UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
(State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) |
Name of each exchange on which registered | ||
|
The Stock Market LLC | |||
OTC Pink Open Market |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
As of November 7, 2022, the registrant had shares of common stock, $0.0001 par value per share, outstanding.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will” and “would,” or the negative of these terms or other similar expressions intended to identify statements about the future. 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 include, without limitation, statements about:
● | the risk that our lead product candidate PF614 and PF614-MPAR™ may not be successful in limiting or impeding abuse, overdose, or misuse or providing additional safety upon commercialization; | |
● | reliance by us on third-party contract research organizations, or CROs, for its research and development activities and clinical trials; | |
● | the need for substantial additional funding to complete the development and commercialization of our product candidates; | |
● | the risk that our clinical trials may fail to replicate positive results from earlier preclinical studies or clinical trials conducted by us or third parties; | |
● | the risk that the potential product candidates that we develop may not progress through clinical development or receive required regulatory approvals within expected timelines or at all; | |
● | the risk that clinical trials may not confirm any safety, potency, or other product characteristics described or assumed in this Quarterly Report on Form 10-Q; | |
● | the risk that we will be unable to successfully market or gain market acceptance of its product candidates; | |
● | the risk that our product candidates may not be beneficial to patients or successfully commercialized; | |
● | the risk that we have overestimated the size of the target market, patients’ willingness to try new therapies, and the willingness of physicians to prescribe these therapies; | |
● | effects of competition; | |
● | the risk that third parties on which we depend for laboratory, clinical development, manufacturing, and other critical services will fail to perform satisfactorily; | |
● | the risk that our business, operations, clinical development plans and timelines, and supply chain could be adversely affected by the effects of health epidemics, including the ongoing COVID-19 pandemic; | |
● | the risk that we will be unable to obtain and maintain sufficient intellectual property protection for its investigational products or will infringe the intellectual property protection of others; | |
● | the loss of key members of our management team; | |
● | changes in our regulatory environment; | |
● | the ability to attract and retain key scientific, medical, commercial, or management personnel; | |
● | changes in our industry; |
● | our ability to remediate any material weaknesses or maintain effective internal controls over financial reporting; | |
● | the risk that our common stock will be suspended from trading on Nasdaq; | |
● | the ability to meet and maintain applicable listing standards of the Nasdaq; and | |
● | other factors disclosed in this Quarterly Report on Form 10-Q. |
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on Ensysce’s current expectations and beliefs concerning future developments and their potential effects Ensysce. There can be no assurance that future developments affecting Ensysce will be those that Ensysce has anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond Ensysce’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Moreover, the occurrence of the events described in the “Risk Factors” in our Annual Report on Form 10-K may adversely affect Ensysce. Ensysce will not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
i |
GLOSSARY
Definitions: | ||
2021 Notes | The senior secured convertible promissory notes in the aggregate original principal amount of $15.9 million, sold in two closings on September 24, 2021 and November 5, 2021, respectively, pursuant to the Securities Purchase Agreement entered into on September 24, 2021 | |
2022 Notes | The senior secured convertible promissory notes in the aggregate original principal amount of $8.48 million, sold in two closings on July 1, 2022, and August 9, 2022, respectively, pursuant to the Securities Purchase Agreement entered into on June 30, 2022 | |
2021 Omnibus Incentive Plan | Ensysce Biosciences, Inc. Amended and Restated 2021 Omnibus Incentive Plan | |
Aggregate Limit | Up to $60 million of gross proceeds with respect to the GEM Agreement | |
ASC 606 | Accounting Standards Codification Topic 606, Revenue from Contracts with Customers | |
ASC 740 | Accounting Standards Codification Topic 740, Income Taxes | |
ASC 820 | Accounting Standards Codification Topic 820, Fair Value Measurements | |
Board | Board of directors of Ensysce, or a committee thereof, as applicable | |
Business Combination | The merger of Merger Sub with and into Former Ensysce, with Former Ensysce continuing as the surviving entity and a wholly-owned subsidiary of LACQ, which changed its name to Ensysce Biosciences, Inc. following consummation of the Merger. | |
CMOs | Contract manufacturing organizations | |
Company | Ensysce Biosciences, Inc. and its consolidated subsidiaries | |
COVID-19 | Novel coronavirus disease | |
CROs | Contract research organizations | |
EBIR | A clinical stage pharmaceutical company (formerly Covistat, Inc.) that is developing a compound utilized in the Company’s overdose protection program for the treatment of COVID-19 and a 79.2%-owned subsidiary of the Company | |
Ensysce | Ensysce Biosciences, Inc. | |
Exchange Act | Securities Exchange Act of 1934 | |
FDA | United States Food and Drug Administration | |
Former Ensysce | Ensysce Biosciences, Inc., a Delaware corporation, prior to the consummation of the merger with and into Merger Sub | |
GAAP | Generally Accepted Accounting Principles in the United States of America | |
GEM Agreement | Share Purchase Agreement between the Company, GEM Global, and GYBL, dated as of December 29, 2020, including a Registration Rights Agreement between the same parties and dated as of the same date | |
