Ensysce Biosciences, Inc 10-Q for FY2022 Q1
Ensysce Biosciences, Inc. (ENSC)
About this 10-Q
Ensysce Biosciences, Inc filed this 10-Q on May 12, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $603.1K
- up 140.7% from $250.58K a year earlier
- Net loss
- $950.93K
- compared with a net loss of $911.69K a year earlier
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 ________
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(State or other jurisdiction of incorporation or organization) |
(I.R.S.
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Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on which registered | ||
The
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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 ☐
As of May 9, 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 Ensysce’s 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 Ensysce 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 Ensysce’s product candidates; | |
| ● | the risk that Ensysce’s clinical trials may fail to replicate positive results from earlier preclinical studies or clinical trials conducted by Ensysce or third parties; | |
| ● | the risk that the potential product candidates that Ensysce develops 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 Ensysce will be unable to successfully market or gain market acceptance of its product candidates; | |
| ● | the risk that Ensysce’s product candidates may not be beneficial to patients or successfully commercialized; | |
| ● | the risk that Ensysce has 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 Ensysce depends for laboratory, clinical development, manufacturing, and other critical services will fail to perform satisfactorily; | |
| ● | the risk that Ensysce’s 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 Ensysce 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 Ensysce’s management team; | |
| ● | changes in Ensysce’s regulatory environment; | |
| ● | Ensysce’s need for additional financing to fund its operations and research and development; | |
| ● | the ability to attract and retain key scientific, medical, commercial, or management personnel; | |
| ● | changes in Ensysce’s industry; |
| ● | Ensysce’s 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 | |
| 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 | |
| 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 | |
| Covistat | A clinical stage pharmaceutical company that is developing a compound utilized in the Company’s overdose protection program for the treatment of COVID-19 and 79.2%-owned subsidiary of the Company | |
| CROs | Contract research organizations | |
| 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 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 | |
| SEC | U.S. Securities and Exchange Commission | |
| Securities Act | Securities Act of 1933 | |
| SPA | Securities Purchase Agreement, dated as of September 24, 2021, by and between Ensysce and the institutional investors party thereto | |
| TAAP | Trypsin Activated Abuse Protection |
| ii |
Table of Contents
| Page | ||
| Cautionary Note Regarding 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 | 4 | |
| Notes to Unaudited Consolidated Financial Statements | 5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 32 |
| Item 4. | Controls and Procedures | 33 |
| PART II. | OTHER INFORMATION | 34 |
| Item 1. | Legal Proceedings | 34 |
| Item 1A. | Risk Factors | 34 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 34 |
| Item 3. | Defaults Upon Senior Securities | 34 |
| Item 4. | Mine Safety Disclosures | 34 |
| Item 5. | Other Information | 34 |
| Item 6. | Exhibits | 34 |
| Signatures | 35 | |
| iii |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Ensysce Biosciences, Inc.
Consolidated Balance Sheets
March 31, 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 | ||||||||
| 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’ equity (deficit) | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding at March 31, 2022 (unaudited) and December 31, 2021 | - | - | ||||||
| Common stock, $ par value, shares authorized; and shares issued at March 31, 2022 (unaudited) and December 31, 2021, respectively; and shares outstanding at March 31, 2022 (unaudited) and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Ensysce Biosciences, Inc. stockholders’ equity (deficit) | ( | ) | ||||||
| Noncontrolling interests in stockholders’ equity (deficit) | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (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 March 31, | ||||||||
| 2022 | 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Federal grants | $ | $ | ||||||
| Operating expenses: | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Change in fair value of convertible notes | ||||||||
| Change in fair value of liability classified warrants | ||||||||
| Loss on debt conversions | ( | ) | ||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income and expense, net | ||||||||
| Total other income (expense), net | ( | ) | ||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Net income (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 Shares | Amount | Paid-In Capital | Accumulated Deficit | Noncontrolling interests | Total | |||||||||||||||||||
| Balance on December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Retroactive application of recapitalization | ( | ) | ( | ) | ||||||||||||||||||||
| Balance on December 31, 2020, after effect of reverse recapitalization | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Balance on March 31, 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 March 31, 2022 | $ | $ | | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
Ensysce Biosciences, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 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 embedded derivative | ||||||||
| Change in fair value of liability classified warrants | ( | ) | ||||||
| Change in fair value of convertible notes | ( | ) | ||||||
| Stock-based compensation | ||||||||
| 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 promissory notes | ||||||||
| Proceeds from issuance of promissory notes to related parties | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Repayment of financed insurance premiums | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Increase (decrease) 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: | ||||||||
| Fair value of embedded derivative at issuance | $ | $ | ||||||
| Deferred transaction costs in accounts payable | $ | $ | ||||||
| Deferred transaction costs in accrued expenses and other liabilities | $ | $ | ||||||
| Stock-based compensation | $ | $ | ||||||
| Conversions of convertible notes into common stock | $ | $ | ||||||
| Deemed dividend related to warrants down round provision | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
ENSYSCE BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Ensysce Biosciences, Inc. (“Ensysce”), along with its subsidiary, Covistat Inc. (“Covistat”) 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 what the Company believe to be 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 Resistant) technology for overdose protection which will be applied to the PF614 program. In 2019, the Company commenced discovery 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, Leisure Acquisition Corp., a Delaware corporation (“LACQ”), entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Ensysce Biosciences, Inc., a Delaware corporation (“Former Ensysce”), and EB Merger Sub, Inc., a Delaware corporation and wholly-owned, direct subsidiary of LACQ (“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” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). 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 shares of common stock, $ par value per share, and shares of preferred stock, $ par value per share.
