ENVERIC
BIOSCIENCES, INC AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
(unaudited)
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(UNAUDITED)
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements
ENVERIC
BIOSCIENCES, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements
Enveric
Biosciences, Inc. and Subsidiary
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
1 - BUSINESS
Nature
of operations
Enveric
Biosciences, Inc. (“Enveric Biosciences, Inc.” “Enveric” or the “Company”) (formerly known as Ameri
Holdings, Inc.) (“Ameri”) is a pharmaceutical company developing innovative, evidence-based cannabinoid medicines. The head
office of the Company is located in Naples, Florida.
On
January 10, 2020, the Company entered into an Amalgamation Agreement (as amended on May 6, 2020), (the “Jay Pharma
Amalgamation Agreement”) with Jay Pharma Merger Sub, Inc., a company organized under the laws of Canada and a wholly owned
subsidiary of the Company (“Merger Sub”), Jay Pharma Inc., a company organized under the laws of Canada (“Jay
Pharma”), Jay Pharma ExchangeCo., Inc. a company organized under the laws of British Columbia and a wholly owned subsidiary of
the Company (“ExchangeCo”), and Barry Kostiner, as the Company Representative, which provided that, among other things,
Merger Sub and Jay Pharma would be amalgamated and would continue as one corporation (“Amalco”), with Amalco continuing
as a direct wholly owned subsidiary of ExchangeCo and an indirect wholly owned subsidiary of Ameri, on the terms and conditions set
forth in the Jay Pharma Amalgamation Agreement. On August 12, 2020, the Company, Jay Pharma and certain other signatories
thereto entered into a tender agreement (the “Tender Agreement”), which provided that, among other things, Ameri would
make a tender offer (the “Offer”) to purchase all of the outstanding common shares of Jay Pharma for the number of
shares of Enveric common stock equal to the exchange ratio set forth in the Tender Agreement, and Jay Pharma would become a
wholly-owned subsidiary of Ameri, on the terms and conditions set forth in the Tender Agreement. The Tender Agreement terminated and
replaced in its entirety the Jay Pharma Amalgamation Agreement. On December 30, 2020, the Company, Jay Pharma, Merger Sub,
and ExchangeCo completed the Offer and Jay Pharma became a wholly owned subsidiary of the Company. The transaction was treated as a
reverse acquisition and recapitalization and accordingly, the historical financial statements prior to the date of the business
combination in these unaudited condensed consolidated financial statements are those of Jay Pharma.
COVID-19
During
2020 and continuing into 2021, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic. COVID-19
(including its variants and mutations) and measures to prevent its spread impacted our business in a number of ways. The impact of these
disruptions and the extent of their adverse impact on our financial and operating results will be dictated by the length of time that
such disruptions continue, which will, in turn, depend on the currently unknowable duration and severity of the impacts of COVID-19,
and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals’ and companies’
risk tolerance regarding health matters going forward and developing strain mutations.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
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 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Management’s
opinion is that all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating
results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated
financial statements for the year ended December 31, 2020 and related notes thereto included in the Company’s Annual Report on
Form 10-K filed with the SEC on April 1, 2021.
Use
of Estimates
The
preparation of 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. Actual results could differ from
those estimates.
Enveric
Biosciences, Inc. and Subsidiary
Notes
to Unaudited Condensed Consolidated Financial Statements
Foreign
Currency Translation
The
reporting currency of the Company is the United States Dollar. The financial statements of companies located outside of the U.S. are
measured in their functional currency, which is the local currency. The functional currency of the Company is the United States dollar.
Monetary assets and liabilities are translated using public exchange rates at the balance sheet date. Income and expense items are translated
using average monthly exchange rates. Shareholders’ equity accounts and non-monetary assets are translated at their historical
exchange rates. Translation adjustments are included in accumulated other comprehensive loss in the accompanying balance sheets.
Cash
and cash equivalents
The
Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The
Company did not have any cash equivalents as of June 30, 2021 and December 31, 2020.
Warrant
Liability
The
Company accounts for warrants for shares of the Company’s common stock that are not indexed to its own stock as liabilities at
fair value on the balance sheet. Such warrants are subject to remeasurement at each balance sheet date and any change in fair value is
recognized as a component of other expense on the statement of operations. The Company will continue to adjust the liability for changes
in fair value until the earlier of the exercise or expiration of such common stock warrants. At that time, the portion of the warrant
liability related to such common stock warrants will be reclassified to additional paid-in capital.
Offering
Costs
The
Company allocates offering costs to the different components of the capital raise on a pro rata basis. Any offering costs allocated to
common stock are charged directly to additional paid-in capital. Any offering costs allocated to warrant liabilities are charged to general
and administrative expenses on the Company’s statement of operations.
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) and convertible notes. The computation of basic net loss per share for the three and six months ended
June 30, 2021 and 2020 excludes potentially dilutive securities. The computations of net loss per share for each period presented is
the same for both basic and fully diluted.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Potentially
dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share for the six months
ended June 30, 2021 and June 30, 2020 because the effect of their inclusion would have been anti-dilutive.
SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES
|
|
For the three and six months
ended June 30, 2021
|
|
|
For the three and six months
ended June 30, 2020
|
|
Warrants to purchase shares of common stock
|
|
|
4,553,610
|
|
|
|
1,504,593
|
|
Convertible notes
|
|
|
-
|
|
|
|
380,920
|
|
Restricted stock units
|
|
|
2,596,459
|
|
|
|
-
|
|
Restricted stock awards
|
|
|
13,298
|
|
|
|
-
|
|
Options to purchase shares of common stock
|
|
|
225,565
|
|
|
|
3,604,348
|
|
Total potentially dilutive securities
|
|
|
7,388,932
|
|
|
|
5,489,861
|
|
Enveric
Biosciences, Inc. and Subsidiary
Notes
to Unaudited Condensed Consolidated Financial Statements
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. The Company has not experienced losses on these accounts
and management believes the Company is not exposed to significant risks on such accounts.
Fair
Value Measurement
The
Company follows Accounting Standards Codification (“ASC”) 820–10 “Fair Value Measurement” of the Financial
Accounting Standards Board’s (“FASB”) Accounting Standards Codification to measure the fair value of its financial
instruments and disclosures about fair value of its financial instruments. ASC 820–10 establishes a framework for measuring fair
value and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and
related disclosures, ASC 820–10 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to
measure fair value into three (3) broad levels.
The
three (3) levels of fair value hierarchy defined by ASC 820–10 are described below:
Level
1
|
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
Level
2
|
|
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the
reporting date.
|
|
|
|
Level
3
|
|
Pricing
inputs that are generally unobservable inputs and not corroborated by market data.
|
Financial
assets or liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies
or similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than
one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of
the instrument.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses and other current assets, accounts
payable and accrued expenses approximate their fair values due to the short-term nature of these instruments.
The
Company uses Level 3 of the fair value hierarchy to measure the fair value of its warrant liabilities. The Company revalues such liabilities
at every reporting period and recognizes gains or losses as change in fair value of warrant liabilities in the condensed consolidated
statements of operations that are attributable to the change in the fair value of the warrant liabilities.
The
following table provides the financial liabilities measured on a recurring basis and reported at fair value on the balance sheet as of
June 30, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Fair
Value Measurement, continued
SCHEDULE
OF FAIR VALUE HIERARCHY OF VALUATION INPUTS ON RECURRING BASIS
|
|
Level
|
|
|
June 30, 2021
|
|
Warrant liabilities – January Warrants
|
|
|
3
|
|
|
$
|
1,895,303
|
|
Warrant liabilities – February Warrants
|
|
|
3
|
|
|
|
1,813,154
|
|
Fair value as of June 30, 2021
|
|
|
|
|
|
$
|
3,708,457
|
|
Enveric
Biosciences, Inc. and Subsidiary
Notes
to Unaudited Condensed Consolidated Financial Statements
The
Company had no assets or liabilities measured at fair value on December 31, 2020.
Both
the January and February Warrants are classified as Level 3, for which there is no current market for these securities such as the determination
of fair value requires significant judgment or estimation. Changes in fair value measurement categorized within Level 3 of the fair value
hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
Initial
measurement
SCHEDULE
OF BLACK SCHOLES VALUATION MODELS OF WARRANT LIABILITIES
|
|
January Warrants
|
|
|
February Warrants
|
|
|
|
January 13, 2021
|
|
|
February 12, 2021
|
|
Term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
Stock price
|
|
$
|
4.21
|
|
|
$
|
4.62
|
|
Exercise price
|
|
$
|
4.95
|
|
|
$
|
4.95
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
84.7
|
%
|
|
|
84.7
|
%
|
Risk free interest rate
|
|
|
0.5
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
1,821,514
|
|
|
|
1,714,005
|
|
Value (per share)
|
|
$
|
2.66
|
|
|
$
|
3.00
|
|
Subsequent
measurement
The
following table presents the changes in fair value of the warrant liabilities:
SCHEDULE OF FAIR VALUE OF WARRANT LIABILITIES
|
|
January Warrants
|
|
|
February Warrants
|
|
|
Total Warrant Liability
|
|
Fair value as of December 31, 2020
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Initial value of warrant liability
|
|
|
4,846,000
|
|
|
|
5,135,000
|
|
|
|
9,981,000
|
|
Change in fair value
|
|
|
(2,950,697
|
)
|
|
|
(3,321,846
|
)
|
|
|
(6,272,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of June 30, 2021
|
|
$
|
1,895,303
|
|
|
$
|
1,813,154
|
|
|
$
|
3,708,457
|
|
The
key inputs into the Black Scholes valuation model for the Level 3 valuations as of June 30, 2021 are below:
SCHEDULE OF BLACK SCHOLES VALUATION MODELS OF WARRANT LIABILITIES
|
|
January Warrants
|
|
|
February Warrants
|
|
Term (years)
|
|
|
4.5
|
|
|
|
4.6
|
|
Stock price
|
|
$
|
2.38
|
|
|
$
|
2.38
|
|
Exercise price
|
|
$
|
4.95
|
|
|
$
|
4.90
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
76.6
|
%
|
|
|
76.5
|
%
|
Risk free interest rate
|
|
|
0.87
|
%
|
|
|
0.87
|
%
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
1,821,449
|
|
|
|
1,714,005
|
|
Value (per share)
|
|
$
|
1.04
|
|
|
$
|
1.06
|
|
Enveric
Biosciences, Inc. and Subsidiary
Notes
to Unaudited Condensed Consolidated Financial Statements
Recent
Accounting Pronouncements
In
December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, Income Taxes (Topic 740: Simplifying
the Accounting for Income Taxes (“ASU 2019-12”), which removes certain exceptions to the general principles in Topic 740.
ASU 2019-12 is effective for the fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption of this
guidance did not have a material impact on the Company’s financial statements.
In
October 2020, the FASB issued ASU 2020-10, “Codification Improvements.” The new accounting rules improve the consistency
of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50) that had only been included
in the Other Presentation Matters Section (Section 45) of the Codification. Additionally, the new rules also clarify guidance across
various topics including defined benefit plans, foreign currency transactions, and interest expense. The new accounting rules were effective
for the Company in the first quarter of 2021. The adoption of the new accounting rules did not have a material impact on the Company’s
financial statements.