GEM Global | GEM Global Yield LLC SCS | |
GYBL | GEM Yield Bahamas Limited | |
IND | Investigational New Drug | |
IRB | Institutional Review Board | |
JOBS Act | Jumpstart Our Business Startups Act of 2012 | |
LACQ | Leisure Acquisition Corp., a Delaware Corporation | |
Merger Agreement | Agreement and Plan of Merger, dated as of January 31, 2021, by and among LACQ, Merger Sub and Former Ensysce, providing for, among other things, and subject to the terms and conditions therein, a business combination between Former Ensysce and LACQ pursuant to the proposed merger of Merger Sub with and into Former Ensysce, with Former Ensysce surviving the transaction as a wholly-owned subsidiary of LACQ, which changed its name to Ensysce Biosciences, Inc. following consummation of the Merger | |
Merger Sub | EB Merger Sub, Inc., a Delaware corporation, a wholly-owned subsidiary of LACQ prior to the consummation of the Merger | |
MPAR | Multi-Pill Abuse Resistance | |
MPAR Grant | Research and development grant related to the development of its MPARTM overdose prevention technology awarded to the Company by NIH through NIDA in September 2018 | |
Nasdaq | Nasdaq Stock Market LLC | |
NIDA | National Institute of Drug Abuse | |
NIH | National Institutes of Health | |
OUD Grant | Research and development grant related to the development of its TAAP/MPARTM abuse deterrent technology for Opioid Use Disorder awarded to the Company by NIH/NIDA in September 2019 | |
Reverse Stock Split | The reclassification and combination of all shares of our common stock outstanding at a ratio of 1-for-20 approved by our stockholders at the Special Meeting held on September 8, 2022 and effective on October 28, 2022 | |
SEC | U.S. Securities and Exchange Commission | |
Securities Act | Securities Act of 1933 | |
Securities Purchase Agreement | The Securities Purchase Agreement, dated as of September 24, 2021 or June 30, 2022, as the context dictates, by and between Ensysce and the institutional investors party thereto | |
TAAP | Trypsin Activated Abuse Protection |
ii |
Table of Contents
Page | ||
Forward-Looking Statements | i | |
Glossary | ii | |
PART I. | FINANCIAL INFORMATION | 1 |
Item 1. | Financial Statements (Unaudited) | 1 |
Consolidated Balance Sheets | 1 | |
Consolidated Statements of Operations | 2 | |
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) | 3 | |
Consolidated Statements of Cash Flows | 5 | |
Notes to Consolidated Financial Statements (Unaudited) | 6 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 38 |
Item 4. | Controls and Procedures | 38 |
PART II. | OTHER INFORMATION | 39 |
Item 1. | Legal Proceedings | 39 |
Item 1A. | Risk Factors | 39 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 40 |
Item 3. | Defaults Upon Senior Securities | 40 |
Item 4. | Mine Safety Disclosures | 40 |
Item 5. | Other Information | 40 |
Item 6. | Exhibits | 40 |
Signatures | 41 |
iii |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Ensysce Biosciences, Inc.
Consolidated Balance Sheets
September 30, 2022 | December 31, 2021 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Unbilled receivable | ||||||||
Right-of-use asset | ||||||||
Prepaid expenses and other current assets | ||||||||
Total current assets | ||||||||
Property and equipment, net | ||||||||
Other assets | ||||||||
Total assets | $ | $ | ||||||
Liabilities and stockholders’ equity (deficit) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses and other liabilities | ||||||||
Payable to related parties | ||||||||
Lease liability | ||||||||
Notes payable and accrued interest ($ | ||||||||
Total current liabilities | ||||||||
Long-term liabilities: | ||||||||
Notes payable, net of current portion (at fair value) | ||||||||
Other long-term liabilities | ||||||||
Total long-term liabilities | ||||||||
Total liabilities | $ | $ | ||||||
Commitments and contingencies (Note 6) | ||||||||
Stockholders’ deficit | ||||||||
Preferred stock, $ | par value, shares authorized, shares issued and outstanding at September 30, 2022 (unaudited) and December 31, 2021||||||||
Common stock, $ | par value, and shares authorized at September 30, 2022 and December 31, 2021; and shares issued at September 30, 2022 (unaudited) and December 31, 2021, respectively; and shares outstanding at September 30, 2022 (unaudited) and December 31, 2021, respectively||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Ensysce Biosciences, Inc. stockholders’ deficit | ( | ) | ( | ) | ||||
Noncontrolling interests in stockholders’ deficit | ( | ) | ( | ) | ||||
Total stockholders’ deficit | ( | ) | ( | ) | ||||
Total liabilities and stockholders’ deficit | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
1 |
Ensysce Biosciences, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Federal grants | $ | $ | $ | $ | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | ||||||||||||||||
General and administrative | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income (expense): | ||||||||||||||||
Issuance costs for convertible notes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Change in fair value of derivative liabilities | ||||||||||||||||
Loss on issuance of convertible notes | ( | ) | ( | ) | ||||||||||||
Change in fair value of convertible notes | ||||||||||||||||
Issuance of liability classified warrants | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Change in fair value of liability classified warrants | ||||||||||||||||
Loss on debt conversions | ( | ) | ( | ) | ||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Loss on extinguishment of debt | ( | ) | ||||||||||||||
Other income and expense, net | ||||||||||||||||
Total other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Net loss attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Deemed dividend related to warrants down round provision | ||||||||||||||||
Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Net loss per share: | ||||||||||||||||
Net loss per share attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Weighted average common shares outstanding, basic and diluted |
The accompanying notes are an integral part of these consolidated financial statements.
2 |
Ensysce Biosciences, Inc.