Ensysce is a
In March 2020, the World Health Organization declared the outbreak of a respiratory disease caused by a new coronavirus as a “pandemic”. First identified in late 2019 and known now as COVID-19, the outbreak has impacted millions of individuals worldwide. In response, many countries have implemented measures to combat the outbreak which have impacted global business operations. The Company’s operations have not been significantly impacted; however, the Company continues to monitor the situation. No impairments were recorded as of the balance sheet date as no triggering events or changes in circumstances had occurred as of year-end; however, due to significant uncertainty surrounding the situation, management’s judgment regarding this could change in the future. In addition, while the Company’s results of operations, cash flows and financial condition could be negatively impacted, the extent of the impact cannot be reasonably estimated at this time.
| 5 |
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 accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities Exchange Commission (“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.
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 months ended March 31, 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.
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 a share subscription facility with an investment group. Under the agreement, the investor agreed
to provide the Company with a share subscription facility of up to $ million for a 36-month term following the public listing of
the Company’s common stock. The Company will control the timing and maximum amount of drawdown under this facility and has no minimum
drawdown obligation. The investor will pay, in cash, a per-share amount equal to 90% of the average daily closing price of the Company’s
stock during the 30 consecutive trading days prior to the issuance of a draw notice, which shall not exceed 400% of the average trading
volume for the 30 trading days immediately preceding the draw down date. On June 30, 2021, the Company consummated the Business Combination
with LACQ, resulting in the Company’s shares becoming publicly listed on Nasdaq on July 2, 2021. Concurrent with the public listing
of the Company’s shares, the Company issued to the investor
| 6 |
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, the valuation of common stock, 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 months ended March 31, 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 months ended March 31, 2022 and 2021.
| 7 |
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. Under this accounting guidance, 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 March 31, 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 $
| 8 |
Warrants
In 2021, the Company issued liability classified warrants in connection with the issuance of the 2021 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.
The following tables present assets and liabilities measured and recorded at fair value on the Company’s consolidated balance sheet as of March 31, 2022 and December 31, 2021.
SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
| March 31, 2022 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Fair value of convertible note | $ | $ | $ | $ | ||||||||||||
| 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:
SCHEDULE OF CHANGE IN FAIR VALUE OF COMPANY’S LEVEL 3
| Total | Convertible notes | Liability classified warrants | ||||||||||
| Fair value, December 31, 2021 | $ | $ | $ | |||||||||
| Conversions | ( | ) | ( | ) | ||||||||
| Change in fair value | ( | ) | ( | ) | ( | ) | ||||||
| Fair value, March 31, 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 $
In
September 2019, the NIH/National Institute on Drug Abuse awarded the Company a second 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 for the two-year period 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 amounts become due is analogous to the concept of transfer of control of a service over time under ASC 606.
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The revenue recognized under the MPAR Grant and OUD Grant was as follows:
SCHEDULE OF REVENUE RECOGNIZATION UNDER GRANTS
| Three Months Ended March 31, | ||||||||
| 2022 | 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.
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 months ended March 31, 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 on a straight-line basis over the same remaining amortization schedule as the unvested underlying equity awards.
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.
| 10 |
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 March 31, | ||||||||
| 2022 | 2021 | |||||||
| Numerator: | ||||||||
| Net income (loss) attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted average shares outstanding, basic | ||||||||
| Weighted average dilutive stock options | ||||||||
| Weighted average shares outstanding, diluted | ||||||||
| Net income (loss) per share attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | ||
SCHEDULE OF WEIGHTED AVERAGE SHARES OF ANTI-DILUTIVE SECURITIES
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Total | ||||||||
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 did not have a significant impact on the consolidated financial statements.
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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.
NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Prepaid insurance | $ | $ | ||||||
| Prepaid research and development | ||||||||
| 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:
SCHEDULE OF ACCRUED EXPENSES AND OTHER LIABILITIES
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Share subscription facility commitment fees | $ | $ | ||||||
| Accrued research and development | ||||||||
| Professional fees | ||||||||
| Bonus accrual | ||||||||
| Accrued scientific advisory board fees | ||||||||
| Consultant stock compensation expenses | - | |||||||
| Other accrued liabilities | ||||||||
| Total accrued expenses and other liabilities | $ | $ | ||||||
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Other long-term liabilities consisted of the following:
SCHEDULE OF OTHER LONG-TERM LIABILITIES
| 2022 | 2021 | |||||||
| March 31, | 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 March 31, 2022, the Company’s commitments included an estimated $
Litigation
As of March 31, 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.
Lease
In August 2020, the Company entered into an agreement to lease office space. The lease commencement date was October 1, 2020 and was subsequently amended to extend the term of the lease through October 31, 2022 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 March 31, 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
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NOTE 7 - NOTES PAYABLE
The following table provides a summary of the Company’s outstanding debt as of March 31, 2022:
SCHEDULE OF DEBT
| Principal balance | Accrued interest | Fair value adjustment | Net debt balance | |||||||||||||
| 2021 Notes | $ | $ | $ | ( | ) | $ | ||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||
| Finance Insurance | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The interest expense recognized for notes payable (excluding the 2021 Notes) was as follows:
SCHEDULE OF INTEREST EXPENSE DEBT
| 2022 | 2021 | |||||||
Three months ended March 31, | ||||||||
| 2022 | 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 provides
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 $
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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.