In
May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The
amendments in ASU No. 2021-04 provides guidance to clarify and reduce diversity in an issuer’s accounting for modifications or
exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification
or exchange. The amendments in this ASU No. 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021,
and interim periods within those fiscal years, with early adoption permitted, including interim periods within those fiscal years. As
a result, the Company will not be required to adopt ASU 2021-04 until January 1, 2022. The Company is currently evaluating the impact
of the adoption of this principle on the Company’s condensed consolidated financial statements.
Subsequent
Events
The
Company has evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial
statements were issued. Other than as described in these financial statements, the Company did not identify any subsequent events that
would have required adjustment to or disclosure in the financial statements.
Enveric
Biosciences, Inc. and Subsidiary
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
3 – INTANGIBLE ASSETS
As
of June 30, 2021, the Company’s intangible assets consisted of:
SCHEDULE OF COMPONENTS OF INTANGIBLE ASSETS
|
|
Useful Life
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Skincare Assets and License Agreements
|
|
4 years
|
|
$
|
1,944,689
|
|
|
$
|
(391,916
|
)
|
|
$
|
1,552,773
|
|
Diverse Bio License Agreement
|
|
4 years
|
|
|
675,000
|
|
|
|
(42,188
|
)
|
|
|
632,812
|
|
Total
|
|
|
|
$
|
2,619,689
|
|
|
$
|
(434,104
|
)
|
|
$
|
2,185,585
|
|
During
the three months ended June 30, 2021 and 2020, the Company recognized amortization expense of $174,019 and $0, respectively. During the
six months ended June 30, 2021 and 2020, the Company recognized amortization expense of $310,659 and $0, respectively.
Acquisition
of Diverse Bio License Agreement
On
March 5, 2021, the Company entered into an Exclusive License Agreement (the “DB Agreement”) with Diverse Biotech, Inc. (“Diverse”),
pursuant to which the Company acquired an exclusive, perpetual license to develop five therapeutic candidates (collectively, the “Agents”)
with the goal of alleviating the side effects that cancer patients experience. Under the terms of the DB Agreement, Diverse has granted
the Company an exclusive license to its intellectual property rights covering the Agents and its products. In exchange, the Company has
granted Diverse the right to information relating to the Agents developed for the express purpose of using such information to obtain
patent rights, which right terminates upon the issuance or denial of the patent rights.
Under
the DB Agreement, the Company will maintain sole responsibility and ownership of the development and commercialization of the Agents
and its products. Diverse has agreed not to develop or commercialize any agent or product that would compete with the Agents, or its
products containing the Agents, at any time during or after the term of the DB Agreement. If Diverse intends to license, sell, or transfer
any other molecules linked with cannabinoids not granted to the Company under the terms of the DB Agreement, the Company will have the
first right, but not the obligation, to negotiate an agreement with Diverse for such cannabinoids. The Company has also agreed to pay
Diverse an up-front investment payment in the amount of $675,000, as well as a running royalty starting with the first commercial sale
by the Company to a third party in an arms’-length transaction.
The
term of the DB Agreement shall continue for as long as the Company intends to develop or commercialize the new drugs, unless earlier
terminated by either Party. The Agreement may be terminated by either party upon ninety (90) days written notice of an uncured material
breach or in the event of bankruptcy or insolvency. In addition, the Company has the right to terminate the DB Agreement at any time
upon sixty (60) days’ prior written notice to Diverse.
NOTE
4 – 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.
Stockholder
Demand Letters
On
July 14, 2021, the Company received a stockholder demand letter from the law firm of Rigrodsky Law P.A., on behalf of Matthew Whitfield,
a purported stockholder of the Company, alleging that the registration statement (the “Amalgamation Registration Statement”)
filed by the Company with the SEC on June 21, 2021 omits material information with respect to the Amalgamation and requesting that the
Company and the Company board of directors provide certain corrective disclosures in an amendment or supplement to the Amalgamation Registration
Statement. The Company does not believe the request has merit, but made certain changes to the Amalgamation Registration Statement, which
it believes suffice to answer the purported stockholder’s demands.
On
July 22, 2021, the Company received a DGCL Section 220 books and records demand letter from the law firm of Kahn Swick & Foti, on
behalf of Scott Waller, a purported stockholder of the Company, seeking access to certain relevant books and records of the Company in
connection with the process underlying the Amalgamation (as defined herein) and the Company’s engagement of its financial advisors.
The Company does not believe the request has merit, but made certain changes to the Amalgamation Registration Statement, which it believes
suffice to answer the purported stockholder’s demands.
Enveric
Biosciences, Inc. and Subsidiary
Notes
to Unaudited Condensed Consolidated Financial Statements
Development
and Clinical Supply Agreement
On
February 22, 2021, the Company entered into a Development and Clinical Supply Agreement (the “PureForm Agreement”) with PureForm
Global, Inc. (“PureForm”), pursuant to which PureForm will be the exclusive provider of synthetic cannabidiol (“API”)
for the Company’s development plans for cancer treatment and supportive care. Under the terms of the PureForm Agreement, PureForm
has granted the Company the exclusive right to purchase API and related product for cancer treatment and supportive care during the term
of the Agreement (contingent upon an initial minimum order of 1 kilogram during the first thirty (30) days from the effective
date) and has agreed to manufacture, package and test the API and related product in accordance with specifications established by the
parties. All inventions that are developed jointly by the parties in the course of performing activities under the PureForm Agreement
will be owned jointly by the parties in accordance with applicable law; however, if the Company funds additional research and development
efforts by PureForm, the parties may enter into a further agreement whereby PureForm would assign any resulting inventions or technical
information to the Company.
The
initial term of the PureForm Agreement is three (3) years commencing on the effective date of the Agreement, subject to extension by
mutual agreement of the parties. The PureForm Agreement may be terminated by either party upon thirty (30) days written notice of an
uncured material breach or immediately in the event of bankruptcy or insolvency. The Agreement contains, among other provisions, representation
and warranties, indemnification obligations and confidentiality provisions in favor of each party that are customary for an agreement
of this nature.
The Company has
met the minimum purchase requirement of 1 kilogram during the first thirty days of the PureForm Agreement’s effectiveness.
Appointment
of Chief Financial Officer
On
April 9, 2021, John M. Van Buiten resigned from his position as the Company’s chief financial officer, effective May 15, 2021.
Mr. Van Buiten’s resignation was not the result of any disagreement regarding any matter relating to the Company’s operations,
policies, or practices.
On
April 9, 2021, Carter J. Ward, 56, was appointed as the Company’s chief financial officer, effective May 15, 2021 (the “Ward
Effective Date”).
In
connection with Mr. Ward’s appointment as chief financial officer, Mr. Ward entered into an employment agreement with the Company
on April 9, 2021 (the “Ward Employment Agreement”), effective as of May 15, 2021, pursuant to which Mr. Ward will receive
a base salary of $295,000
(“Base Salary”) and is eligible to
receive annual performance bonuses of up to 50%
of his Base Salary, as determined from time-to-time by the Company’s board of directors. Additionally, Mr. Ward will receive 525,000
restricted stock units (“RSUs”),
262,500
of such RSUs shall be subject to time-based vesting
(the “Time Based RSUs”), and the remaining 262,500
of such RSUs shall be subject to performance-based
vesting (the “Performance RSUs”). The RSUs shall be subject to the terms and conditions of the Company’s 2020 Long-Term
Incentive Plan. The Time Based RSUs shall vest in quarters on each anniversary of the Ward Effective Date, and the Performance
RSUs shall vest based on the achievement of performance milestones established by the Company.
Amalgamation
Agreement with MagicMed Industries Inc.
On
May 24, 2021, the Company entered into an Amalgamation Agreement (the “Amalgamation Agreement”) with 1306432 B.C. Ltd., a
corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of the Company (“HoldCo”),
1306436 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of HoldCo
(“Purchaser”), and MagicMed Industries Inc., a corporation existing under the laws of the Province of British Columbia (“MagicMed”),
pursuant to which, among other things, the Company, indirectly through Purchaser, intends to acquire all of the outstanding securities
of MagicMed in exchange for securities of the Company by way of an amalgamation under the British Columbia Business Corporations Act,
upon the terms and conditions set forth in the Amalgamation Agreement, such that, upon completion of the Amalgamation (as defined herein),
the amalgamated corporation (“Amalco”) will be an indirect wholly-owned subsidiary of the Company.
Enveric
Biosciences, Inc. and Subsidiary
Notes
to Unaudited Condensed Consolidated Financial Statements
At
the effective time of the Amalgamation (the “Effective Time”), holders of outstanding common shares of MagicMed (the “MagicMed
Shares”) will receive such number of shares of common stock of the Company (“Company Shares”) representing, together
with the Company Shares issuable upon exercise of the Warrants and the Converted Options (each as defined herein), approximately 36.6%
of the issued and outstanding Company Shares (on a fully-diluted basis). The MagicMed Shares will initially be converted into Amalco
Redeemable Preferred Shares (as defined in the Amalgamation Agreement), which immediately following the Amalgamation shall be redeemed
for 0.000001
of a Company Share. Following such redemption,
the shareholders of MagicMed shall receive additional Company Shares equal to the product of the Exchange Ratio (as defined in the Amalgamation
Agreement) multiplied by the number of MagicMed Shares held by each such shareholder. Additionally,
following the Effective Time (i) each outstanding MagicMed stock option will be converted into and become an option to purchase (the
“Converted Options”) the number of Company Shares equal to the Exchange Ratio multiplied by the number of MagicMed Shares
subject to such MagicMed stock option, and (ii) each holder of an outstanding MagicMed warrant (including Company Broker Warrants (as
defined in the Amalgamation Agreement), the “Warrants”) will be entitled to receive upon exercise of such Warrant that number
of Company Shares which the holder would have been entitled to receive as a result of the Amalgamation if, immediately prior to the date
of the Amalgamation (the “Effective Date”), such holder had been the registered holder of the number of MagicMed Shares to
which such holder would have been entitled if such holder had exercised such holder’s Warrants immediately prior to the Effective
Time (the foregoing collectively, the “Amalgamation”).
The
aggregate number of Company Shares that the Company will issue in connection with the Amalgamation (collectively, the “Share Consideration”)
will be in excess of 20% of the Company’s pre-transaction outstanding Company Shares. Accordingly, the Company will seek stockholder
approval of the issuance of the Share Consideration in the Amalgamation in accordance with the NASDAQ Listing Rules.
Pursuant
to the terms of the Amalgamation Agreement, the Company has agreed to appoint upon the Effective Time two individuals selected by MagicMed
to the Company Board of Directors, Dr. Joseph Tucker and Brad Thompson.