Consolidated Statements of Changes in Stockholders’ EQUITY (Deficit)
(Unaudited)
Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||
Common Stock | Additional | |||||||||||||||||||||||
Number of | Paid - In | Accumulated | Noncontrolling | |||||||||||||||||||||
Shares | Amount | Capital | Deficit | interests | Total | |||||||||||||||||||
Balance on June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
Stock-based compensation | - | |||||||||||||||||||||||
Issuance of warrants | - | |||||||||||||||||||||||
Warrants modification | - | |||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
Balance on September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
Balance on June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
Conversion of convertible notes | ||||||||||||||||||||||||
Stock-based compensation | - | |||||||||||||||||||||||
Settlement of restricted stock units | ||||||||||||||||||||||||
Deemed dividend related to warrants down round provision | - | ( | ) | |||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
Balance on September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these consolidated financial statements.
3 |
Ensysce Biosciences, Inc.
Consolidated Statements of Changes in Stockholders’ EQUITY (Deficit)
(Unaudited)
Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||
Common Stock | Additional | |||||||||||||||||||||||
Number of | Paid-In | Accumulated | Noncontrolling | |||||||||||||||||||||
Shares | Amount | Capital | Deficit | interests | Total | |||||||||||||||||||
Balance on December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
Retroactive application of recapitalization | ( | ) | ( | ) | ||||||||||||||||||||
Balance on December 31, 2020, effect of reverse recapitalization | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Exercise of stock options | ||||||||||||||||||||||||
Settlement of convertible notes | ||||||||||||||||||||||||
Issuance of common stock for business combination, net of transaction costs | ||||||||||||||||||||||||
Stock-based compensation | - | |||||||||||||||||||||||
Issuance of warrants | - | |||||||||||||||||||||||
Warrants modification | - | |||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
Balance on September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
Balance on December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
Consultant compensation | ||||||||||||||||||||||||
Conversions of convertible notes | ||||||||||||||||||||||||
Settlement of restricted stock units | ( | ) | ||||||||||||||||||||||
Stock-based compensation | - | |||||||||||||||||||||||
Deemed dividend related to warrants down round provision | - | ( | ) | |||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
Balance on September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these consolidated financial statements.
4 |
Ensysce Biosciences, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | ||||||||
Gain on sale of asset | ( | ) | ||||||
Accrued interest | ||||||||
Accretion of discounts on promissory notes | ||||||||
Change in fair value of derivative liabilities | ( | ) | ||||||
Change in fair value of liability classified warrants | ( | ) | ||||||
Loss on issuance of convertible notes | ||||||||
Change in fair value of convertible notes | ( | ) | ( | ) | ||||
Loss on extinguishment of debt | ||||||||
Stock-based compensation | ||||||||
Issuance of warrants for share subscription facility | ||||||||
Issuance of liability classified warrants | ||||||||
Issuance costs for convertible notes | ||||||||
Commitment fee for share subscription facility | ||||||||
Warrant modification | ||||||||
Lease cost | ( | ) | ( | ) | ||||
Loss on debt conversions | ||||||||
Changes in operating assets and liabilities: | ||||||||
Unbilled receivable | ( | ) | ||||||
Prepaid expenses and other assets | ( | ) | ||||||
Accounts payable | ( | ) | ||||||
Accrued expenses and other liabilities | ||||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Cash flows from investing activities: | ||||||||
Proceeds from sale of asset | ||||||||
Net cash provided by investing activities | ||||||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of convertible notes, net | ||||||||
Proceeds from issuance of promissory notes to related parties | ||||||||
Proceeds from exercise of stock options | ||||||||
Repayment of promissory notes | ( | ) | ||||||
Repayments of convertible notes | ( | ) | ||||||
Proceeds from issuance of common stock for business combination, net of transaction costs | ||||||||
Repayment of financed insurance premiums | ( | ) | ( | ) | ||||
Net cash (used in) provided by financing activities | ||||||||
Increase in cash and cash equivalents | ( | ) | ||||||
Cash and cash equivalents beginning of period | ||||||||
Cash and cash equivalents end of period | $ | $ | ||||||
Supplemental cash flow information: | ||||||||
Income tax payments | $ | $ | ||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Stock-based compensation | $ | $ | ||||||
Conversions of convertible notes and accrued interest into common stock | $ | $ | ||||||
Payable to related parties | $ | $ | ||||||
Net assets acquired in business combination | $ | $ | ||||||
Financed insurance premiums | $ | $ | ||||||
Share subscription facility transaction costs | $ | $ | ||||||
Deemed dividend related to warrants down round provision | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
ENSYSCE BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Ensysce Biosciences, Inc. (“Ensysce”), along with its subsidiary, EBIR, Inc. (“EBIR”, formerly Covistat, Inc.) and its wholly-owned subsidiaries EBI Operating, Inc. and EBI OpCo, Inc. (collectively, the “Company”), is a clinical-stage biotech company using its two novel proprietary technology platforms to develop safer prescription drugs. The primary focus of the Company is developing abuse and overdose resistant pain drugs, with a clinical stage program for the abuse resistant, TAAP (Trypsin Activated Abuse Protection) opioid product candidate, PF614. In addition, the Company is developing its MPARTM (Multi-Pill Abuse Resistance) technology for overdose protection which will be applied to the PF614 program. The Company has also commenced development work applying its TAAP and MPARTM technology to a methadone prodrug for use in the treatment of Opioid Use Disorder (OUD).
On January 31, 2021, LACQ entered into the Merger Agreement with Former Ensysce and Merger Sub. Pursuant to the Merger Agreement, on June 30, 2021 (the “Closing Date”), Merger Sub was merged with and into Former Ensysce, with Former Ensysce surviving the merger (“Merger”). In connection with the closing of the Business Combination on the Closing Date (the “Closing”), Former Ensysce became a wholly-owned subsidiary of LACQ and the stockholders of Former Ensysce, as of immediately prior to the effective time of the Merger, received shares of LACQ and hold a portion of the shares of Common Stock, par value $ per share (the “Common Stock”), of LACQ.