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 Notes conversions during the three months period ending March 31, 2022:
SCHEDULE OF CONVERSIONS DEBT
| Shares | Conversion Price | Conversion Value | ||||||||||
| $ | $ | |||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| Total | $ | |||||||||||
During
the three months ending March 31, 2022, the company recognized $
Financed insurance premiums
During
the year ended December 31, 2021, the Company financed its director and officer liability insurance in the amount of $
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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 $. As of March 31, 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 common stock were issued in settlement of $ | |
| ● | shares of restricted common stock were issued in exchange for previously outstanding warrants to purchase Former Ensysce common stock. | |
| ● | ||
| ● |
Warrants
On March 31, 2022, outstanding warrants to purchase shares of common stock are as follows:
SCHEDULE OF OUTSTANDING WARRANT
| Reference | Shares Underlying Outstanding Warrants | Exercise Price | Description | Classification | ||||||||||||
| (a) | $ | - | Equity | |||||||||||||
| (b) | $ | Equity | ||||||||||||||
| (c) | $ | Liability | ||||||||||||||
| (d) | $ | 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 and March 1, 2022 the exercise price of the warrants adjusted to $ |
| 16 |
| c) | |
| d) |
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:
SCHEDULE OF WARRANTS FAIR VALUE ESTIMATION ASSUMPTIONS
| (a) LACQ warrants (grant date varies) | (b) Share subscription facility (grant date 7/2/2021) | (b) Share subscription facility (remeasurement date varies) | ||||||||||
| Stock price | $ | $ | $ | - | ||||||||
| Exercise price | $ | - | $ | $ | - | |||||||
| Expected term (years) | - | |||||||||||
| Volatility | % | % | % - % | |||||||||
| Risk free rate | % | % | % - % | |||||||||
| (c) Liability classified warrants (grant date 9/24/2021) | (c) Liability classified warrants (remeasured at 3/31/22) | (d) Liability classified warrants (grant date 11/5/2021) | (d) Liability classified warrants (remeasured at 3/31/22) | |||||||||||||
| Stock price | $ | $ | $ | $ | ||||||||||||
| Exercise price | $ | $ | $ | $ | ||||||||||||
| Expected term (years) | ||||||||||||||||
| Volatility | % | % | % | % | ||||||||||||
| Risk free rate | % | % | % | % | ||||||||||||
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.
| 17 |
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. 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 months ended March 31, 2022 and 2021, respectively. During the three months ended March 31, 2022 and 2021, the Company recognized stock-based compensation expense of $ and $, respectively, within research and development expense. The stock-based compensation expense consisted of expense associated with stock options, restricted stock units and other compensation shares issued to non-employee consultants.
Option Activity
During the three months ended March 31, 2022, the Company granted stock options to purchase an aggregate of shares of common stock to employees, consultants and members of the Board. 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.
SCHEDULE OF STOCK OPTION ACTIVITY
| Weighted average | ||||||||||||||||
| Options | Exercise price | Remaining contractual life (years) | Intrinsic value | |||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | - | ||||||||||||||
| Expired / Forfeited | - | - | ||||||||||||||
| Outstanding at March 31, 2022 | ||||||||||||||||
| Exercisable at March 31, 2022 | ||||||||||||||||
| Vested and expected to vest | ||||||||||||||||
| 18 |
Option Valuation
SCHEDULE OF SHARE-BASED PAYMENT AWARD, STOCK OPTIONS, VALUATION ASSUMPTIONS
| Three Months Ended | ||||
| March 31, 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 three months ended March 31, 2022 was $. There were no options granted during the three months ended March 31, 2021.
As of March 31, 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.
Restricted Stock Units
During the three months ended March 31, 2022, the Company granted restricted stock unit (“RSU”) awards (weighted-average fair value per share of $), issued shares of common stock for vested RSU awards (weighted average fair value per share of $) and cancelled RSU awards. The remaining RSU awards (weighted average fair value per share of $) outstanding are subject to time-based and market vesting conditions and are scheduled to vest by December 2023. The estimated fair value of each of the Company’s RSU awards 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:
SCHEDULE OF COMMON STOCK FUTURE ISSUANCE
| March 31, 2022 | ||||
| Awards outstanding under the 2021 Omnibus Incentive Plan | ||||
| Awards available for future grant under 2021 Omnibus Incentive Plan | ||||
| Warrants outstanding | ||||
| Total shares of common stock reserved for future issuance | ||||
NOTE 10 - RELATED PARTIES
The Company paid cash compensation during the three months ended March 31, 2021 of $ to the Chief Executive Officer through a separate operating company with which the Chief Executive Officer is affiliated. There were such payments in the three months ended March 31, 2022.
NOTE 11 - SUBSEQUENT EVENTS
In
the second quarter of 2022, in connection with the monthly redemption schedule (described in Note 7), the Company issued shares of common stock as a result of monthly
conversions of $
| 19 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis provide information which our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and notes thereto included elsewhere in this report. In addition to historical financial information, this discussion contains forward-looking statements based upon our current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Item 1A. Risk Factors.”
References in the following discussion to “we”, “us”, “our” and the “Company” refer to Ensysce Biosciences, Inc. and its consolidated subsidiaries following the Closing of the Business Combination. Unless the context otherwise requires, references to “LACQ” refer to Leisure Acquisition Corp., a Delaware corporation, prior to the Closing.