The
Amalgamation Agreement contains representations and warranties, closing deliveries and indemnification provisions customary for a transaction
of this nature. The closing of the Amalgamation is conditioned upon, among other things, (i) the Share Consideration being approved for
listing on Nasdaq, (ii) the effectiveness of a Registration Statement on Form S-4 registering the Share Consideration (the “S-4
Registration Statement”) and (iii) the approval (a) of the MagicMed stockholders of the Amalgamation and (b) of the Company’s
stockholders of each of the Amalgamation and the issuance of the Share Consideration in the Amalgamation.
The
Amalgamation Agreement does not permit MagicMed to solicit alternative acquisition proposals from third parties, but it still may, on
the terms and subject to the conditions of the Amalgamation Agreement, respond to any unsolicited alternative acquisition proposal that
constitutes, or the MagicMed board of directors determines would reasonably be expected to lead to, a Superior Proposal (as defined in
the Amalgamation Agreement).
The
Amalgamation Agreement also contains customary termination provisions for the parties and provides that a termination fee of $4,500,000
is payable by (i) MagicMed, if the Agreement is terminated by (a) the Company as a result of (1) a change in recommendation by the MagicMed
board of directors, (2) an approval or recommendation by the MagicMed board of directors of a different acquisition proposal or authorization
by the MagicMed board of directors of a Superior Proposal, or (3) a breach of the non-solicit covenant by MagicMed, or (b) MagicMed in
order to accept a Superior Proposal; or (ii) the Company, if the Agreement is terminated by (a) MagicMed as a result of (1) a change
in recommendation by the Company board of directors, (2) an approval or recommendation by the Company board of directors of a different
acquisition proposal or authorization by the Company board of directors of a Superior Proposal or (3) a breach of the non-solicit covenant
by the Company, or (b) the Company in order to accept a Superior Proposal. The Amalgamation Agreement may be terminated by either party
if the Amalgamation is not completed by December 31, 2021; provided, that either the Company or MagicMed may extend that date for an
additional sixty (60) days if the Securities and Exchange Commission has not concluded its review of the S-4 Registration Statement by
the date which is sixty (60) days prior to that date.
Simultaneously
with the execution of the Amalgamation Agreement, holders of approximately 30% of MagicMed’s common shares entered into voting
support agreements with the Company, and each of the Company’s directors and executive officers entered into voting support agreements
with MagicMed pursuant to which such individuals have agreed, among other things, to execute and deliver a written consent with respect
to their respective voting shares in favor of the approval of the Amalgamation Agreement or, if applicable, vote such shares in favor
of the adoption of the Amalgamation Agreement at a meeting of stockholders called for such purpose.
Enveric
Biosciences, Inc. and Subsidiary
Notes
to Unaudited Condensed Consolidated Financial Statements
Appointment
of Chief Executive Officer
On
May 24, 2021, Dr. Joseph Tucker, 52, entered into an employment agreement (the “Tucker Employment Agreement”) with the Company
pursuant to which he will become the Company’s chief executive officer, effective as of the Effective Date (the “Tucker Effective
Date”).
Dr.
Tucker has served as chief executive officer and president of MagicMed since May 2020. From 2019 until 2020, Dr. Tucker acted as the
Executive Chairman and Chief Operating Officer of Willow Biosciences Inc. (TSX:WLLW). until leaving to join MagicMed in May 2020. From
2015 to 2019, his principal employment was acting as CEO, President, Director and Founder of Epimeron Inc., which merged with BioCan
Technologies Inc. in 2018 and then listed by reverse-takeover with Makena Resources Inc. in 2019 as Willow Biosciences Inc. Dr. Tucker
earned a Ph.D. in Biochemistry and Molecular Biology from the University of Calgary.
Pursuant
to the Tucker Employment Agreement, effective as of the Tucker Effective Date Dr. Tucker will receive a base salary of $350,000 annually
(“Tucker Base Salary”). Dr. Tucker will also receive a one-time signing bonus of $100,000 as well as up to 175,000 restricted
stock units (“RSUs”), depending on the price of the Company Shares at the Tucker Effective Date. Half of any such RSUs shall
be subject to time-based vesting, and the remaining half of any such RSUs shall be subject to performance-based vesting. Beginning in
calendar year 2022, Dr. Tucker is eligible to receive annual performance bonuses of up to 75% of the Tucker Base Salary, as determined
from time to time by the Company’s board of directors. Additionally, Dr. Tucker will receive 750,000 RSUs as equity compensation.
375,500 of such RSUs shall be subject to time-based vesting (the “Tucker Time Based RSUs”), and the remaining 375,500 of
such RSUs shall be subject to performance-based vesting (the “Tucker Performance RSUs”). The RSUs shall be subject to the
terms and conditions of the Company’s 2020 Long-Term Incentive Plan (the “LTIP”). The Tucker Time Based RSUs shall
vest in quarters on each of the first four anniversaries of the Tucker Effective Date, and the Tucker Performance RSUs shall vest based
on the achievement of performance milestones established by the Company.
The
Tucker Employment Agreement will remain in effect until terminated by either party, unless the Company or Dr. Tucker delivers advance
written notice of termination to the other party at least 30 days prior. In addition, the Tucker Employment Agreement is subject to early
termination by him or the Company in accordance with the terms of the Tucker Employment Agreement.
Pursuant
to the Tucker Employment Agreement, if Dr. Tucker’s employment is terminated by the Company without cause or by Dr. Tucker for
good reason, then the Company must pay Dr. Tucker, in addition to any then-accrued and unpaid obligations owed to him, 12 months of the
then-current Tucker Base Salary.
The
Tucker Employment Agreement also contains covenants restricting Dr. Tucker from soliciting the Company’s employees or customers
for a period of 12 months after the termination of Dr. Tucker’s employment with the Company and prohibiting him from disclosure
of confidential information regarding the Company at any time.
Please
also note that Tucker Employment Agreement requires completion of the amalgamation, as defined in the Amalgamation Agreement and there
can be no assurances of such completion being achieved.
Appointment
of Chief Scientific Officer
On
May 24, 2021, Dr. Peter Facchini, 57, entered into an employment agreement (the “Facchini Employment Agreement”) with the
Company pursuant to which he will become the Company’s chief scientific officer, effective as of the Effective Date (the “Facchini
Effective Date”).
Enveric
Biosciences, Inc. and Subsidiary
Notes
to Unaudited Condensed Consolidated Financial Statements
Dr.
Facchini has served as chief scientific officer of MagicMed since April 2020. From 2019 until 2020, he held the role of Chief Scientific
Officer at Willow Biosciences Inc. until leaving to co-found MagicMed. From 2013 until 2019, Dr. Facchini held the role of Chief Scientific
Officer, Director and Founder of Epimeron Inc. Dr. Facchini has also been a Professor of Plant Biochemistry in the Department of Biological
Sciences at the University of Calgary for 25 years.
Pursuant
to the Facchini Employment Agreement, effective as of the Facchini Effective Date Dr. Facchini will receive a base salary of C$295,000
annually (“Facchini Base Salary”). Dr. Facchini will also receive a one-time signing bonus of C$50,000 as well as up to 130,000
RSUs, depending on the price of the Company Shares at the Facchini Effective Date. Half of any such RSUs shall be subject to time-based
vesting, and the remaining half of any such RSUs shall be subject to performance-based vesting. Beginning in calendar year 2022, Dr.
Facchini is eligible to receive annual performance bonuses of up to 50% of the Facchini Base Salary, as determined from time to time
by the Company’s board of directors. Additionally, Dr. Facchini will receive 525,000 RSUs as equity compensation. 262,500 of such
RSUs shall be subject to time-based vesting (the “Facchini Time Based RSUs”), and the remaining 262,500 of such RSUs shall
be subject to performance-based vesting (the “Facchini Performance RSUs”). The RSUs shall be subject to the terms and conditions
of the LTIP. The Facchini Time Based RSUs shall vest in quarters on each of the first four anniversaries of the Facchini Effective Date,
and the Facchini Performance RSUs shall vest based on the achievement of performance milestones established by the Company.
The
Facchini Employment Agreement will remain in effect until terminated by either party, unless the Company delivers advance written notice
of termination to Dr. Facchini or Dr. Facchini delivers advance written notice of termination to the Company at least 30 days prior.
In addition, the Facchini Employment Agreement is subject to early termination by him or the Company in accordance with the terms of
the Facchini Employment Agreement.
Pursuant
to the Facchini Employment Agreement, if Dr. Facchini’s employment is terminated by the Company without cause or by Dr. Facchini
for good reason, then the Company must pay Dr. Facchini, in addition to any then-accrued and unpaid obligations owed to him, 12 months
of the then-current Facchini Base Salary.
The
Facchini Employment Agreement also contains covenants restricting Dr. Facchini from soliciting the Company’s employees or customers
for a period of 12 months after the termination of Dr. Facchini’s employment with the Company and prohibiting him from disclosure
of confidential information regarding the Company at any time.
Please
also note that Facchini Employment Agreement requires completion of the amalgamation, as defined in the Amalgamation Agreement and there
can be no assurances of such completion being achieved.
Appointment
of Chief Technology Officer
On
May 24, 2021, Dr. Jillian Hagel, 42, entered into an employment agreement (the “Hagel Employment Agreement”) with the Company
pursuant to which she will become the Company’s chief technology officer, effective as of the Effective Date (the “Hagel
Effective Date”).
Dr.
Hagel has served as chief technology officer of MagicMed since April 2020. From 2019 until 2020, she acted as Vice President of Applied
Sciences for Willow Biosciences Inc. until leaving in April 2020 to co-found MagicMed. From 2013 until 2019, Dr. Hagel’s primary
employment was acting as Chief Operating Officer of Epimeron Inc. Dr. Hagel received her PhD in plant biochemistry from the University
of Calgary.
Pursuant
to the Hagel Employment Agreement, effective as of the Hagel Effective Date Dr. Hagel will receive a base salary of C$295,000 annually
(“Hagel Base Salary”). Dr. Hagel will also receive a one-time signing bonus of C$50,000 as well as up to 130,000 RSUs, depending
on the price of the Company Shares at the Hagel Effective Date. Half of any such RSUs shall be subject to time-based vesting, and the
remaining half of any such RSUs shall be subject to performance-based vesting. Beginning in calendar year 2022, Dr. Hagel is eligible
to receive annual performance bonuses of up to 50% of the Hagel Base Salary, as determined from time-to-time by the Company’s board
of directors. Additionally, Dr. Hagel will receive 525,000 RSUs as equity compensation. 262,500 of such RSUs shall be subject to time-based
vesting (the “Hagel Time Based RSUs”), and the remaining 262,500 of such RSUs shall be subject to performance-based vesting
(the “Hagel Performance RSUs”). The RSUs shall be subject to the terms and conditions of the LTIP. The Hagel Time Based RSUs
shall vest in quarters on each of the first four anniversaries of the Hagel Effective Date, and the Hagel Performance RSUs shall vest
based on the achievement of performance milestones established by the Company.
Enveric
Biosciences, Inc. and Subsidiary
Notes
to Unaudited Condensed Consolidated Financial Statements
The
Hagel Employment Agreement will remain in effect until terminated by either party, unless the Company delivers advance written notice
of termination to Dr. Hagel or Dr. Hagel delivers advance written notice of termination to the Company at least 30 days prior. In addition,
the Hagel Employment Agreement is subject to early termination by her or the Company in accordance with the terms of the Hagel Employment
Agreement.