On the Closing Date, at the effective time of the Merger, LACQ changed its name from “Leisure Acquisition Corp.” to “Ensysce Biosciences, Inc.” Unless the context otherwise requires, “we,” “us,” “our” and the “Company” refer to Ensysce and the combined company and its subsidiaries following the Closing. Unless the context otherwise requires, references to “LACQ” refer to Leisure Acquisition Corp., a Delaware corporation, prior to the Closing.
In
connection with the Business Combination, outstanding shares of common stock of Former Ensysce (including shares resulting from the conversion
of Former Ensysce’s convertible debt prior to Closing) were converted into the right to receive shares of Ensysce at an exchange
ratio of
In
June 2020, the Company commenced an initiative to develop a therapeutic for the treatment of certain coronavirus infections through the
formation of a separate entity, Covistat, Inc., a Delaware corporation. Pursuant to the articles of incorporation, Covistat was authorized
to issue
The Company currently operates in one business segment, which is pharmaceuticals. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chief operating decision maker, the Chief Executive Officer.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC. The consolidated financial statements include the accounts of Ensysce Biosciences, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in the consolidation.
6 |
In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the consolidated financial statements. Operating results for the three and nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The interim unaudited consolidated financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited consolidated financial statements for the fiscal year ended December 31, 2021, which may be found in the Company’s Form 10-K filed with the SEC on March 31, 2022.
Reverse Stock Split
In October 2022, the Company completed a
Business Combination
The
Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, LACQ
was identified as the acquired company for financial reporting purposes, primarily because the stockholders of Former Ensysce control
the majority of the voting power of the combined company, Former Ensysce’s board of directors comprise a majority of the governing
body of the combined company, and Former Ensysce’s senior management comprise the leadership of the combined company. Accordingly,
for accounting purposes, the transaction was treated as the equivalent of Former Ensysce issuing shares for the net assets of LACQ, accompanied
by a recapitalization. The net assets of LACQ, primarily consisting of cash of $
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business.
The
Company has not generated any product revenue and had an accumulated deficit of $
In
December 2020, the Company executed the GEM Agreement. Under the agreement, the investor agreed to provide the Company with a share
subscription facility of up to $
7 |
In
September 2021, the Company entered into a $
The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates and Assumptions
Preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosed in the accompanying notes. Actual results may differ from those estimates and such differences may be material to the consolidated financial statements. The more significant estimates and assumptions by management include, but are not limited to, the expense recognition for certain research and development services, the valuation allowance of deferred tax assets resulting from net operating losses, warrants, options to purchase the Company’s common stock, and the notes payable.
Cash and Cash Equivalents
For purposes of the consolidated balance sheets and consolidated statements of cash flows, the Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Concentrations of credit risk and off-balance sheet risk
Cash and cash equivalents are financial instruments that are potentially subject to concentrations of credit risk. The Company’s cash and cash equivalents are deposited in accounts at large financial institutions, and amounts may exceed federally insured limits. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash and cash equivalents are held. The Company has no financial instruments with off-balance sheet risk of loss.
Property and Equipment
Property
and equipment include office and laboratory equipment that is recorded at cost and depreciated using the straight-line method over the
estimated useful lives of five to six years. depreciation expense was recognized for the three and nine months ended September 30,
2022. Depreciation expense of $
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company will recognize an impairment loss only if the carrying amount is not recoverable through its undiscounted cash flows and measure any impairment loss based on the difference between the carrying amount and estimated fair value. There were no such losses for the three and nine months ended September 30, 2022 and 2021.
8 |
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to interest rate, market, or foreign currency risks. The Company evaluates all of its financial instruments, including notes payable, to determine whether such instruments are derivatives or contain features that qualify as embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract and the features of the derivatives. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the consolidated statement of operations each period. Bifurcated embedded derivatives are classified with the related host contract in the Company’s consolidated balance sheet.
Fair Value Measurement
ASC 820, Fair Value Measurements, (“ASC 820”) provides guidance on the development and disclosure of fair value measurements. Pursuant to ASC 820, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:
Level 1: | Quoted prices in active markets for identical assets or liabilities. | ||
Level 2: | Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace. | ||
Level 3: | Unobservable inputs which are supported by little, or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. |
The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them for each reporting period. This determination requires significant judgments to be made by the Company.
As of September 30, 2022 and December 31, 2021, the recorded values of cash and cash equivalents, prepaid expenses, accounts payable, and accrued expenses and other liabilities approximate their fair values due to the short-term nature of these items.
2021 Notes
In
2021 the Company issued convertible notes with a face value of $
2022 Notes
In
July 2022 the Company issued convertible notes with a face value of $
9 |
Warrants
In 2021 the Company issued liability classified warrants in connection with the issuance of the 2021 Notes. In 2022 the Company issued liability classified warrants in connection with the issuance of the 2022 Notes. The warrants were liability classified due to certain cash settlement features and included in “Other long-term liabilities” on the consolidated balance sheets. The Company uses a Black Scholes model to estimate the fair value of the warrants. Changes in the fair value of the warrants are recognized in other income (expense) for each reporting period. Refer to Note 8 for details of the warrants.
The following tables present assets and liabilities measured and recorded at fair value on the Company’s consolidated balance sheet as of September 30, 2022 and December 31, 2021.
