock for total gross proceeds of $2,676,980.
| 20 |
Results of Operations
The following table sets forth information comparing the components of net loss for the three months ended June 30, 2024 and 2023:
| For the Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating expenses | ||||||||
| General and administrative | $ | 1,297,651 | $ | 3,272,900 | ||||
| Research and development | 515,501 | 2,395,589 | ||||||
| Depreciation and amortization | 84,779 | 86,518 | ||||||
| Total operating expenses | 1,897,931 | 5,755,007 | ||||||
| Loss from operations | (1,897,931 | ) | (5,755,007 | ) | ||||
| Other income (expense) | ||||||||
| Change in fair value of warrant liabilities | 10,805 | (233,821 | ) | |||||
| Change in fair value of investment option liability | 7,767 | (1,082,141 | ) | |||||
| Change in fair value of derivative liability | — | 714,000 | ||||||
| Interest income (expense), net | (35 | ) | 916 | |||||
| Total other income (expense) | 18,537 | (601,046 | ) | |||||
| Net loss before income taxes | $ | (1,879,394 | ) | $ | (6,356,053 | ) | ||
| Income tax expense | — | — | ||||||
| Net loss | $ | (1,879,394 | ) | $ | (6,356,053 | ) | ||
General and Administrative Expenses
Our general and administrative expenses decreased to $1,297,651 for the three months ended June 30, 2024 from $3,272,900 for the three months ended June 30, 2023, a decrease of $1,975,249, or 60%. This change was primarily driven by decreases in consulting expenses of $357,747, salaries and wages of $806,006, stock compensation expense of $484,848, legal fees of $109,403 and accounting fees of $63,919, all primarily related to the second quarter 2023 reduction in force and no longer pursuing the transfer and spin-off its cannabinoid clinical development pipeline assets to Akos Biosciences, Inc.
Research and Development Expenses
Our research and development expense for the three months ended June 30, 2024 was $515,501 as compared to $2,395,589 for the three months ended June 30, 2023 with a decrease of $1,880,088, or approximately 78%. This decrease was primarily driven by a decrease in CRO expense of $531,305, salaries and wages of $564,333, research costs of $722,777 and product development of $124,199.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three months ended June 30, 2024 was $84,779 as compared to $86,518 for the three months ended June 30, 2023, with a decrease of $1,739, or approximately 2%.
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Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities for the three months ended June 30, 2024 resulted in income of $10,805 as compared to an expense of $233,821 for the three months ended June 30, 2023. The change in fair value of warrant liabilities is due to the exercise of 122,000 of warrants on December 28, 2023, resulting in less warrants outstanding and re-valued at June 30, 2024, as well as, the change in the closing price of Common Stock at the end of each period, as compared to the closing price of Common Stock at the beginning of each period with a strong inverse relationship between changes in fair value of warrant liabilities and the trading price of Common Stock.
Change in Fair Value of Investment Option Liability
Change in fair value of investment option liability the three months ended June 30, 2024 resulted in income of $7,767 as compared to an expense of $1,082,141 during the three months ended June 30, 2023. The change in fair value is due to the exercise of 1,000,000 investment options on December 28, 2023, resulting in less investment options re-valued at June 30, 2024 and a significant decrease in the Company’s stock price for the three months ended June 30, 2024.
Change in Fair Value of Derivative Liability
The Company’s change in fair value of derivative liability is due to the May 2023 redemption which ceased the probability of occurrence of the Akos spin-off and Akos Series A Preferred Stock redemption.
The following table sets forth information comparing the components of net loss for the six months ended June 30, 2024 and 2023:
| For the Six Months Ended June | ||||||||
| 2024 | 2023 | |||||||
| Operating expenses | ||||||||
| General and administrative | $ | 3,231,404 | $ | 6,192,700 | ||||
| Research and development | 973,656 | 4,249,981 | ||||||
| Depreciation and amortization | 170,188 | 173,004 | ||||||
| Total operating expenses | 4,375,248 | 10,615,685 | ||||||
| Loss from operations | (4,375,248 | ) | (10,615,685 | ) | ||||
| Other income (expense) | ||||||||
| Change in fair value of warrant liabilities | 20,844 | (183,164 | ) | |||||
| Change in fair value of investment option liability | 19,165 | (962,636 | ) | |||||
| Change in fair value of derivative liability | — | 727,000 | ||||||
| Interest income, net | 661 | 905 | ||||||
| Total other income (expense) | 40,670 | (417,895 | ) | |||||
| Net loss before income taxes | $ | (4,334,578 | ) | $ | (11,033,580 | ) | ||
| Income tax expense | (1,731 | ) | — | |||||
| Net loss | $ | (4,336,309 | ) | $ | (11,033,580 | ) | ||
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General and Administrative Expenses
Our general and administrative expenses decreased to $3,231,404 for the six months ended June 30, 2024 from $6,192,700 for the six months ended June 30, 2023, a decrease of $2,961,296, or 48%. This change was primarily driven by decreases in consulting expenses of $697,659, salaries and wages of $1,041,946, stock compensation expense of $639,502, investor relations of $256,219 and accounting fees of $142,950, all primarily related to the second quarter 2023 reduction in force and no longer pursuing the transfer and spin-off its cannabinoid clinical development pipeline assets to Akos Biosciences, Inc., and Delaware franchise taxes of $220,075 partially offset by an increase in director fees of $113,573.