Overview
Ensysce Biosciences, Inc. is a clinical stage pharmaceutical company seeking to develop innovative solutions for severe pain relief while reducing the fear of addiction and the potential for opioid misuse, abuse and overdose. We have also incorporated a 79.2%-owned subsidiary, Covistat, a clinical stage pharmaceutical company that is developing a compound utilized in Ensysce’s overdose protection program for the treatment of respiratory diseases. Our lead product candidate, PF614, is an extended release TAAP prodrug of oxycodone. TAAP modification of prescription drugs removes the ability to crush, chew or manipulate and inject to achieve the medication more quickly than by swallowing. MPAR™ adds a layer of overdose protection to each TAAP product.
Since inception in 2003, we have devoted substantially all our efforts and financial resources to organizing and staffing our company, business planning, raising capital, discovering product candidates and securing related intellectual property rights and conducting research and development activities for our product candidates. We do not have any products approved for sale and we have not generated any revenue from product sales. We may never be able to develop or commercialize a marketable product.
Our lead product candidate, PF614, is in Phase 1b clinical development, PF614-MPAR™ is in Phase 1 clinical development and nafamostat is proceeding towards Phase 2 clinical development. Our other product candidates and research initiatives are in preclinical or earlier stages of development. Our ability to generate revenue from product sales sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. We have not yet successfully completed any pivotal clinical trials, nor have we obtained any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities.
We have incurred significant operating losses since inception. As of March 31, 2022, we had an accumulated deficit of $87.5 million. We expect to continue to incur net losses for the foreseeable future, and we expect our clinical development expenses, and general and administrative expenses to continue to increase. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing development activities, particularly if and as we:
| ● | continue preclinical studies and continue existing and initiate new clinical trials for PF614, PF614-MPAR™ and nafamostat, our lead product candidates being tested for chronic pain and infectious disease; | |
| ● | advance the development of our product candidate pipeline of other product candidates, including through business development efforts to invest in or in-license other technologies or product candidates; | |
| ● | maintain, expand and protect our intellectual property portfolio; | |
| ● | hire additional clinical, quality control, medical, scientific and other technical personnel to support our clinical operations; |
| 20 |
| ● | seek regulatory approvals for any product candidates that successfully complete clinical trials; | |
| ● | undertake any pre-commercialization activities to establish sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval; | |
| ● | expand our infrastructure and facilities to accommodate our growing employee base; and | |
| ● | add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and our transition to operating as a public company. |
We expect to incur additional costs associated with operating as a public company, including significant legal, accounting, insurance, investor relations and other expenses that we did not incur as a private company.
We require substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of private and public equity offerings, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. To the extent that we raise additional capital through the sale of private or public equity or convertible debt securities, existing ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our equity holders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations or other strategic transactions with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
COVID-19 pandemic Business Update
In March 2020, the World Health Organization declared COVID-19 a global pandemic. To date, our financial condition and operations have not been significantly impacted by the ongoing COVID-19 pandemic. However, we cannot at this time predict the specific extent, duration, or full impact that the ongoing COVID-19 pandemic will have on our financial condition and operations, including ongoing and planned clinical trials and other operations required to support those clinical trials and research and development activities to advance our pipeline. The impact of the ongoing COVID-19 pandemic on our financial performance will depend on future developments, including the duration and spread of the pandemic and related governmental advisories and restrictions. These developments and the impact of the ongoing COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, our results may be materially adversely affected.
We are continuing to evaluate the impact of the ongoing COVID-19 pandemic on our business and continue to take proactive measures to protect the health and safety of our employees, as well as to maintain business continuity. We believe that the current measures we have implemented with respect to the ongoing COVID-19 pandemic are appropriate, reflecting both regulatory and public health guidance, to maintain business continuity. We will continue to closely monitor and seek to comply with guidance from governmental authorities and adjust our activities as appropriate.
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Business Combination Transaction
On January 31, 2021, LACQ executed a definitive merger agreement among it, Merger Sub and Former Ensysce, providing for, among other things, and subject to terms and conditions therein, the business combination between LACQ and Former Ensysce pursuant to the merger of Merger Sub with and into Former Ensysce, with Former Ensysce continuing as the surviving entity and as a wholly-owned subsidiary of LACQ (the “Business Combination”). On June 30, 2021, the Business Combination was consummated. In connection with the Business Combination, the stockholders of Former Ensysce exchanged their interests for shares of the combined company’s common stock at an exchange ratio of 0.06585. Immediately following the Business Combination, the stockholders of Former Ensysce owned approximately 71.8% of the outstanding common stock of the combined company. Former Ensysce’s existing equity incentive plans were terminated; awards issued under the existing equity incentive plans were exchanged for awards issued under the Company’s 2021 Omnibus Incentive Plan, a new equity incentive plan that we and the stockholders adopted in connection with the Business Combination. We received net proceeds of approximately $7.8 million at the closing of the Business Combination and we continue to operate under our management team, led by our Chief Executive Officer Lynn Kirkpatrick. On July 2, 2021, the combined company’s common stock began trading on Nasdaq under the ticker symbol “ENSC”.
Components of Ensysce’s Operating Results
Revenue
We have generated limited revenue since our inception and we do not expect to generate any revenue from the sale of products in the near future, if at all. If our development efforts are successful and we commercialize our products, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales, as well as upfront, milestone and royalty payments from such collaboration or license agreements, or a combination thereof.