Pursuant
to the Hagel Employment Agreement, if Dr. Hagel’s employment is terminated by the Company without cause or by Dr. Hagel for good
reason, then the Company must pay Dr. Hagel, in addition to any then-accrued and unpaid obligations owed to her, 12 months of the then-current
Hagel Base Salary.
The
Hagel Employment Agreement also contains covenants restricting Dr. Hagel from soliciting the Company’s employees or customers for
a period of 12 months after the termination of Dr. Hagel’s employment with the Company and prohibiting her from disclosure of confidential
information regarding the Company at any time.
Please
also note that Hagel Employment Agreement requires completion of the amalgamation, as defined in the Amalgamation Agreement and there
can be no assurances of such completion being achieved.
NOTE
5 - SHARE CAPITAL AND OTHER EQUITY INSTRUMENTS
Offerings
On
January 14, 2021, the Company completed an offering of 2,221,334 shares of Common Stock and pre-funded warrants at approximately $4.50
per share and a concurrent private placement of warrants to purchase 1,666,019 shares of Common Stock at $4.95 per share, exercisable
immediately and terminating five years after the date of issuance for gross proceeds of approximately $10,000,000. The net proceeds to
the Company after deducting financial advisory fees and other costs and expenses were approximately $8,806,087.
On
February 11, 2021, the Company completed an offering of 3,007,026 shares of Common Stock and a concurrent private placement of warrants
to purchase 1,503,513 shares of Common Stock at $4.90 per share, exercisable immediately and terminating five year from the date of issuance
for gross proceeds of approximately $12,800,000. The net proceeds to Enveric from the offering after deducting financial advisory fees
and other costs and expenses were approximately $11,624,401.
Stock
Options
SCHEDULE OF STOCK OPTIONS
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price (USD)
|
|
|
Weighted
Average
Grant Date
Fair Value
(USD)
|
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
(USD)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding – January 1, 2021
|
|
|
929,765
|
|
|
$
|
1.53
|
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(143,796
|
)
|
|
$
|
0.23
|
|
|
$
|
5.69
|
|
|
|
|
|
|
|
|
|
Expired forfeited, or cancelled
|
|
|
(560,404
|
)
|
|
$
|
1.65
|
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
Outstanding – June 30, 2021
|
|
|
225,565
|
|
|
$
|
2.06
|
|
|
$
|
2.59
|
|
|
|
5.9
|
|
|
$
|
82,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2021
|
|
|
225,565
|
|
|
$
|
2.06
|
|
|
$
|
2.59
|
|
|
|
5.9
|
|
|
$
|
82,420
|
|
The
Company’s stock based compensation expense related to stock options for the three months ended June 30, 2021 and 2020 was $0 and
$0, respectively. The Company’s stock based compensation expense related to stock options for the six months ended June 30, 2021
and 2020 was $0 and $0, respectively. As of June 30, 2021, the Company had $0 in unamortized stock option expense.
During
the first quarter 2021, the Company exchanged options to purchase 560,404 shares of common stock for 325,410 restricted stock units and
42,125 restricted stock awards. In connection with this exchange, the Company recognized $298,714 in inducement expense related to the
increase in fair value of the new awards over the old awards, which is included in other expenses on the Company’s statement of
operations and comprehensive loss.
Enveric Biosciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial
Statements
Restricted
Stock Awards
The
Company’s activity in restricted common stock was as follows for the six months ended June 30, 2021:
SCHEDULE OF RESTRICTED STOCK UNITS AND AWARDS ACTIVITY
|
|
Number of
shares
|
|
|
Weighted
average
grant date
fair value
|
|
Non–vested at January 1, 2021
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
70,986
|
|
|
$
|
4.18
|
|
Vested
|
|
|
(57,688
|
)
|
|
$
|
4.32
|
|
Non–vested at June 30, 2021
|
|
|
13,298
|
|
|
$
|
3.61
|
|
For
the three months ended June 30, 2021 and 2020, the Company recorded $24,003
and $0,
in stock-based compensation expense related to restricted stock awards, respectively. For the six months ended June 30, 2021 and
2020, the Company recorded $56,114
and $0,
in stock-based compensation expense related to restricted stock awards, respectively. As of June 30, 2021, unamortized stock-based
compensation costs related to restricted share awards was $48,006,
which will be recognized over a weighted average period of 0.50
years.
Issuance
of Restricted Stock Units
The
Company’s activity in restricted stock units was as follows for the six months ended June 30, 2021:
SCHEDULE OF RESTRICTED STOCK UNITS AND AWARDS ACTIVITY
|
|
Number of
shares
|
|
|
Weighted
average
grant date
fair value
|
|
Non–vested at January 1, 2021
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
3,804,284
|
|
|
$
|
4.13
|
|
Vested
|
|
|
(1,207,825
|
)
|
|
$
|
4.46
|
|
Non–vested at June 30, 2021
|
|
|
2,596,459
|
|
|
$
|
3.97
|
|
For
the three months ended June 30, 2021 and 2020, the Company recorded $748,603
and $0,
respectively, in stock-based compensation expense related to restricted stock units. For the six months ended June 30, 2021 and 2020,
the Company recorded $4,307,826
and $0,
respectively, in stock-based compensation expense related to restricted stock units, which is a component of general and administrative
expenses in the condensed consolidated statement of operations. As of June 30, 2021, the Company had unamortized stock-based compensation
costs related to restricted stock units of $2,950,612
which
will be recognized over a weighted average period of 3.2 years and unamortized stock based costs related to restricted stock units
of $6,966,721 which will be recognized upon achievement of specified milestones.
Enveric Biosciences, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial
Statements
Warrants
The
following table summarizes information about shares issuable under warrants outstanding at June 30, 2021:
SCHEDULE OF WARRANTS
|
|
Warrant
shares
outstanding
|
|
|
Weighted
average
exercise price (USD)
|
|
|
Weighted average remaining life
|
|
|
Intrinsic value
|
|
Outstanding at January 1, 2021
|
|
|
3,661,178
|
|
|
$
|
1.98
|
|
|
|
5.0
|
|
|
$
|
8,040,836
|
|
Issued
|
|
|
4,146,146
|
|
|
$
|
4.20
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,253,714
|
)
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2021
|
|
|
4,553,610
|
|
|
$
|
4.63
|
|
|
|
4.7
|
|
|
$
|
365,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2021
|
|
|
4,553,610
|
|
|
$
|
4.63
|
|
|
|
4.7
|
|
|
$
|
365,421
|
|
NOTE
6 - SUBSEQUENT EVENTS
Registration
Statement on Form S-3
On
July 2, 2021, the Company filed a registration statement on Form S-3 (SEC File No. 333- 257690) relating to the sale of up to $200,000,000
in aggregate amount of securities of the Company identified in the prospectus that forms a part of the registration statement. The registration
statement was declared effective by the SEC on July 9, 2021.
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 condensed consolidated financial statements and notes thereto included
elsewhere in this Quarterly Report on Form 10-Q. Unless stated otherwise, references in this Quarterly Report on Form 10-Q to “us,”
“we,” “our,” or our “Company” and similar terms refer to Enveric Biosciences, Inc., a Delaware corporation.
Cautionary
Note Regarding Forward-Looking Statements
This
quarterly report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking
terms such as “anticipates,” “assumes,” “believes,” “can,” “could,” “estimates,”
“expects,” “forecasts,” “guides,” “intends,” “is confident that,” “may,”
“plans,” “seeks,” “projects,” “targets,” and “would” or the negative of such
terms or other variations on such terms or comparable terminology. Such forward-looking statements include, but are not limited to, future
financial and operating results, the company’s plans, objectives, expectations and intentions and other statements that are not
historical facts. We have based these forward-looking statements largely on our current expectations and projections about future events
and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements
speak only as of the date of this Form 10-Q and are subject to a number of risks, uncertainties, and assumptions that could cause actual
results to differ materially from our historical experience and our present expectations, or projections described under the sections
in this Form 10-Q entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations”. These risks and uncertainties include, but are not limited to:
●
|
our
dependence on the success of our prospective product candidates, which are in early stages of development and may not reach a particular
stage in development, receive regulatory approval or be successfully commercialized;
|
●
|
potential
difficulties that may delay, suspend, or scale back our efforts to advance additional early research programs through preclinical
development and IND application filings and into clinical development;
|
●
|
the
impact of the novel coronavirus (COVID-19) on our business, including our current plans for product development, as well as any currently
ongoing preclinical studies and clinical trials and any future studies or other development or commercialization activities;
|
●
|
the
limited study on the effects of medical cannabinoids, and the chance that future clinical research studies may lead to conclusions
that dispute or conflict with our understanding and belief regarding the medical benefits, viability, safety, efficacy, dosing, and
social acceptance of cannabinoids;
|
●
|
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;
|
●
|
the
ability to establish or maintain collaborations on the development of therapeutic candidates;
|
●
|
the
ability to obtain appropriate or necessary governmental approvals to market potential products;
|
●
|
our
ability to manufacture product candidates on a commercial scale or in collaborations with third parties;
|
●
|
our
significant and increasing liquidity needs and potential requirements for additional funding;
|
●
|
our
ability to obtain future funding for developmental products and working capital and to obtain such funding on commercially reasonable
terms;
|
●
|
the
intense competition we face, often from companies with greater resources and experience than us;
|
●
|
our
ability to retain key executives and scientists;
|
●
|
the
ability to secure and enforce legal rights related to our products, including intellectual property rights and patent protection;
and
|
●
|
political,
economic, and military instability in Israel which may impede our development programs.
|
For
a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ
materially from those projected in these forward-looking statements, see the risk factors and uncertainties set forth in Part II, Item
1A of this Form 10-Q and Part I, Item 1A of the annual report on Form 10-K filed with the SEC on April 1, 2021. 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 an early-development-stage biosciences company that is developing innovative, evidence-based prescription products and combination
therapies containing cannabinoids to address unmet needs in cancer care. We seek to improve the lives of patients suffering from cancer,
initially by developing palliative and supportive care products for people suffering from certain side effects of cancer and cancer treatment
such as pain or skin irritation. We currently intend to offer such palliative and supportive care products in the United States, following
approval through established regulatory pathways.
We
are also aiming to advance a pipeline of novel cannabinoid combination therapies for hard-to-treat cancers, including glioblastoma multiforme
(GBM) and several other indications, which are currently being researched.
We
intend to bring together leading oncology clinicians and researchers, academic and industry partners so as to develop both external proprietary
products and a robust internal pipeline of product candidates aimed at improving quality of life and outcomes for cancer patients. We
intend to evaluate options to out-license its proprietary technology as it moves along the regulatory pathway as well as evaluating building
a small, targeted selling organization and will potentially utilize a hybrid approach based on the product indication and the market
opportunity.