September 30, 2022 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Fair value of convertible notes | $ | $ | $ | $ | ||||||||||||
Liability classified warrants | ||||||||||||||||
Total | $ | $ | $ | $ |
December 31, 2021 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Fair value of convertible note | $ | $ | $ | $ | ||||||||||||
Liability classified warrants | ||||||||||||||||
Total | $ | $ | $ | $ |
The following table summarizes the change in fair value of the Company’s Level 3 assets and liabilities:
Total | Convertible notes | Liability classified warrants | ||||||||||
Fair value, December 31, 2021 | $ | $ | $ | |||||||||
Additions, net | ||||||||||||
Conversions | ( | ) | ( | ) | ||||||||
Change in fair value | ( | ) | ( | ) | ( | ) | ||||||
Fair value, September 30, 2022 | $ | $ | $ |
Federal Grants
In
September 2018, the National Institutes of Health (“NIH”) through the National Institute on Drug Abuse awarded the Company
a research and development grant related to the development of its MPARTM overdose prevention technology (the “MPAR
Grant”). The total approved budget for the initial two-year period was approximately $
10 |
In
September 2019, the NIH/National Institute on Drug Abuse awarded the Company a research and development grant related to the development
of its TAAP/MPARTM abuse deterrent technology for Opioid Use Disorder (“OUD”) (the “OUD Grant”). The
total approved budget was approximately $
The Company recognizes revenue when costs related to the grants are incurred. The Company believes this policy is consistent with the overarching premise in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), applied by analogy, to ensure that it recognizes revenues to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services, even though there is no “exchange” as defined in ASC 606. The Company believes the recognition of revenue as costs are incurred and reimbursable amounts become due is analogous to the concept of transfer of control of a service over time under ASC 606.
The revenue recognized under the MPAR Grant and OUD Grant was as follows:
Three Months Ended | Nine months ended | |||||||||||||||
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
MPAR | $ | $ | $ | $ | ||||||||||||
OUD | ||||||||||||||||
Total | $ | $ | $ | $ |
Amounts requested or eligible to be requested through the NIH payment management system, but for which cash has not been received, are presented as an unbilled receivable on the Company’s consolidated balance sheet. As all amounts are expected to be remitted timely, no valuation allowances are recorded.
Immaterial Correction of an Error Adjusted in Prior Quarter
In August 2022, the
Company concluded that due to an error in the measurement of the unbilled receivable and the associated grant revenue as of December
31, 2021, and March 31, 2022, the June 30, 2022, balance sheet would be adjusted. The change resulted in a decrease in the balance
of the unbilled receivable of $
The Company, in consultation with the Audit Committee of the Board of Directors, evaluated the effect of these adjustments on the Company’s consolidated financial statements under ASC 250, Accounting Changes and Error Corrections and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements and determined it was not necessary to recall its previously issued consolidated financial statements as the errors did not materially misstate any previously issued consolidated financial statements and the correction of the error in the current fiscal year is also not material. The Company looked at both quantitative and qualitative characteristics of the required corrections in making the determination.
Research and Development Costs
The Company’s research and development expenses consist primarily of third-party research and development expenses, consulting expenses, animal and clinical studies, and any allocable direct overhead, including facilities and depreciation costs, as well as salaries, payroll taxes, and employee benefits for those individuals directly involved in ongoing research and development efforts. Research and development expenses are charged to expense as incurred. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs associated with the Company’s executive, finance, human resources, compliance, and other administrative personnel, as well as accounting and legal professional services fees.
The Company expenses stock-based compensation over the requisite service period based on the estimated grant-date fair value of the awards using a graded amortization approach. The Company accounts for forfeitures as they occur.
The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. For the three and nine months ended September 30, 2022 and 2021, stock-based compensation costs are recorded in general and administrative expenses and research and development expenses in the consolidated statements of operations.
From time-to-time equity classified awards may be modified. On the modification date, the Company estimates the fair value of the awards immediately before and immediately after modification. The incremental increase in fair value is recognized as expense immediately to the extent the underlying equity awards are vested and over the same remaining amortization schedule as the unvested underlying equity awards.
11 |
Income Taxes
Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company recognizes any interest and penalties accrued related to unrecognized tax benefits as income tax expense.
The basic earnings per share is calculated by dividing the Company’s net income or loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. The diluted earnings per share is calculated by dividing the Company’s net earnings attributable to common stockholders by the diluted weighted average number of common shares outstanding during the period, determined using the treasury stock method and the average stock price during the period. A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Denominator: | ||||||||||||||||
Weighted average shares outstanding, basic and diluted | ||||||||||||||||
Net loss per share attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Stock options | ||||||||||||||||
Warrants | ||||||||||||||||
Total |
12 |
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning after December 31, 2021 and interim periods within that year. On January 1, 2022, the Company adopted ASU 2019-12 and the adoption did not have a significant impact on the consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Topic 470) to address issues identified as a result of the complexity with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock, resulting in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Certain types of convertible instruments will continue to be subject to separation models: (a) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (b) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. For convertible instruments, the contracts primarily affected are those with beneficial conversions or cash conversion features as the accounting models for those specific features have been removed. For contracts in an entity’s own equity, the contracts primarily affected are freestanding instruments and embedded features that are accounted for as derivatives due to a failure to meet the settlement conditions of the derivatives scope exceptions. The FASB simplified the settlement assessment by removing the requirements to (a) consider whether the contract would be settled in registered shares, (b) to consider whether collateral is required to be posted, and (c) assess shareholder rights. The FASB also decided to enhance information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 and early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. Entities must adopt the guidance as of the beginning of its annual fiscal year and a modified retrospective or fully retrospective transition approach is permitted. The Company is evaluating the impact of ASU 2020-06 on the consolidated financial statements.