Research and Development Expenses
Our research and development expense for the six months ended June 30, 2024 was $973,656 as compared to $4,249,981 for the six months ended June 30, 2023 with a decrease of $3,276,325, or approximately 77%. This decrease was primarily driven by a decrease salaries and wages of $1,329,698, research costs of $1,046,750, product development costs of $323,751 and the gain realized related to the Australian R&D tax incentive of $259,591.
Depreciation and Amortization Expense
Depreciation and amortization expense for the six months ended June 30, 2024 was $170,188 as compared to $173,004 for the six months ended June 30, 2023, with a decrease of $2,816, or approximately 2%.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities for the six months ended June 30, 2024 resulted in income of $20,844 as compared to a loss of $183,164 for the six months ended June 30, 2023. The change in fair value of warrant liabilities is due to the exercise of 122,000 of warrants on December 28, 2023, resulting in less warrants outstanding and re-valued at June 30, 2024, as well as, the change in the closing price of Common Stock at the end of each period, as compared to the closing price of Common Stock at the beginning of each period with a strong inverse relationship between changes in fair value of warrant liabilities and the trading price of Common Stock.
Change in Fair Value of Investment Option Liability
Change in fair value of investment option liability the six months ended June 30, 2024 resulted in income of $19,165 as compared to a loss of $962,636 during the six months ended June 30, 2023. The change in fair value is due to the exercise of 1,000,000 investment options on December 28, 2023, resulting in less investment options re-valued at June 30, 2024 and a significant decrease in the Company’s stock price for the six months ended June 30, 2024.
Change in Fair Value of Derivative Liability
The Company’s change in fair value of derivative liability is due to the May 2023 redemption which ceased the probability of occurrence of the Akos spin-off and Akos Series A Preferred Stock redemption.
Going Concern, Liquidity and Capital Resources
The Company has incurred a loss since inception resulting in an accumulated deficit of $100,835,827 as of June 30, 2024 and further losses are anticipated in the development of its business. Further, the Company had operating cash outflows of $5,487,520 for the six months ended June 30, 2024. For the six months ended June 30, 2024, the Company had a loss from operations of $4,375,248. Since inception, being a research and development company, the Company has not yet generated revenue and the Company has incurred continuing losses from its operations. The Company’s operations have been funded principally through the issuance of debt and equity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these unaudited condensed consolidated financial statements.
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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 June 30, 2024, the Company had cash of $3,502,551 and working capital of $4,874,594. 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 raising additional working capital through public or private equity or debt financings or other sources, and may include additional collaborations with third parties as well as disciplined cash spending. Adequate additional financing may not be available to us on acceptable terms, or at all. Should the Company be unable to raise sufficient additional capital, the Company may be required to undertake cost-cutting measures including delaying or discontinuing certain operating activities.
As a result of these factors, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date of the unaudited condensed consolidated financial statements. The Company’s unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Cash Flows
Since inception, we have primarily used our available cash to fund our product development and operations expenditures.
Cash Flows for the Six Months Ended June 30, 2024 and 2023:
The following table sets forth a summary of cash flows for the years presented:
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (5,487,520 | ) | $ | (9,602,930 | ) | ||
| Net cash provided by investing activities | — | 11,685 | ||||||
| Net cash provided by (used in) financing activities | 6,692,699 | (1,052,057 | ) | |||||
| Effect of Foreign Exchange Rate on Changes on Cash | 9,395 | 826 | ||||||
| Net increase (decrease) in cash | $ | 1,214,574 | $ | (10,642,476 | ) | |||
Operating Activities
Net cash used in operating activities was $5,487,520 during the six months ended June 30, 2024, which consisted primarily of a net loss adjusted for non-cash items of $3,485,028 and an increase in prepaid expenses and other current assets of $543,822 and a decrease in accounts payable and accrued liabilities of $1,458,670.