In
developing its product candidates, we intend to focus on cannabinoids derived from hemp, other botanical sources, and synthetic materials
containing no tetrahydrocannabinol (THC) in order to comply with U.S. federal regulations. Of the potential cannabinoids to be used in
therapeutic formulations, THC, which is responsible for the psychoactive properties of marijuana, can result in undesirable mood effects.
Cannabidiol (CBD) and cannabigerol (CBG), on the other hand, are not psychotropic and are therefore more attractive candidates for translation
into therapeutic practice. In the future, we may utilize cannabinoids that are derived from cannabis plants, which may contain THC; however,
we only intend to do so in jurisdictions where THC is legal. These product candidates will then be studied through a typical FDA drug
approval process.
Tender
Offer, Spin-Off and Reverse Stock Split
On
December 30, 2020, pursuant to the previously announced Tender Offer Support Agreement and Termination of Amalgamation Agreement dated
August 12, 2020 (“Original Amalgamation Agreement”), as amended by that certain Amendment No. 1 to the Tender Offer Support
Agreement and Termination of Amalgamation Agreement dated December 18, 2020 (as amended the “Tender Agreement”), the Company
completed a tender offer (“Offer”) to purchase all of the outstanding common shares of Jay Pharma, Inc., a Canada corporation
and a wholly-owned subsidiary of the Company (“Jay Pharma”), for the number of shares of Company common stock, par value
$0.01 per share (“Common Stock”) or Series B Preferred Stock, as applicable, equal to the exchange ratio of 0.8849 (the “Exchange
Ratio”), and Jay Pharma became a wholly-owned subsidiary of the Company, on the terms and conditions set forth in the Tender Agreement.
In connection with the Offer, the Company changed its name from AMERI Holdings, Inc. to Enveric Biosciences, Inc. The Offer has been
accounted for as a “reverse merger” under the acquisition method of accounting for business combinations with Jay Pharma
treated as the accounting acquirer of Ameri. As such, the historical financial statements of Jay Pharma have become the historical financial
statements of Ameri, or the combined company, and are included in this filing labeled “Enveric Biosciences, Inc.” As a result
of the Offer, historical common stock, stock options and additional paid-in capital, including share and per share amounts, have been
retroactively adjusted to reflect the equity structure of the combined company, including the effect of the Exchange Ratio and the Common
Stock.
Prior
to the completion of the Offer, on December 30, 2020, pursuant to a Share Purchase Agreement, Ameri contributed to Ameri100 Inc. (“Private
Ameri”) all of the issued and outstanding equity interests of the existing subsidiaries of Ameri, constituting the entire business
and operations of Ameri and its subsidiaries, and Private Ameri assumed the liabilities of such subsidiaries. All of the issued and outstanding
shares of Series A preferred stock of Ameri were redeemed for an equal number of shares of Series A preferred stock of Private Ameri.
Immediately
following the completion of the Offer, on December 30, 2020, the Company effected a 1-for-4 reverse stock split of the issued and outstanding
Common Stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, the per share exercise price of, and the
number of shares of Company Common Stock underlying, our stock options and warrants outstanding immediately prior to the Reverse Stock
Split were automatically proportionally adjusted based on the 1-for-4 split ratio in accordance with the terms of such options and warrants,
as the case may be. Share and per-share amounts of Common Stock, options and warrants included herein have been adjusted to give effect
to the Reverse Stock Split. The Reverse Stock Split did not alter the par value of the Common Stock, $0.01 per share, or modify any voting
rights or other terms of the Common Stock. Unless otherwise noted, the accompanying financial statements and notes thereto, including
the Exchange Ratio applied to historical Jay Pharma common stock and stock options, give retroactive effect to the Reverse Stock Split
for all periods presented.
Recent
Developments
January
2021 Offering
On
January 14, 2021, we closed a registered direct offering of 1,610,679 shares of common stock and pre-funded warrants to purchase
610,679 shares of common stock, pursuant to a Securities Purchase Agreement (the “January 2021 Purchase Agreement”) with
certain institutional investors at an offering price of $4.50 per share and $4.49 per pre-funded warrant (the “Pre-funded Warrant”),
for gross proceeds of approximately $10,000,000 before the deduction of fees and offering expenses.
The
Pre-funded Warrants have an exercise price of $0.01 per share. The Pre-funded Warrants are immediately exercisable and may be exercised
at any time after their original issuance until such Pre-funded Warrants are exercised in full. A holder of a Pre-funded Warrant may
not exercise any portion of such holder’s Pre-funded Warrants to the extent that the holder, together with its affiliates, would
beneficially own more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding shares of Common Stock
immediately after exercise (the “Beneficial Ownership Limitation”), except that upon at least 61 days’ prior notice
from the holder to the Company, the holder may increase the Beneficial Ownership Limitation to up to 9.99% of the number of shares of
Common Stock outstanding immediately after giving effect to the exercise.
Pursuant
to the January 2021 Purchase Agreement, in a concurrent private placement (the “January 2021 Private Placement”) that also
closed on January 14, 2021, the Company issued to the investors unregistered warrants to purchase up to 1,666,018 shares of Common Stock
(the “January 2021 Warrants”). The January 2021 Warrants are exercisable immediately upon issuance and terminate five years
following issuance and are exercisable at an exercise price of $4.95 per share, subject to adjustment as set forth therein. A holder
of January 2021 Warrants does not have the right to exercise any portion of its January 2021 Warrants if the holder, together with its
affiliates, would beneficially own in excess of the Beneficial Ownership Limitation; provided, however, that upon 61 days’ prior
notice to the Company, the holder may increase or decrease the Beneficial Ownership Limitation, provided that in no event shall the Beneficial
Ownership Limitation exceed 9.99%.
February
2021 Offering
On
February 11, 2021, we closed a registered direct offering of 3,007,026 shares of common stock, pursuant to a Securities Purchase Agreement
(the “February 2021 Purchase Agreement”) with certain institutional investors at an offering price of $4.27 per share, for
gross proceeds of approximately $12,800,000 before the deduction of fees and offering expenses. The shares were offered by the Company
pursuant to a shelf registration statement on Form S-3 (File No. 333-233260), previously filed with the SEC on August 14, 2019, and declared
effective by the SEC on November 19, 2019.
Pursuant
to the February 2021 Purchase Agreement, in a concurrent private placement (the “February 2021 Private Placement”) that also
closed on February 11, 2021, the Company issued to the investors unregistered warrants to purchase up to 1,503,513 shares of Common Stock
(the “February 2021 Warrants”). The February 2021 Warrants are exercisable immediately upon issuance and terminate five years
following issuance and are exercisable at an exercise price of $4.90 per share, subject to adjustment as set forth therein. A holder
of February 2021 Warrants does not have the right to exercise any portion of its February 2021 Warrants if the holder, together with
its affiliates, would beneficially own in excess of the Beneficial Ownership Limitation; provided, however, that upon 61 days’
prior notice to the Company, the holder may increase or decrease the Beneficial Ownership Limitation, provided that in no event shall
the Beneficial Ownership Limitation exceed 9.99%.
Palladium
Warrants
In
connection with its role as financial advisor to the Company in the January 2021 Direct Offering, the January 2021 Private Placement,
the February 2021 Direct Offering, and the February 2021 Private Placement, the Company issued Palladium 155,493 warrants with an exercise
price of $4.95 and 210,492 warrants with an exercise price of $4.90 (the “Palladium Warrants”) on February 11, 2021.
Stockholder
Demand Letters
On
January 21, 2021, the Company received a stockholder litigation demand letter from the law firm of Purcell Julie & Lefkowitz LLP,
on behalf of James Self, a purported stockholder of our Company. The letter demands that the Company (i) deem ineffective the December
30, 2020 amendment to our Amended and Restated Certificate of Incorporation in which the Company effected a one-for-four reverse stock
split of its common stock due to the manner in which non-votes by brokers were tabulated, (ii) seek appropriate relief for damages allegedly
suffered by the company and its stockholders or seek a valid stockholder approval of the amendment and reverse stock split, and (iii)
adopt adequate internal controls to prevent a recurrence of the alleged misconduct. The Company disputes that the amendment was ineffective
or that there were any inadequate internal controls related to the same. However, to eliminate any questions about the amendment, the
Company ratified the amendment at a special stockholders’ meeting pursuant to Section 204 of the Delaware General Corporation Law.
This special stockholders’ meeting occurred on May 14, 2021. On May 14, 2021, the Company filed a Certificate of Validation with
the State of Delaware to ratify the reverse stock split on December 30, 2020.
On
July 14, 2021, the Company received a stockholder demand letter from the law firm of Rigrodsky Law P.A., on behalf of Matthew Whitfield,
a purported stockholder of the Company, alleging that the registration statement (the “Amalgamation Registration Statement”)
filed by the Company with the SEC on June 21, 2021 omits material information with respect to the Amalgamation and requesting that the
Company and the Company board of directors provide certain corrective disclosures in an amendment or supplement to the Amalgamation Registration
Statement. The Company does not believe the request has merit, but made certain changes to the Amalgamation Registration Statement, which
it believes suffice to answer the purported stockholder’s demands.
On
July 22, 2021, the Company received a DGCL Section 220 books and records demand letter from the law firm of Kahn Swick & Foti, on
behalf of Scott Waller, a purported stockholder of the Company, seeking access to certain relevant books and records of the Company in
connection with the process underlying the Amalgamation (as defined herein) and the Company’s engagement of its financial advisors.
The Company does not believe the request has merit, but made certain changes to the Amalgamation Registration Statement, which it believes
suffice to answer the purported stockholder’s demands.
Development
and Clinical Supply Agreement
On
February 22, 2021, the Company entered into a Development and Clinical Supply Agreement (the “Agreement”) with PureForm Global,
Inc. (“PureForm”), pursuant to which PureForm will be the exclusive provider of synthetic cannabidiol (“API”)
for the Company’s development plans for cancer treatment and supportive care. Under the terms of the Agreement, PureForm has granted
the Company the exclusive right to purchase API and related product for cancer treatment and supportive care during the term of the Agreement
(contingent upon an initial minimum order volume during the first thirty (30) days from the effective date) and has agreed to manufacture,
package and test the API and related product in accordance with specifications established by the parties. All inventions that are developed
jointly by the parties in the course of performing activities under the Agreement will be owned jointly by the parties in accordance
with applicable law; however, if the Company funds additional research and development efforts by PureForm, the parties may enter into
a further agreement whereby PureForm would assign any resulting inventions or technical information to the Company.
The
initial term of the Agreement is three (3) years commencing on the effective date of the Agreement, subject to extension by mutual agreement
of the parties. The Agreement may be terminated by either party upon thirty (30) days written notice of an uncured material breach or
immediately in the event of bankruptcy or insolvency. The Agreement contains, among other provisions, representation and warranties,
indemnification obligations and confidentiality provisions in favor of each party that are customary for an agreement of this nature.