We have received funding under federal grants from the National Institutes of Health (“NIH”) through the National Institute on Drug Abuse (“NIDA”). In September 2018, we were awarded a research and development grant related to the development of our MPARTM overdose prevention technology (the “MPAR Grant”). In September 2019, we were awarded a second research and development grant related to the development of our TAAP/MPARTM abuse deterrent technology for Opioid Use Disorder (“OUD”) (the “OUD Grant”). Grant funds are awarded annually through a Notice of Award which contains certain terms and conditions including, but not limited to, complying with the grant program legislation, regulation and policy requirements, complying with conditions on expenditures of funds with respect to other applicable statutory requirements such as the federal appropriations acts, periodic reporting requirements, and budget requirements.
Operating Expenses
Research and development expenses
Research and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts and the development of our product candidates. We expense research and development costs as incurred, which include:
| ● | expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval; | |
| ● | expenses incurred under agreements with contract research organizations (“CROs”) that are primarily engaged in the oversight and conduct of our drug discovery efforts and preclinical studies, clinical trials and contract manufacturing organizations (“CMOs”) that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs; |
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| ● | other costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical studies and clinical trial materials, including manufacturing validation batches, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services; | |
| ● | payments made in cash or equity securities under third-party licensing, acquisition and option agreements; | |
| ● | employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions; | |
| ● | costs related to compliance with regulatory requirements; and | |
| ● | allocated facilities-related costs, depreciation and other expenses, which include rent and utilities. |
We recognize external development costs as incurred. Any advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. We estimate and accrue for the value of goods and services received from CROs and other third parties each reporting period based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs.
We do not track our research and development expenses on a program-by-program basis. Our direct external research and development expenses consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery as well as for managing our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track our costs by program and cannot state precisely the total costs incurred for each of our clinical and preclinical programs on a project-by-project basis.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years as we continue our existing, and commences additional, planned clinical trials for PF614, PF614-MPAR™ and nafamostat, as well as conduct other preclinical and clinical development, including submitting regulatory filings for our other product candidates. We also expect our discovery research efforts and our related personnel costs to increase and, as a result, we expect our research and development expenses, including costs associated with stock-based compensation, to increase above historical levels. In addition, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we may enter into license, acquisition and option agreements to acquire the rights to future product candidates.
At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. The successful development and commercialization of our product candidates are highly uncertain. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of the following:
| ● | the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities; |
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| ● | establishing an appropriate safety and efficacy profile with investigational new drug (“IND”) enabling studies; | |
| ● | successful patient enrollment in and the initiation and completion of clinical trials; | |
| ● | the timing, receipt and terms of any marketing approvals from applicable regulatory authorities including the FDA and non-U.S. regulators; | |
| ● | the extent of any required post-marketing approval commitments to applicable regulatory authorities; | |
| ● | establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully; |
| ● | development and timely delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and for commercial launch; | |
| ● | obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights; | |
| ● | significant and changing government regulation; | |
| ● | launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and | |
| ● | maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates. |
Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.
General and administrative expenses
General and administrative expenses consist primarily of employee-related expenses, including salaries and related benefits, travel and stock-based compensation for personnel in executive, business development, finance, human resources, legal, information technology, and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as insurance costs and professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We expense general and administrative costs as incurred.
We anticipate that our general and administrative expenses, excluding non-cash expenses to recognize the fair value of warrants, will increase in the future as we increase our headcount to support the continued development of our product candidates. We also anticipate that we will incur significantly increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of that product candidate.
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Other income (expense)
Change in fair value of derivative liabilities
Between 2018 and 2021, we entered into a series of notes that were determined to have embedded derivative instruments in the form of a contingent put option. The notes were recognized at the value of proceeds received after allocating issuance proceeds to the bifurcated contingent put option. The notes were subsequently measured at amortized cost using the effective interest method to accrete interest over their term to bring the notes’ initial carrying value to their principal balance at maturity. The bifurcated put option was initially measured at fair value and subsequently measured at fair value with changes in fair value recognized as a component of other expenses in the consolidated statements of operations.
Change in fair value of convertible notes
We elected the fair value option to account for the 2021 Notes as we believe the fair value option provides users of the financial statements with greater ability to estimate the outcome of future events as facts and circumstances change, particularly with respect to changes in the fair value of the common stock underlying the conversion option. We use a discounted cash flow model and a Monte Carlo analysis to estimate the fair value of the notes, both of which rely on unobservable Level 3 inputs. Changes in the fair value of the notes are recognized through earnings for each reporting period.
Change in fair value of liability classified warrants
The warrants issued with the 2021 Notes were liability classified due to certain cash settlement features. We use a Black-Scholes option pricing model to estimate the fair value of the warrants. Changes in the fair value of the warrants are recognized through earnings for each reporting period.
Loss on debt conversions
When conversions on the 2021 Notes occur, we calculate the difference between the conversion price and the average of the high and low stock price on the date of conversion. The resulting difference is either a loss if the conversion price was below the average of the high and low stock price on the date of conversion or a gain if the conversion price was above the average of the high and low stock price on the date of conversion.
Interest expense
Interest expense consists of interest accrued on our financed directors and officer insurance as well as imputed interest on the commitment fees related to the share subscription facility.
Provision for Income Taxes
We have not recorded any significant amounts related to income tax expense, we have not recognized any reserves related to uncertain tax positions, nor have we recorded any income tax benefits for the majority of our net losses we have incurred to date or for our research and development tax credits.