Net cash used in operating activities was $9,602,930 during the six months ended June 30, 2023, which consisted primarily of a net loss adjusted for non-cash items of $8,978,712, an increase in prepaid expenses and other current assets of $1,111,913, offset by an increase in accounts payable and accrued liabilities of $542,397.
Investing Activities
Net cash used in investing activities was $0 during the six months ended June 30, 2024.
Net cash used in investing activities was $11,685 during the six months ended June 30, 2023, which consisted of proceeds from disposal of property and equipment of $16,872, offset by the purchase of property and equipment of $5,187.
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Financing Activities
Net cash provided by financing activities was $6,692,699 during the six months ended June 30, 2024, which consisted of $1,804,819 from the proceeds received from the stock subscription receivable, $2,676,980 for the exercise of the Inducement Warrants, $2,290,186 for the common stock sold under the Distribution agreement, net of offering costs, and $82,026 for the common stock sold under the Purchase Agreement, offset by $161,312 offering costs previously accrued for the Inducement Warrants.
Net cash used in financing activities was $1,052,057 during the six months ended June 30, 2023, which consisted of the redemption of redeemable non-controlling interest.
Critical Accounting Estimates
Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, costs and expenses and related disclosures. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in them have had or are reasonably likely to have a material effect on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Our most critical accounting estimate includes determining the accruals associated with third party providers supporting research and development efforts.
There have been no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
From inception through June 30, 2024, the Company’s reporting currency is the United States dollar while the functional currency of certain of the Company’s subsidiaries is the Canadian dollar and Australian dollar. For the reporting periods ended June 30, 2024 and June 30, 2023, 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 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 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 for the year ended December 31, 2023, continued to exist and were still considered material weaknesses in our internal control over financial reporting at June 30, 2024.
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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 June 30, 2024. 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 June 30, 2024.
Management’s Remediation Plan
As previously discussed in our Annual Report for the year ended December 31, 2023, management had concluded that our internal control over financial reporting was not effective as of December 31, 2023, 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 June 30, 2024, there were control deficiencies that 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 quarter ending June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company may be periodically involved in legal proceedings, legal actions and claims arising in the ordinary course of business. 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 for the year ended December 31, 2023 as filed with the SEC on March 26, 2024. 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, other than as described below, there have been no material changes to the risk factors disclosed in the Company’s Annual Report.
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In the event that we fail to regain compliance with the listing requirements of The Nasdaq Capital Market or satisfy any of the listing requirements of Nasdaq, our common stock may be delisted, which could affect our market price and liquidity.
Our common stock is listed on Nasdaq. For continued listing on Nasdaq, we will be required to comply with the continued listing requirements, including the minimum market capitalization standard, the stockholders’ equity requirement, the corporate governance requirements and the minimum closing bid price requirement, among other requirements. On May 16, 2024, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market stating that because the closing bid price for the Company’s common stock listed on Nasdaq was below $1.00 for 30 consecutive business days, the Company no longer meets the minimum bid price requirement for continued listing on the Nasdaq Capital Market (the “Minimum Bid Price Requirement”). The Company has a period of 180 calendar days from May 16, 2024, or until November 12, 2024, to regain compliance with the Minimum Bid Price Requirement. If at any time before November 12, 2024, the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement.
In the event that we fail to regain compliance with the Minimum Bid Price Requirement or satisfy any of the listing requirements of Nasdaq, our common stock may be delisted. We will have an opportunity to appeal the determination to a Hearings Panel, but we cannot guarantee that such appeal will be successful. If we are unable to list on Nasdaq, we would likely be more difficult to trade in or obtain accurate quotations as to the market price of our common stock. If our common stock is delisted from trading on Nasdaq, and we are not able to list our common stock on another exchange or to have it quoted on Nasdaq, our securities could be quoted on the OTC Bulletin Board or on the “pink sheets.” As a result, we could face significant adverse consequences including, without limitation:
| ● | a limited availability of market quotations for our securities; |
| ● | a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
| ● | a limited amount of news and analyst coverage for our Company; and |
| ● | a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3 or obtain additional financing in the future). |
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.
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Item 6. Exhibits
INDEX TO EXHIBITS
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ENVERIC BIOSCIENCES, INC. | ||
| August 12, 2024 | By: | /s/ Dr. Joseph Tucker |
| Joseph Tucker, Ph.D | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| August 12, 2024 | By: | /s/ Kevin Coveney |
| Kevin Coveney | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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