Acquisition
of Diverse Bio License Agreement
On
March 5, 2021, the Company entered into an Exclusive License Agreement (the “DB Agreement”) with Diverse Biotech, Inc. (“Diverse”),
pursuant to which the Company acquired an exclusive, perpetual license to develop five therapeutic candidates (collectively, the “Agents”)
with the goal of alleviating the side effects that cancer patients experience. Under the terms of the DB Agreement, Diverse granted the
Company an exclusive license to its intellectual property rights covering the Agents and its products. In exchange, the Company has granted
Diverse the right to information relating to the Agents developed for the express purpose of using such information to obtain patent
rights, which right terminates upon the issuance or denial of the patent rights.
Under
the DB Agreement, the Company will maintain sole responsibility and ownership of the development and commercialization of the Agents
and its products. Diverse has agreed not to develop or commercialize any agent or product that would compete with the Agents, or its
products containing the Agents, at any time during or after the term of the DB Agreement. If Diverse intends to license, sell, or transfer
any other molecules linked with cannabinoids not granted to the Company under the terms of the DB Agreement, the Company will have the
first right, but not the obligation, to negotiate an agreement with Diverse for such cannabinoids. The Company has also agreed to pay
Diverse an up-front investment payment in the amount of $675,000, as well as a running royalty starting with the first commercial sale
by the Company to a third party in an arms’-length transaction.
The
term of the DB Agreement shall continue for as long as the Company intends to develop or commercialize the new drugs, unless earlier
terminated by either Party. The DB Agreement may be terminated by either party upon ninety (90) days written notice of an uncured material
breach or in the event of bankruptcy or insolvency. In addition, the Company has the right to terminate the DB Agreement at any time
upon sixty (60) days’ prior written notice to Diverse.
Amalgamation
Agreement with MagicMed Industries Inc.
On
May 24, 2021, the Company entered into an Amalgamation Agreement (the “Amalgamation Agreement”) with 1306432 B.C. Ltd., a
corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of the Company (“HoldCo”),
1306436 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of HoldCo
(“Purchaser”), and MagicMed Industries Inc., a corporation existing under the laws of the Province of British Columbia (“MagicMed”),
pursuant to which, among other things, the Company, indirectly through Purchaser, intends to acquire all of the outstanding securities
of MagicMed in exchange for securities of the Company by way of an amalgamation under the British Columbia Business Corporations Act,
upon the terms and conditions set forth in the Amalgamation Agreement, such that, upon completion of the Amalgamation (as defined herein),
the amalgamated corporation (“Amalco”) will be an indirect wholly-owned subsidiary of the Company.
At
the effective time of the Amalgamation (the “Effective Time”), holders of outstanding common shares of MagicMed (the “MagicMed
Shares”) will receive such number of shares of common stock of the Company (“Company Shares”) representing, together
with the Company Shares issuable upon exercise of the Warrants and the Converted Options (each as defined herein), approximately 36.6%
of the issued and outstanding Company Shares (on a fully-diluted basis). The MagicMed Shares will initially be converted into Amalco
Redeemable Preferred Shares (as defined in the Amalgamation Agreement), which immediately following the Amalgamation shall be redeemed
for 0.000001 of a Company Share. Following such redemption, the shareholders of MagicMed shall receive additional Company Shares equal
to the product of the Exchange Ratio (as defined in the Amalgamation Agreement) multiplied by the number of MagicMed Shares held by each
such shareholder. Additionally, following the Effective Time (i) each outstanding MagicMed stock
option will be converted into and become an option to purchase (the “Converted Options”) the number of Company Shares equal
to the Exchange Ratio multiplied by the number of MagicMed Shares subject to such MagicMed stock option, and (ii) each holder of an outstanding
MagicMed warrant (including Company Broker Warrants (as defined in the Amalgamation Agreement), the “Warrants”) will be entitled
to receive upon exercise of such Warrant that number of Company Shares which the holder would have been entitled to receive as a result
of the Amalgamation if, immediately prior to the date of the Amalgamation (the “Effective Date”), such holder had been the
registered holder of the number of MagicMed Shares to which such holder would have been entitled if such holder had exercised such holder’s
Warrants immediately prior to the Effective Time (the foregoing collectively, the “Amalgamation”).
The
aggregate number of Company Shares that the Company will issue in connection with the Amalgamation (collectively, the “Share Consideration”)
will be in excess of 20% of the Company’s pre-transaction outstanding Company Shares. Accordingly, the Company will seek stockholder
approval of the issuance of the Share Consideration in the Amalgamation in accordance with the NASDAQ Listing Rules.
Pursuant
to the terms of the Amalgamation Agreement, the Company has agreed to appoint upon the Effective Time two individuals selected by MagicMed
to the Company Board of Directors, Dr. Joseph Tucker and Brad Thompson.
The
Amalgamation Agreement contains representations and warranties, closing deliveries and indemnification provisions customary for a transaction
of this nature. The closing of the Amalgamation is conditioned upon, among other things, (i) the Share Consideration being approved for
listing on Nasdaq, (ii) the effectiveness of a Registration Statement on Form S-4 registering the Share Consideration (the “S-4
Registration Statement”) and (iii) the approval (a) of the MagicMed stockholders of the Amalgamation and (b) of the Company’s
stockholders of each of the Amalgamation and the issuance of the Share Consideration in the Amalgamation.
The
Amalgamation Agreement does not permit MagicMed to solicit alternative acquisition proposals from third parties, but it still may, on
the terms and subject to the conditions of the Amalgamation Agreement, respond to any unsolicited alternative acquisition proposal that
constitutes, or the MagicMed board of directors determines would reasonably be expected to lead to, a Superior Proposal (as defined in
the Amalgamation Agreement).
The
Amalgamation Agreement also contains customary termination provisions for the parties and provides that a termination fee of $4,500,000
is payable by (i) MagicMed, if the Agreement is terminated by (a) the Company as a result of (1) a change in recommendation by the MagicMed
board of directors, (2) an approval or recommendation by the MagicMed board of directors of a different acquisition proposal or authorization
by the MagicMed board of directors of a Superior Proposal, or (3) a breach of the non-solicit covenant by MagicMed, or (b) MagicMed in
order to accept a Superior Proposal; or (ii) the Company, if the Agreement is terminated by (a) MagicMed as a result of (1) a change
in recommendation by the Company board of directors, (2) an approval or recommendation by the Company board of directors of a different
acquisition proposal or authorization by the Company board of directors of a Superior Proposal or (3) a breach of the non-solicit covenant
by the Company, or (b) the Company in order to accept a Superior Proposal. The Amalgamation Agreement may be terminated by either party
if the Amalgamation is not completed by December 31, 2021; provided, that either the Company or MagicMed may extend that date for an
additional sixty (60) days if the Securities and Exchange Commission has not concluded its review of the S-4 Registration Statement by
the date which is sixty (60) days prior to that date.
Simultaneously
with the execution of the Amalgamation Agreement, holders of approximately 30% of MagicMed’s common shares entered into voting
support agreements with the Company, and each of the Company’s directors and executive officers entered into voting support agreements
with MagicMed pursuant to which such individuals have agreed, among other things, to execute and deliver a written consent with respect
to their respective voting shares in favor of the approval of the Amalgamation Agreement or, if applicable, vote such shares in favor
of the adoption of the Amalgamation Agreement at a meeting of stockholders called for such purpose.
Appointment
of Chief Financial Officer
On
April 9, 2021, John M. Van Buiten resigned from his position as the Company’s chief financial officer, effective May 15, 2021.
Mr. Van Buiten’s resignation was not the result of any disagreement regarding any matter relating to the Company’s operations,
policies, or practices.
On
April 9, 2021, Carter J. Ward, 56, was appointed as the Company’s chief financial officer, effective May 15, 2021 (the “Ward
Effective Date”).
In
connection with Mr. Ward’s appointment as chief financial officer, Mr. Ward entered into an employment agreement with the Company
on April 9, 2021 (the “Ward Employment Agreement”), effective as of May 15, 2021, pursuant to which Mr. Ward will receive
a base salary of $295,000 (“Base Salary”) and is eligible to receive annual performance bonuses of up to 50% of his Base
Salary, as determined from time-to-time by the Company’s board of directors. Additionally, Mr. Ward will receive 525,000 restricted
stock units (“RSUs”), 262,500 of such RSUs shall be subject to time-based vesting (the “Time Based RSUs”), and
the remaining 262,500 of such RSUs shall be subject to performance-based vesting (the “Performance RSUs”). The RSUs shall
be subject to the terms and conditions of the Company’s 2020 Long-Term Incentive Plan. The Time Based RSUs shall vest in quarters
on each anniversary of the Ward Effective Date, and the Performance RSUs shall vest based on the achievement of performance milestones
established by the Company.
Appointment
of Chief Executive Officer
On
May 24, 2021, Dr. Joseph Tucker, 52, entered into an employment agreement (the “Tucker Employment Agreement”) with the Company
pursuant to which he will become the Company’s chief executive officer, effective as of the Effective Date (the “Tucker Effective
Date”).
Dr.
Tucker has served as chief executive officer and president of MagicMed since May 2020. From 2019 until 2020, Dr. Tucker acted as the
Executive Chairman and Chief Operating Officer of Willow Biosciences Inc. (TSX:WLLW). until leaving to join MagicMed in May 2020. From
2015 to 2019, his principal employment was acting as CEO, President, Director and Founder of Epimeron Inc., which merged with BioCan
Technologies Inc. in 2018 and then listed by reverse-takeover with Makena Resources Inc. in 2019 as Willow Biosciences Inc. Dr. Tucker
earned a Ph.D. in Biochemistry and Molecular Biology from the University of Calgary.
Pursuant
to the Tucker Employment Agreement, effective as of the Tucker Effective Date Dr. Tucker will receive a base salary of $350,000 annually
(“Tucker Base Salary”). Dr. Tucker will also receive a one-time signing bonus of $100,000 as well as up to 175,000 restricted
stock units (“RSUs”), depending on the price of the Company Shares at the Tucker Effective Date. Half of any such RSUs shall
be subject to time-based vesting, and the remaining half of any such RSUs shall be subject to performance-based vesting. Beginning in
calendar year 2022, Dr. Tucker is eligible to receive annual performance bonuses of up to 75% of the Tucker Base Salary, as determined
from time to time by the Company’s board of directors. Additionally, Dr. Tucker will receive 750,000 RSUs as equity compensation.
375,500 of such RSUs shall be subject to time-based vesting (the “Tucker Time Based RSUs”), and the remaining 375,500 of
such RSUs shall be subject to performance-based vesting (the “Tucker Performance RSUs”). The RSUs shall be subject to the
terms and conditions of the Company’s 2020 Long-Term Incentive Plan (the “LTIP”). The Tucker Time Based RSUs shall
vest in quarters on each of the first four anniversaries of the Tucker Effective Date, and the Tucker Performance RSUs shall vest based
on the achievement of performance milestones established by the Company.
The
Tucker Employment Agreement will remain in effect until terminated by either party, unless the Company or Dr. Tucker delivers advance
written notice of termination to the other party at least 30 days prior. In addition, the Tucker Employment Agreement is subject to early
termination by him or the Company in accordance with the terms of the Tucker Employment Agreement.