In May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (A Consensus of the FASB Emerging Issues Task Force (the “EITF”)) – 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 guidance in the ASU requires the issuer to treat a modification of an equity-classified warrant that does not cause the warrant to become liability-classified as an exchange of the original warrant for a new warrant. This guidance applies whether the modification is structured as an amendment to the terms and conditions of the warrant or as termination of the original warrant and issuance of a new warrant. Under the amendments, an issuer should measure the effect of a modification as the difference between the fair value of the modified warrant and the fair value of that warrant immediately before modification. The EITF concluded that the recognition of the modification depends on the nature of the transaction in which a warrant is modified. If there is more than one element in a transaction (for example, if the modification involves both a debt modification and an equity issuance), then the guidance requires the issuer to allocate the effect of the option modification to each element. On January 1, 2022, the Company adopted ASU 2021-04 and the adoption did not have a significant impact on the consolidated financial statements.
13 |
NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Prepaid research and development | $ | $ | ||||||
Prepaid insurance | ||||||||
Other prepaid expenses | ||||||||
Total prepaid expenses and other current assets | $ | $ |
NOTE 5 – ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following:
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Share subscription facility commitment fees | $ | $ | ||||||
Accrued research and development | ||||||||
Bonus accrual | ||||||||
Professional fees | ||||||||
Accrued scientific advisory board fees | ||||||||
Consultant stock compensation expenses | ||||||||
Other accrued liabilities | ||||||||
Total accrued expenses and other liabilities | $ | $ |
Other long-term liabilities consisted of the following:
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Share subscription facility commitment fees | $ | $ | ||||||
Liability classified warrants | ||||||||
Total other long-term liabilities | $ | $ |
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Purchase Commitments
As
of September 30, 2022, the Company’s commitments included an estimated $
Litigation
As of September 30, 2022 and December 31, 2021, there were no pending legal proceedings against the Company that are expected to have a material adverse effect on cash flows, financial condition or results of operations. From time to time, the Company could become involved in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically, the Company reviews the status of significant matters, if any exist, and assesses its potential financial exposure. If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation.
14 |
Lease
In August 2020, the Company entered into an agreement to lease office space. The original lease commencement date was October 1, 2020 and was subsequently amended to extend the term of the lease through October 31, 2023 with no option to renew. The amendment resulted in a modification of the lease under ASC 842 and the Company remeasured the lease liability as of the amendment date.
As
of September 30, 2022, the future lease payments totaled $
The
Company recognized total rent expense of $
Compensation Subject to Shareholder Approval
In
July 2021, the Company engaged two consultants to perform certain public and investor relations services in consideration for warrants
to purchase
NOTE 7 – NOTES PAYABLE
The following table provides a summary of the Company’s outstanding debt as of September 30, 2022:
Principal balance | Accrued interest | Fair Value Adjustment | Net debt balance | |||||||||||||
2021 Notes | $ | $ | $ | $ | ||||||||||||
2022 Notes | ( | ) | ||||||||||||||
Financed Insurance | ||||||||||||||||
Total | $ | $ | $ | ( | ) | $ |
The following table provides a summary of the Company’s outstanding debt as of December 31, 2021:
Principal balance | Accrued interest | Fair value adjustment | Net debt balance | |||||||||||||
2021 Notes | $ | $ | $ | $ | ||||||||||||
Financed Insurance | ||||||||||||||||
Total | $ | $ | $ | $ |
15 |
The interest expense recognized for notes payable (excluding the 2021 Notes) was as follows:
Three months ended | Nine months ended | |||||||||||||||
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
Stated interest accrual | $ | $ | $ | $ | ||||||||||||
Debt discount amortization | ||||||||||||||||
Total | $ | $ | $ | $ |
2021 Notes
On
September 24, 2021, the Company entered into an agreement with institutional investors to issue the 2021 Notes. The agreement provided
for two closings: the first closing for $
The proceeds of the 2021 Notes shall be used for working capital purposes subject to certain customary restrictions and secured by the Company’s rights to its patents and licenses. The Company may not issue any additional debt or equity without the prior written consent of the holders.
The
2021 Notes mature on
The
Company elected to apply the fair value option to the measurement of the 2021 Notes. The total initial fair value of the debt at
issuance was $
The
2021 Notes may be converted into the Company’s common stock at the option of the holder in whole or in part at the conversion price
of $
At the Company’s option, the Company may redeem some or all of the then-outstanding principal amount of the 2021 Notes for cash in an amount equal to 100% of the principal to be redeemed, plus accrued but unpaid interest, plus all other amounts due with respect to the 2021 Notes.
Beginning
January 1, 2022 for the First Closing, and February 1, 2022 for the Second Closing, and the first of each subsequent month, terminating
upon the full redemption of the 2021 Notes (each a “Monthly Redemption Date”), the Company shall redeem the Monthly Redemption
Amount (defined below), payable in cash or shares.
16 |
The Monthly Redemption Amount is defined as 1/18th of the original principal amount, plus accrued but unpaid interest, plus any other amounts due to the holder with respect to the 2021 Notes. If the Company elects to settle such redemptions in shares, the Monthly Redemption Amount is calculated based on 92% of the average of the lowest three VWAPs in the ten trading days prior to the Monthly Redemption Date. If the Company elects to settle redemptions in cash, the Monthly Redemption Amount shall include an 8% premium of the Monthly Redemption Amount.