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or our tax returns. Deferred tax assets and liabilities are determined based on difference between the financial statement carrying amounts and tax bases of existing assets and liabilities and for loss and credit carryforwards, which are measured using the enacted tax rates and laws in effect in the years in which the differences are expected to reverse. The realization of our deferred tax assets is dependent upon the generation of future taxable income, the amount and timing of which are uncertain. 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. As of March 31, 2022, we continue to maintain a full valuation allowance against all of our deferred tax assets based on our evaluation of all available evidence.
We file income tax returns in the United States federal tax jurisdiction and state jurisdictions and may become subject to income tax audit and adjustments by related tax authorities. Our tax return period for United States federal income taxes for the tax years since 2015 remain open to examination under the statute of limitations by the Internal Revenue Service and state jurisdictions. We record reserves for potential tax payments to various tax authorities related to uncertain tax positions, if any. The nature of uncertain tax positions is subject to significant judgment by management and subject to change, which may be substantial. These reserves are based on a determination of whether and how much a tax benefit taken by us in our tax filings or whether our position is more likely than not to be realized following the resolution of any potential contingencies related to the tax benefit. We develop our assessment of uncertain tax positions, and the associated cumulative probabilities, using internal expertise and assistance from third-party experts. As additional information becomes available, estimates are revised and refined. Differences between estimates and final settlement may occur resulting in additional tax expense. Potential interest and penalties associated with such uncertain tax positions is recorded as a component of our provision for income taxes. To date, no amounts are being presented as an uncertain tax position.
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Results of Operations
Comparison of the three months ended March 31, 2022 and 2021
The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021:
| Three Months Ended March 31, | ||||||||||||
| 2022 | 2021 | Change | ||||||||||
| Federal grants | $ | 603,098 | $ | 250,576 | $ | 352,522 | ||||||
| Operating expenses: | ||||||||||||
| Research and development | 3,140,096 | 284,378 | 2,855,718 | |||||||||
| General and administrative | 2,265,806 | 490,471 | 1,775,335 | |||||||||
| Total operating expenses | 5,405,902 | 774,849 | 4,631,053 | |||||||||
| Loss from operations | (4,802,804 | ) | (524,273 | ) | (4,278,531 | ) | ||||||
| Other income (expense): | ||||||||||||
| Change in fair value of derivative liabilities | - | (39,585 | ) | 39,585 | ||||||||
| Change in fair value of convertible notes | 2,767,178 | - | 2,767,178 | |||||||||
| Change in fair value of liability classified warrants | 2,794,398 | - | 2,794,398 | |||||||||
| Loss on debt conversions | (1,702,642 | ) | - | (1,702,642 | ) | |||||||
| Interest expense | (15,021 | ) | (347,834 | ) | 332,813 | |||||||
| Other income and expense, net | 7,966 | - | 7,966 | |||||||||
| Total other income (expense), net | 3,851,879 | (387,419 | ) | 4,239,298 | ||||||||
| Net loss | $ | (950,925 | ) | $ | (911,692 | ) | $ | (39,223 | ) | |||
| Net income (loss) attributable to noncontrolling interests | 182 | (3,961 | ) | 4,143 | ||||||||
| Deemed dividend related to warrants down round provision | 715,579 | - | 715,579 | |||||||||
| Net loss attributable to common stockholders | $ | (1,666,686 | ) | $ | (907,731 | ) | $ | (758,955) | ||||
Federal grant funding
Funding from federal grants for the three months ended March 31, 2022 and 2021 totaled $0.6 million and $0.3 million, respectively, representing an increase of $0.3 million. Funding increased by $0.4 million under the MPAR Grant, offset by a decrease of $0.1 million under the OUD Grant, due to the timing of research activities eligible for funding. We expect that funding from federal grants may generally increase in the future due to the timing of preclinical and clinical development activities under the grants.
Research and development expenses
Research and development expenses for the three months ended March 31, 2022 and 2021 were $3.1 million and $0.2 million, respectively, representing an increase of $2.9 million. The increase was primarily the result of increased external research and development costs related to preclinical and clinical programs for PF614 and PF614-MPAR™. We do not currently track expenses on a program-by-program basis. We expect research and development expenses to increase in the future due to planned clinical trials and higher preclinical and clinical development costs for our product candidates.
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General and administrative expenses
General and administrative expenses for the three months ended March 31, 2022 and 2021 were $2.3 million and $0.5 million, respectively, representing an increase of $1.8 million. The increase was primarily a result of increased expenses related to operating as a public company, including legal and accounting fees and director and officer insurance expenses. We expect general and administrative expenses in the future to approximate current levels.
Other income and expense
Changes in fair value of convertible notes and liability classified warrants for the 2022 period relate to the 2021 Notes. Loss on debt conversions is driven by the difference between the conversion price of the 2021 Notes and the average of the high and low stock price on the date of conversion. There was no corresponding activity in the 2021 period.
Interest expense decreased $0.3 million in the 2022 period due to the conversion of outstanding convertible notes on June 30, 2021 and because interest expense associated with the 2021 Notes is reflected in the fair value adjustments instead of separately presented as interest expense.
Liquidity and capital resources
Sources of liquidity and capital
As of March 31, 2022, we had $8.4 million of cash and cash equivalents. Since inception, we have generated limited revenues and have incurred significant operating losses and negative cash flows from our operations, and we anticipate that we will continue to incur losses for at least the foreseeable future. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. As of March 31, 2022, we had an accumulated deficit of $87.5 million.