Pursuant
to the Tucker Employment Agreement, if Dr. Tucker’s employment is terminated by the Company without cause or by Dr. Tucker for
good reason, then the Company must pay Dr. Tucker, in addition to any then-accrued and unpaid obligations owed to him, 12 months of the
then-current Tucker Base Salary.
The
Tucker Employment Agreement also contains covenants restricting Dr. Tucker from soliciting the Company’s employees or customers
for a period of 12 months after the termination of Dr. Tucker’s employment with the Company and prohibiting him from disclosure
of confidential information regarding the Company at any time.
The Tucker Employment
Agreement requires completion of the amalgamation, as defined in the Amalgamation Agreement and there can be no assurances of such completion
being achieved.
Appointment
of Chief Scientific Officer
On
May 24, 2021, Dr. Peter Facchini, 57, entered into an employment agreement (the “Facchini Employment Agreement”) with the
Company pursuant to which he will become the Company’s chief scientific officer, effective as of the Effective Date (the “Facchini
Effective Date”).
Dr.
Facchini has served as chief scientific officer of MagicMed since April 2020. From 2019 until 2020, he held the role of Chief Scientific
Officer at Willow Biosciences Inc. until leaving to co-found MagicMed. From 2013 until 2019, Dr. Facchini held the role of Chief Scientific
Officer, Director and Founder of Epimeron Inc. Dr. Facchini has also been a Professor of Plant Biochemistry in the Department of Biological
Sciences at the University of Calgary for 25 years.
Pursuant
to the Facchini Employment Agreement, effective as of the Facchini Effective Date Dr. Facchini will receive a base salary of C$295,000
annually (“Facchini Base Salary”). Dr. Facchini will also receive a one-time signing bonus of C$50,000 as well as up to 130,000
RSUs, depending on the price of the Company Shares at the Facchini Effective Date. Half of any such RSUs shall be subject to time-based
vesting, and the remaining half of any such RSUs shall be subject to performance-based vesting. Beginning in calendar year 2022, Dr.
Facchini is eligible to receive annual performance bonuses of up to 50% of the Facchini Base Salary, as determined from time to time
by the Company’s board of directors. Additionally, Dr. Facchini will receive 525,000 RSUs as equity compensation. 262,500 of such
RSUs shall be subject to time-based vesting (the “Facchini Time Based RSUs”), and the remaining 262,500 of such RSUs shall
be subject to performance-based vesting (the “Facchini Performance RSUs”). The RSUs shall be subject to the terms and conditions
of the LTIP. The Facchini Time Based RSUs shall vest in quarters on each of the first four anniversaries of the Facchini Effective Date,
and the Facchini Performance RSUs shall vest based on the achievement of performance milestones established by the Company.
The
Facchini Employment Agreement will remain in effect until terminated by either party, unless the Company delivers advance written notice
of termination to Dr. Facchini or Dr. Facchini delivers advance written notice of termination to the Company at least 30 days prior.
In addition, the Facchini Employment Agreement is subject to early termination by him or the Company in accordance with the terms of
the Facchini Employment Agreement.
Pursuant
to the Facchini Employment Agreement, if Dr. Facchini’s employment is terminated by the Company without cause or by Dr. Facchini
for good reason, then the Company must pay Dr. Facchini, in addition to any then-accrued and unpaid obligations owed to him, 12 months
of the then-current Facchini Base Salary.
The
Facchini Employment Agreement also contains covenants restricting Dr. Facchini from soliciting the Company’s employees or customers
for a period of 12 months after the termination of Dr. Facchini’s employment with the Company and prohibiting him from disclosure
of confidential information regarding the Company at any time.
The Facchini Employment
Agreement requires completion of the amalgamation, as defined in the Amalgamation Agreement and there can be no assurances of such completion
being achieved.
Appointment
of Chief Technology Officer
On
May 24, 2021, Dr. Jillian Hagel, 42, entered into an employment agreement (the “Hagel Employment Agreement”) with the Company
pursuant to which she will become the Company’s chief technology officer, effective as of the Effective Date (the “Hagel
Effective Date”).
Dr.
Hagel has served as chief technology officer of MagicMed since April 2020. From 2019 until 2020, she acted as Vice President of Applied
Sciences for Willow Biosciences Inc. until leaving in April 2020 to co-found MagicMed. From 2013 until 2019, Dr. Hagel’s primary
employment was acting as Chief Operating Officer of Epimeron Inc. Dr. Hagel received her PhD in plant biochemistry from the University
of Calgary.
Pursuant
to the Hagel Employment Agreement, effective as of the Hagel Effective Date Dr. Hagel will receive a base salary of C$295,000 annually
(“Hagel Base Salary”). Dr. Hagel will also receive a one-time signing bonus of C$50,000 as well as up to 130,000 RSUs, depending
on the price of the Company Shares at the Hagel Effective Date. Half of any such RSUs shall be subject to time-based vesting, and the
remaining half of any such RSUs shall be subject to performance-based vesting. Beginning in calendar year 2022, Dr. Hagel is eligible
to receive annual performance bonuses of up to 50% of the Hagel Base Salary, as determined from time-to-time by the Company’s board
of directors. Additionally, Dr. Hagel will receive 525,000 RSUs as equity compensation. 262,500 of such RSUs shall be subject to time-based
vesting (the “Hagel Time Based RSUs”), and the remaining 262,500 of such RSUs shall be subject to performance-based vesting
(the “Hagel Performance RSUs”). The RSUs shall be subject to the terms and conditions of the LTIP. The Hagel Time Based RSUs
shall vest in quarters on each of the first four anniversaries of the Hagel Effective Date, and the Hagel Performance RSUs shall vest
based on the achievement of performance milestones established by the Company.
The
Hagel Employment Agreement will remain in effect until terminated by either party, unless the Company delivers advance written notice
of termination to Dr. Hagel or Dr. Hagel delivers advance written notice of termination to the Company at least 30 days prior. In addition,
the Hagel Employment Agreement is subject to early termination by her or the Company in accordance with the terms of the Hagel Employment
Agreement.
Pursuant
to the Hagel Employment Agreement, if Dr. Hagel’s employment is terminated by the Company without cause or by Dr. Hagel for good
reason, then the Company must pay Dr. Hagel, in addition to any then-accrued and unpaid obligations owed to her, 12 months of the then-current
Hagel Base Salary.
The
Hagel Employment Agreement also contains covenants restricting Dr. Hagel from soliciting the Company’s employees or customers for
a period of 12 months after the termination of Dr. Hagel’s employment with the Company and prohibiting her from disclosure of confidential
information regarding the Company at any time.
Please
also note that Hagel Employment Agreement requires completion of the amalgamation, as defined in the Amalgamation Agreement and there
can be no assurances of such completion being achieved.
Change in the Company’s Certifying Accountant
On June 23, 2021, the Audit Committee approved the dismissal of
Marcum LLP as our independent registered public accounting firm, effective June 23, 2021, and engaged Friedman LLP as our independent
registered public accounting firm for the year ending December 31, 2021.
Key
Components of Our Results of Operations
Operating
Expenses
Our
operating expenses include research and development, financial statement preparation services, tax compliance, various consulting and
director fees, legal services, auditing fees, and stock-based compensation. These expenses have increased in connection with the Company’s
product development and the Company’s management expects these expenses to continue to increase as the Company continues to develop
its potential product candidates.
Results
of Operations
The
following table sets forth information comparing the components of net loss for the three months ended June 30, 2021 and the comparable
period in 2020:
|
|
Three Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
879,843
|
|
|
$
|
50,957
|
|
General and administrative
|
|
|
2,309,149
|
|
|
|
716,551
|
|
Amortization of intangible assets
|
|
|
174,019
|
|
|
|
-
|
|
Operating expenses
|
|
|
3,363,011
|
|
|
|
767,508
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(3,363,011
|
)
|
|
|
(767,508
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Inducement expense
|
|
|
-
|
|
|
|
-
|
|
Change in fair value of warrants
|
|
|
2,459,543
|
|
|
|
-
|
|
Interest Expense
|
|
|
(4,821
|
)
|
|
|
(50,883
|
)
|
Total other income (expense)
|
|
|
2,454,722
|
|
|
|
(50,883
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(908,289
|
)
|
|
|
(818,391
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(33,262
|
)
|
|
|
(10,069
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(941,551
|
)
|
|
$
|
(828,460
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
21,333,515
|
|
|
|
5,672,025
|
|
Research
and Development Expense
Research
and development expense for the three months ended June 30, 2021 was $879,843 compared to $50,957 for the comparable period of
the prior year, representing an increase of $828,886 or approximately 1,600%. This increase resulted from costs incurred from
product development activities in the current year, that had not yet begun in the prior year.
General
and Administrative Expenses
General
and administrative expenses were $2,309,149 for the three months ended June 30, 2021 as compared to $716,551 for the comparable
period of the prior year, representing an increase of $1,592,598, or approximately 222%. The increase was primarily due to stock
based compensation costs of $750,933 being incurred in the current quarter with no comparable costs being incurred in the prior
year’s comparable period, combined with increased human resource, insurance, legal and regulatory compliance costs as compared
to the comparable period of the prior year.
Amortization
of Intangible Assets
Amortization
of intangible assets for the three months ended June 30, 2021 was $174,019, as compared to zero for the comparable period of the prior
year. This expense is related to licenses acquired by the Company subsequent to June 30, 2020, with acquisition of such licenses being
a prerequisite for recognition of such amortization expenses.
Change
in Fair Value of Warrants
Change
in fair value of warrants contributed $2,459,543 to other income for the three months ended June 30, 2021,
as compared to zero for the comparable period of the prior year. This other income (expense) item is related to warrant derivatives which
were granted subsequent to June 30, 2020, with the granting of such warrant derivatives being a prerequisite for recognition of such
other income (expense). The change in fair value of derivative instruments is determined in large part by the change in the closing
price of the Company’s stock at the end of the period, as compared to the beginning of the period, with a strong inverse correlation
between the fair value of such derivatives and the trading price of the Company’s common stock.
Interest
Expense
Interest
expense for the three months ended June 30, 2021 was $4,821 compared to $50,883 for the comparable period of the prior year, a decrease
of $46,062 or approximately 91%. This decrease was primarily due to interest expenses incurred in relation to promissory notes
which were effective during the quarter ended June 30, 2020, but retired prior to the quarter ended June 30, 2021, resulting in costs
being incurred in the prior year period, but not in the current year period.
Foreign
Currency Translation
The
Company incurs foreign currency translation gains (losses) as a result of the conversion of Canadian Dollars into United States Dollars
for payment and valuation of United States Dollar denominated expenses.
Foreign currency translation (loss) was $(33,262) for the three months ended June 30, 2021 as compared to $(10,069) for the comparable
period of the prior year, an increase in other expenses of $23,193, or approximately 230%. The increase in this other expense
is due to the weakening of the U.S. Dollar against the Canadian Dollar being greater during the three months ended June 30, 2020, as
compared to such weakening during the comparable period of the current year.