If,
at any time while the 2021 Notes are outstanding, the Company carries out one or more capital raises in excess of $
The following table provides a summary of the Company’s 2021 note conversions during the nine-month period ending September 30, 2022:
Three Months Ended | Shares | Weighted Average Conversion Price | Conversion Value | |||||||||
$ | $ | |||||||||||
$ | ||||||||||||
$ | ||||||||||||
Total | $ |
On August 8, 2022, the parties
agreed to modify the conversion price of the remaining 2021 Notes from $
2022 Notes
On
June 30, 2022, the Company entered into an $
On the issuance date, the Company assessed the probability of the potential settlement scenarios under the terms of the 2022 Notes and determined that the predominant settlement feature of the 2022 Notes was the redemption feature into shares of the Company’s common stock issuable at the lower of the conversion price or 92% of the average of the three lowest VWAPs in the 10 trading days immediately preceding the redemption date. As the predominant settlement feature of the 2022 Notes is to settle a fixed monetary amount into a variable number of shares, the 2022 Notes fell within the scope of ASC 480. Accordingly, the Company determined that the 2022 Notes should be recorded at estimated fair value on its issuance date and adjusted to its estimated fair value as of each reporting date with the change in estimated fair value recorded as a component other income (expense) in the Company’s consolidated statements of operations.
The
Company recorded the 2022 Notes at an initial fair value of $
The September 30, 2022 fair value measurement includes the assumption of
accrued interest and interest expense (at the stated rate plus an 8% cash settlement premium) and thus a separate amount is not reflected
on the consolidated statements of operations. If presented separately, the amount of interest expense after consideration of the conversions
would be $
The
2022 Notes are convertible into common stock, at a per share conversion price equal to $
17 |
In
connection with each of the first and second closings of the 2022 Notes the Company also issued warrants to purchase
The
proceeds of the 2022 Notes will be used for working capital purposes subject to certain customary restrictions are secured by the Company’s
rights to its patents and licenses. The Company is restricted from issuing certain additional debt or equity without the prior written
consent of the holders for certain specified periods set forth in the 2022 Notes. If, at any time while the 2022 Notes are outstanding,
the Company carries out one or more capital raises in excess of $
The
2022 Notes mature on
The following table provides a summary of the Company’s 2022 Notes conversions during the nine-month period ending September 30, 2022:
Three Months Ended | Shares | Weighted Average Conversion Price | Conversion Value | |||||||||
$ | $ | |||||||||||
Total | $ |
Financed insurance premiums
During
year ended December 31, 2021, the Company financed its directors’ and officers’ liability insurance in the amount of $
NOTE 8 - STOCKHOLDERS’ EQUITY
In June 2021, in connection with the Business Combination, the Company amended and restated its Certificate of Incorporation to authorize shares of common stock and shares of preferred stock, both with par value equal to $ . In September 2022, the Company amended and restated its Certificate of Incorporation to authorize shares up to a total of shares of common stock. As of September 30, 2022 and December 31, 2021, there were shares of preferred stock issued and outstanding.
Common Stock
On June 30, 2021, in connection with the Closing, the following common stock activity occurred:
● | shares of common stock were issued to holders of Former Ensysce common stock. | |
● | shares of common stock outstanding were assumed by the Company. | |
● | ||
● | shares of restricted common stock were issued in exchange for previously outstanding warrants to purchase Former Ensysce common stock. | |
● | ||
● |
18 |
Warrants
On September 30, 2022, outstanding warrants to purchase shares of common stock are as follows:
Reference | Shares Underlying Outstanding Warrants | Exercise Price | Description | Classification | |||||||||||
(a) | $ | - | Equity | ||||||||||||
(b) | $ | Equity | |||||||||||||
(c) | $ | Liability | |||||||||||||
(d) | $ | Liability | |||||||||||||
(e) | $ | Liability | |||||||||||||
(f) | $ | Liability | |||||||||||||
a) | |
On August 3, 2021, the
Company entered into an agreement with an existing warrant holder to reduce the exercise price of | |
b) |
On
December 28, 2021, January 3, 2022, February 1, 2022, March 1, 2022, May 2, 2022,June 1, 2022, July 1, 2022, August 10, 2022, September
20, 2022 and September 29, 2022 the exercise price of the warrants adjusted to $ |
c) |
19 |
d) | |
e)
|
|
f) |
The fair value of each warrant issued has been determined using the Black-Scholes option-pricing model. The material assumptions used in the Black-Scholes model in estimating the fair value of the warrants issued for the periods presented were as follows:
(a) LACQ warrants (grant date varies) | (b) Share subscription facility (grant date 7/2/21) | (b) Share subscription facility (remeasurement date varies) | |||||||||
Stock price | $ | $ | $ | - | |||||||
Exercise price | $ | - | $ | $ | - | ||||||
Expected term (years) | - | ||||||||||
Volatility | % | % | %- % | ||||||||
Risk free rate | % | % | %- % |
(c) Liability classified warrants (grant date 9/24/21) | (c) Liability classified warrants (remeasured at 9/30/22) | (d) Liability classified warrants (grant date 11/5/21) | (d) Liability classified warrants (remeasured at 9/30/22) | |||||||||||||
Stock price | $ | $ | $ | $ | ||||||||||||
Exercise price | $ | $ | $ | $ | ||||||||||||
Expected term (years) | ||||||||||||||||
Volatility | % | % | % | % | ||||||||||||
Risk free rate | % | % | % | % |
(e) Liability classified warrants (grant date 7/1/22) | (e) Liability classified warrants (remeasured 9/30/22) | (f) Liability classified warrants (grant date 8/9/22) | (f) Liability classified warrants (remeasured 9/30/22) | |||||||||||||
Stock price | $ | $ | $ | $ | ||||||||||||
Exercise price | $ | $ | $ | $ | ||||||||||||
Expected term (years) | ||||||||||||||||
Volatility | % | % | % | % | ||||||||||||
Risk free rate | % | % | % | % |
20 |
In 2016, Former Ensysce adopted the Ensysce Biosciences, Inc. 2016 Stock Incentive Plan (the “2016 Plan”). The 2016 Plan, as amended, allowed for the issuance of non-statutory stock options, incentive stock options and other equity awards to Former Ensysce’s employees, directors, and consultants.