We have funded our operations to date primarily with proceeds from the sale of common equity, funding under federal research grants and borrowings under promissory notes. To fund future operations, we will likely need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing research and development efforts and related general and administrative support. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration agreements. We cannot make assurances that anticipated additional financing will be available to us on favorable terms, if at all.
Current remaining funding under two approved federal research grants totals $4.1 million and is expected to be utilized by December 31, 2022. Pursuant to the terms and conditions of the two grants, we are required to submit progress reports to NIDA on an annual basis and a final research performance progress report within 120 days of the performance period end date. Additionally, the grants limit the use of funds to activities that are clearly severable and independent from activities that involve human subjects until the receipt by NIDA of (i) Institutional Review Board (“IRB”) approval, (ii) federal-wide assurance from the Office for Human Research Protections, (iii) a Data and Safety Monitoring Plan, (iv) certification that all key personnel have completed education on the protection of human subjects and (v) a Clinical Trials Dissemination Plan. We must also comply with the data sharing policies of NIDA and the NIH Public Access Policy, that require submission of final peer-reviewed journal manuscripts that arise from the use of grants to PubMed Central immediately upon acceptance for publication.
Neither grant has to be repaid. To receive the remaining funding for each respective study covered by a grant, we must meet certain milestones. We have met the required milestones under the MPAR Grant. The remaining milestone under the OUD Grant is identification of a R-methadone-TAAP clinical candidate that meet the specified criteria.
Inventions arising from the research projects funded with the grants are required to be reported to NIDA, per the Bayh-Dole Act (the Patent and Trademark Law Amendments Act), that permits us to retain ownership of the inventions, while also giving NIDA the license to practice the subject invention. In turn, we are expected to file for patent protection and to ensure commercialization upon licensing for the benefit of public health.
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Pursuant to the GEM Agreement, we are entitled to draw down up to $60.0 million of gross proceeds (“Aggregate Limit”) from GEM Global in exchange for shares of our common stock, subject to meeting the terms and conditions of the GEM Agreement. This share subscription facility is available for a period of 36 months from the closing date of the Business Combination. A draw down is subject to limitations on the amount that is drawn under the facility and must comply with certain conditions precedent including the listing of our shares on a principal market (which includes Nasdaq), having the necessary number of shares that are issuable pursuant to the draw down registered under an effective registration statement, and other notice and timing requirements. Upon our valid exercise of a draw down, pursuant to delivery of a notice and in accordance with other conditions, GEM Global is required to pay, in cash, a per-share amount equal to 90% of the average closing bid price of the shares of our common stock recorded by Nasdaq during the 30 consecutive trading days commencing on the first trading day that is designated on the draw down notice. In no event may our draw down requests exceed 400% of the average daily trading volume for the 30 trading days immediately preceding the date we deliver the draw down notice. Our ability to utilize this share subscription facility is restricted while the 2021 Notes are outstanding.
Upon the closing of the Business Combination, GEM Global became entitled to a commitment fee in the form of cash or freely tradeable shares of our common stock in an amount equal to 2% of the Aggregate Limit or $1.2 million to be paid in two tranches. The commitment fee for the first tranche, which is equal to 67% of the commitment fee, or $800,000, becomes payable on the first anniversary of the closing of the Business Combination and the commitment fee for the second tranche, which is equal to the remaining 33% of the commitment fee, or $400,000, becomes payable on the eighteen-month anniversary of the closing of the Business Combination.
Additionally, we issued a warrant with a 36-month term at the closing of the Business Combination granting GEM Global the right to purchase 1,106,108 shares of our common stock (an amount equal to 4% of the total number of our common stock outstanding as of the closing date of the Business Combination (subject to adjustments described below), calculated on a fully diluted basis), at a strike price per share equal to $10.01, which was the closing bid price for such common stock on the first day of trading on Nasdaq. The strike price was reduced to $4.50 per share at December 31, 2021 because of a pricing adjustment per the GEM Agreement. The warrant can be exercised on a cashless basis in part or in whole at any time during the term. Any failure by us to timely transfer the shares under the warrant pursuant to GEM Global’s exercise will entitle GEM Global to compensation in addition to other remedies. The number of shares underlying the warrant as well as the strike price is subject to adjustments for recapitalizations, reorganizations, change of control, stock split, stock dividend, reverse stock splits, and issuances of additional common shares at a price per share less than the exercise price.
The GEM Agreement contains certain negative covenants restricting us from securing a share subscription line similar to the financing provided under the GEM Agreement and requiring prompt notice of events constituting an alternate transaction. An “alternate transaction” includes an issuance of common stock at a price less than the then current market price, an “at-the-market” offering of securities, and an issuance of options, warrants, or similar rights of subscription or the issuance of convertible equity or debt securities.
Finally, pursuant to the terms of the GEM Agreement, we are required to indemnify GEM Global for any losses it incurs as a result of a breach by us or of our representations and warranties and covenants under the GEM Agreement or for any misstatement or omission of a material fact in a registration statement registering those shares pursuant to the GEM Agreement. Also, GEM Global is entitled to be reimbursed for legal or other costs or expenses reasonably incurred in investigating, preparing, or defending against any such loss.
On September 24, 2021, we entered the SPA for an aggregate financing of $15.0 million with institutional investors. The Company issued to the investors (i) 2021 Notes in the aggregate principal amount of $15.9 million for an aggregate purchase price of $15.0 million and (ii) warrants to purchase 1,083,475 shares of the Company’s common stock in the aggregate at an exercise price of $7.63 per share. The SPA limits our ability to execute certain debt and equity financings, including our existing $60.0 million share subscription facility, while the 2021 Notes remain outstanding.