The
following table sets forth information comparing the components of net loss for the six months ended June 30, 2021 and the comparable
period in 2020:
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
1,076,487
|
|
|
$
|
70,597
|
|
General and administrative
|
|
|
8,740,862
|
|
|
|
1,533,253
|
|
Amortization of intangible assets
|
|
|
310,659
|
|
|
|
-
|
|
Operating expenses
|
|
|
10,128,008
|
|
|
|
1,604,210
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(10,128,008
|
)
|
|
|
(1,604,210
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Inducement expense
|
|
|
(298,714
|
)
|
|
|
-
|
|
Change in fair value of warrants
|
|
|
6,272,543
|
|
|
|
-
|
|
Interest Expense
|
|
|
(4,821
|
)
|
|
|
(312,642
|
)
|
Total other income (expense)
|
|
|
5,969,008
|
|
|
|
(312,642
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(4,159,000
|
)
|
|
|
(1,916,852
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive gain (loss)
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
2,474
|
|
|
|
(22,767
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(4,156,526
|
)
|
|
$
|
(1,939,619
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.22
|
)
|
|
$
|
(0.34
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
18,692,526
|
|
|
|
5,668,471
|
|
Research
and Development Expense
Research
and development expense for the six months ended June 30, 2021 was $1,076,487 compared to $70,957 for the comparable period of
the prior year, representing an increase of $1,005,530, or approximately 1,400%. This increase resulted from costs incurred from
product development activities in the current year, that had not yet begun in the prior year.
General
and Administrative Expenses
General
and administrative expenses were $8,740,862, for the six months ended June 30, 2021 as compared to $1,533,253 for the comparable
period of the prior year, representing an increase of $7,207,609, or approximately 470%. This increase was primarily due to stock
based compensation costs of $4,342,498 being incurred in the current period with no comparable costs being incurred in the prior
year’s comparable period, combined with increased human resource, insurance, legal and regulatory compliance costs, as compared
to the comparable period of the prior year.
Amortization
of Intangible Assets
Amortization
of intangible assets for the six months ended June 30, 2021 was $310,659, as compared to zero for the comparable period of the prior
year. This expense is related to licenses acquired by the Company subsequent to June 30, 2020, with acquisition of such licenses being
a prerequisite for recognition of such amortization expenses.
Change
in Fair Value of Warrants
Change
in fair value of warrants contributed $6,272,543 to other income for the six months ended June 30, 2021, as compared to
zero for the comparable period of the prior year. This other income (expense) item is related to warrant derivatives which were granted
subsequent to June 30, 2020, with the granting of such warrant derivatives being a prerequisite for recognition of such other income
(expense). The change in fair value of derivative instruments is determined in large part by the change in the closing price of
the Company’s stock at the end of the period, as compared to the beginning of the period, with a strong inverse correlation
between the fair value of such derivatives and the trading price of the Company’s common stock.
Interest
Expense
Interest
expense for the six months ended June 30, 2021 was $4,821 compared to $312,642 for the comparable period of the prior year, a decrease
of $307,821, or approximately 98%. This decrease was primarily due to interest expenses incurred in relation to promissory notes
which were effective during the six months ended June 30, 2020, but retired prior to the six months ended June 30, 2021, resulting in
costs being incurred in the prior year period, but not in the current year period.
Foreign
Currency Translation
The
Company incurs foreign currency translation gains (losses) as a result of the conversion of Canadian Dollars into United States Dollars
for payment and valuation of United States Dollar denominated expenses.
Foreign currency translation gain (loss) was a gain of $2,474 for the six months ended June 30, 2021 as compared to a loss of $(22,767)
for the comparable period of the prior year, an increase in other income of $25,241. The increase in this other income is due to the
U.S. Dollar weakening against the Canadian Dollar during the six months ended June 30, 2021, while strengthening against the Canadian
Dollar during the comparable period of the prior year.
Liquidity
and Capital Resources
The
Company has incurred continuing losses from its operations. As of June 30, 2021, the Company had an accumulated deficit of $15,918,557
and working capital of $20,341,860. Since inception, the Company’s operations have been funded principally through the issuance
of debt and equity.
On
January 14, 2021, the Company completed a registered direct offering of 1,610,679 shares of common stock and pre-funded warrants to
purchase 610,679 shares of common stock at approximately $4.50 per share for gross proceeds of approximately $10,000,000. The net
proceeds to the Company after deducting financial advisory fees and other costs and expenses were approximately $8,806,087. On February
11, 2021, the Company completed a registered direct offering of 3,007,026 shares of Common Stock for gross proceeds of approximately
$12,800,000. The net proceeds to the Company after deducting financial advisory fees and other costs and expenses were approximately
$11,624,401. As of June 30, 2021, the Company had cash on hand of $20,617,917.
We
believe that, as a result of these transactions, we currently have sufficient cash and financing commitments to meet our funding requirements
over the next year. Notwithstanding, we expect that we will need to raise additional financing to accomplish our development plan over
the next several years. We may seek to obtain additional funding through debt or equity financing in the future. There are no assurances
that we will be able to raise capital on terms acceptable to us or at all, or that cash flows generated from our operations will be sufficient
to meet our current operating costs. Our ability to obtain additional capital may depend on prevailing economic conditions and financial,
business and other factors beyond our control. The COVID-19 pandemic has caused an unstable economic environment globally. Disruptions
in the global financial markets may adversely impact the availability and cost of credit, as well as our ability to raise money in the
capital markets. Current economic conditions have been and continue to be volatile. Continued instability in these market conditions
may limit our ability to access the capital necessary to fund and grow our business. If we are unable to obtain sufficient amounts of
additional capital, we may be required to reduce the scope of our planned development, which could harm our financial condition and operating
results.
Cash
Flows
Since
inception, we have primarily used our available cash to fund our product development expenditures.
Cash
Flows for the Six Months Ended June 30, 2021 and 2020
The
following table sets forth a summary of cash flows for the periods presented:
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Net cash used in operating activities
|
|
$
|
(5,184,155
|
)
|
|
$
|
(1,245,056
|
)
|
Net cash used in investing activities
|
|
|
(675,000
|
)
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
24,889,661
|
|
|
|
1,704,696
|
|
Effect of foreign exchange rate on cash
|
|
|
(1,049
|
)
|
|
|
(61,961
|
)
|
Net increase in cash
|
|
$
|
19,039,457
|
|
|
$
|
397,679
|
|
Operating
Activities
Net
cash used in operating activities was $5,184,155 during the six months ended June 30, 2021, which consisted primarily of a net loss of
$4,159,000, increased by non-cash expenses, totaling $4,951,871, which included stock based compensation of $4,342,498,
amortization expense of $310,659, inducement expense of $298,714, decreased by non-cash income, consisting of change in fair value
of warrant derivatives of $6,272,543, and increased by a net of $295,517 due to changes in operating assets and liabilities.
Net
cash used in operating activities was $1,245,056 during the six months ended June 30, 2020, which consisted primarily of a net loss of
$1,916,852, offset by amortization of note discount of $249,570, decreases in prepaid expenses and other current assets for $52,116,
and increases in accounts payable and accrued liabilities of $414,473.
Investing
Activities
Net
cash used in investing activities was $675,000 during the six months ended June 30, 2021, which consisted of the acquisition of intellectual
property from Diverse Bio.
The
Company did not have any investing activities during the six months ended June 30, 2020.
Financing
Activities
Net
cash provided by financing activities was $24,889,661 during the six months ended June 30, 2021, which consisted primarily of $21,614,488
in net proceeds from the sale of common stock and proceeds from the exercise of warrants of $3,285,173.
Net
cash provided by financing activities was $1,704,696 during the six months ended June 30, 2020, which consisted primarily of $50,000
in proceeds from convertible notes payable, $1,812,410 in proceeds from note payable, and a decrease of $157,714 in repayment of note
payable.
Off-Balance
Sheet Arrangements
The
Company did not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests
in transferred assets, or any obligation arising out of a material variable interest in an unconsolidated entity. The Company does not
have any subsidiaries to include or otherwise consolidate into the financial statements. Additionally, the Company does not have interests
in, nor relationships with, any special purpose entities.
Critical
Accounting Policies and Significant Judgments and Estimates
The
Company’s accounting policies are fundamental to understanding its management’s discussion and analysis. The Company’s
significant accounting policies are presented in Note 3 to its financial statements for the year ended December 31, 2020 and included
in the Annual Report on Form 10-K, filed with SEC on April 1, 2021. The Company’s financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information.
Accordingly, they do not include all of the information and notes required by U.S. GAAP. However, in the opinion of the management of
the Company, all adjustments necessary for a fair presentation of the financial position and operating results have been included in
the Company’s condensed financial statements.
Warrant
Liability
The
Company accounts for warrants for shares of the Company’s common stock that are not indexed to its own stock as liabilities at
fair value on the balance sheet. Such warrants are subject to remeasurement at each balance sheet date and any change in fair value is
recognized as a component of other expense on the statement of operations. The Company will continue to adjust the liability for changes
in fair value until the earlier of the exercise or expiration of such common stock warrants. At that time, the portion of the warrant
liability related to such common stock warrants will be reclassified to additional paid-in capital.
Recent
Accounting Standards
Management
does not believe that any recently issued, but not yet effective accounting standards, when adopted, will have a material effect on the
accompanying financial statements, other than those disclosed below.
In
December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, Income Taxes (Topic 740: Simplifying
the Accounting for Income Taxes (“ASU 2019-12”), which removes certain exceptions to the general principles in Topic 740.
ASU 2019-12 is effective for the fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption of this
guidance did not have a material impact on the Company’s financial statements.
In
October 2020, the FASB issued ASU 2020-10, “Codification Improvements.” The new accounting rules improve the consistency
of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50) that had only been included
in the Other Presentation Matters Section (Section 45) of the Codification. Additionally, the new rules also clarify guidance across
various topics including defined benefit plans, foreign currency transactions, and interest expense. The new accounting rules were effective
for the Company in the first quarter of 2021. The adoption of the new accounting rules did not have a material impact on the Company’s
financial statements.
In
May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The
amendments in ASU No. 2021-04 provides guidance to clarify and reduce diversity in an issuer’s accounting for modifications or
exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification
or exchange. The amendments in this ASU No. 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021,
and interim periods within those fiscal years, with early adoption permitted, including interim periods within those fiscal years. As
a result, the Company will not be required to adopt ASU 2021-04 until January 1, 2022. The Company is currently evaluating the impact
of the adoption of this principle on the Company’s condensed consolidated financial statements.
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. The Company has not experienced losses on these accounts
and management believes the Company is not exposed to significant risks on such accounts.
Foreign
Currency Risk
The
reporting currency of the Company is the United States dollar, while the functional currency of our subsidiary, Jay Pharma, Inc., is
the Canadian dollar. As a result, the Company is subject to exposure from changes in the exchange rates of the Canadian dollar and the
United States dollar.
The
Company has not entered into any financial derivative instruments that expose it to material market risk, including any instruments designed
to hedge the impact of foreign currency exposures. The Company may, however, hedge such exposure to foreign currency fluctuations in
the future.