In March 2019, Former Ensysce adopted the 2019 Directors Plan, which was amended in August 2020. The 2019 Directors Plan, as amended, allowed for the issuance of shares of Former Ensysce’s common stock pursuant to the grant of non-statutory stock options.
In addition to the 2016 Plan and the 2019 Directors Plan, the Company has two legacy equity incentive plans (the “Legacy Plans”). No additional equity awards may be made under the Legacy Plans and the outstanding options will expire if unexercised by certain dates through August 2024.
In connection with the Business Combination, the Company assumed the 2021 Omnibus Incentive Plan (the “2021 Omnibus Plan”), which was approved by LACQ’s board and subsequently LACQ’s stockholders at a special stockholder meeting on June 28, 2021. The 2021 Omnibus Plan provides for the conversion with existing terms of the options outstanding under Former Ensysce stock plans and reserves for issuance an additional shares for future awards under the 2021 Omnibus Plan. On January 26, 2022, the 2021 Omnibus Plan was amended and restated to include an additional shares available for future grant and to provide for future annual increases. No further awards may be made under the Former Ensysce stock plans.
The Company recognized within general and administrative expense stock-based compensation expense of $ and $ for the three and nine months ended September 30, 2022, and $ and $ for the three and nine months ended September 30, 2021. During the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $ and $ within research and development. During the three and nine months ended September 30, 2021, there was stock-based compensation allocated to research and development.
Option Activity
During the nine months ended September 30, 2022, the Company granted stock options to purchase an aggregate of shares of common stock to employees, consultants and members of the board of directors. The options vest over periods between and years and have an exercise price of between $ and $ per share. There were no stock option grants in 2021.
21 |
Weighted average | ||||||||||||||||
Options | Exercise price | Remaining contractual life | Intrinsic value | |||||||||||||
Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
Granted | ||||||||||||||||
Exercised | - | |||||||||||||||
Expired / Forfeited | ( | ) | - | |||||||||||||
Outstanding at September 30, 2022 | ||||||||||||||||
Exercisable at September 30, 2022 | ||||||||||||||||
Vested and expected to vest |
Option Valuation
Nine Months Ended | ||||
September 30, 2022 | ||||
Stock price | $ | - | ||
Exercise price | $ | - | ||
Expected stock price volatility | - | % | ||
Expected term (years) | - | |||
Risk-free interest rate | % - | % | ||
Expected dividend yield | % |
● | Expected stock-price volatility. The expected volatility is derived from the historical volatilities of publicly traded companies within the Company’s industry that the Company considers to be comparable to the Company’s business over a period approximately equal to the expected term. | |
● | Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. The Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term due to a lack of sufficient data. Therefore, the Company estimates the expected term for employees by using the simplified method provided by the Securities and Exchange Commission. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options. | |
● | Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term. | |
● | Expected dividend yield. The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on the Company’s common stock. |
The weighted-average grant date fair value of options granted during the nine months ended September 30, 2022 was $ . There were no options granted during the nine months ended September 30, 2021.
As of September 30, 2022, the Company had an aggregate of $ of unrecognized share-based compensation cost, which is expected to be recognized over the weighted average period of years.
22 |
Restricted Stock Units
Restricted Stock Units | Weight average fair value | |||||||
Outstanding at December 31, 2021 | $ | |||||||
Granted | ||||||||
Released | ( | ) | ||||||
Cancelled | ( | ) | ||||||
Outstanding at September 30, 2022 |
The remaining awards outstanding are subject to time-based vesting conditions and are scheduled to vest by December 2023. The estimated fair value of each of the Company’s was determined on the date of grant based on the closing price of the Company’s common stock on the previous trading date.
Shares Reserved for Future Issuance
The following shares of common stock are reserved for future issuance:
September 30, 2022 | ||||
Awards outstanding under the 2021 Omnibus Incentive Plan | ||||
Awards available for future grant under 2021 Omnibus Incentive Plan | ||||
2022 Notes outstanding | ||||
Warrants outstanding | ||||
Total shares of common stock reserved for future issuance |
NOTE 10 - RELATED PARTIES
The
Company paid cash compensation during the three and nine months ended September 30, 2021 of $and
$,
respectively, to the Chief Executive Officer through a separate operating company with which the Chief Executive Officer is
affiliated. There were no such payments in the three and nine months ended September 30, 2022. In July 2022, the Chief Executive
Officer and a Board member transferred shares
of registered common stock to GYBL to settle $
NOTE 11 - SUBSEQUENT EVENTS
On
October 11, 2022, the Company paid $
On
October 28, 2022, the Company completed a
In the fourth quarter of 2022, the Company issued