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Cash flows
The following table summarizes our cash flows for each of the periods presented:
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (3,437,014 | ) | $ | (517,149 | ) | ||
| Net cash provided by investing activities | 4,500 | - | ||||||
| Net cash provided by (used in) financing activities | (391,270 | ) | 612,862 | |||||
| Net increase (decrease) in cash and cash equivalents | $ | (3,823,784 | ) | $ | 95,713 | |||
Operating activities
During the three months ended March 31, 2022 and 2021, we used cash in operating activities of $3.4 million and $0.5 million, respectively. The increase primarily resulted from the clinical advancement of our product candidates and increased costs related to operating as a public company.
Investing activities
During the three months ended March 31, 2022, net cash provided by investing activities was $4,500 from the sale of certain property and equipment. There were no comparable activities for the three months ended March 31, 2021.
Financing activities
During the three months ended March 31, 2022, net cash used in financing activities was $0.4 million, primarily consisting of repayment of financed insurance premiums. During the three months ended March 31, 2021, net cash provided by financing activities was $0.6 million, primarily consisting of proceeds from the issuance of promissory notes to related parties and from the exercise of stock options.
Funding requirements
Our primary use of cash is to fund operating expenses, primarily related to our research and development activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. In addition, since the completion of the Business Combination, we incur costs associated with operating as a public company, including significant legal, accounting, insurance, investor relations and other expenses that we did not incur as a private company. The timing and amount of our operating expenditures will depend largely on our ability to:
| ● | advance preclinical development of our early-stage programs and clinical trials of our product candidates; | |
| ● | manufacture, or have manufactured on our behalf, preclinical and clinical drug material and develop processes for late state and commercial manufacturing; | |
| ● | seek regulatory approvals for any product candidates that successfully complete clinical trials; | |
| ● | establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own; | |
| ● | hire additional clinical, quality control and scientific personnel; | |
| ● | expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company; | |
| ● | obtain, maintain, expand and protect our intellectual property portfolio; |
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| ● | manage the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights, including enforcing and defending intellectual property related claims; and | |
| ● | manage the costs of operating as a public company. |
Going concern
We have generated limited revenues and have incurred significant operating losses since our inception and, as of March 31, 2022, had an accumulated deficit of $87.5 million. We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future.
Following the completion of the Business Combination and public listing of our common stock on Nasdaq, we had access to up to $60.0 million from a share subscription facility entered into in December 2020. The 2021 Notes limit our ability to execute certain debt and equity financings, including its existing $60.0 million share subscription facility, while the 2021 Notes are outstanding. Without the availability of proceeds through the share subscription facility, existing cash resources are not sufficient to allow us to fund current planned operations through the next 12 months following the filing of this Quarterly Report on Form 10-Q, which raises substantial doubt about the Company’s ability to continue as a going concern.
Working capital
Because of the numerous risks and uncertainties associated with research, development and commercialization of biologic product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:
| ● | the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical trials; | |
| ● | the costs, timing and outcome of regulatory review of our product candidates; | |
| ● | the costs, timing and ability to manufacture our product candidates to supply our clinical and preclinical development efforts and our clinical trials; |
| ● | the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval; | |
| ● | the costs of manufacturing commercial-grade product and necessary inventory to support commercial launch; | |
| ● | the ability to receive additional non-dilutive funding, including grants from organizations and foundations; | |
| ● | the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval; | |
| ● | the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, expanding and enforcing our intellectual property rights and defending intellectual property-related claims; | |
| ● | our ability to establish and maintain collaborations on favorable terms, if at all; and | |
| ● | the extent to which we acquire or in-license other product candidates and technologies. |
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Critical accounting policies and significant judgments and estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 3 to our unaudited interim consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Accrued research and development expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when it has not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and makes adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:
| ● | vendors, including research laboratories, in connection with preclinical development activities; | |
| ● | CROs and investigative sites in connection with preclinical studies and clinical trials; and | |
| ● | CMOs in connection with drug substance and drug product formulation of preclinical studies and clinical trial materials. |
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and CROs that supply, conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.
Stock-based compensation
We measure all stock-based awards granted to employees, directors and non-employees based on their fair value on the date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. Forfeitures are accounted for as they occur. We grant stock options and restricted stock awards that are subject to either service or performance-based vesting conditions. Compensation expense related to awards to employees and non-employees with performance-based vesting conditions is recognized based on the grant date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable. We estimate the probability that certain performance criteria will be met and do not recognize compensation expense until it is probable that the performance-based vesting condition will be achieved.
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We classify stock-based compensation expense in our statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.
Fair value of liabilities
We elected the fair value option to account for the convertible notes as we believe the fair value option provides users of the financial statements with greater ability to estimate the outcome of future events as facts and circumstances change, particularly with respect to changes in the fair value of the common stock underlying the conversion option. We use a Monte Carlo to estimate the fair value of the notes, which relies on unobservable Level 3 inputs. Changes in the fair value of the notes are recognized through earnings for each reporting period.
Off-balance sheet arrangements
We do not have during the periods presented, and do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Recently issued accounting pronouncements
A description of recently issued accounting pronouncements that may potentially impact Ensysce’s financial position and results of operations is disclosed in Note 3 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Emerging growth company and smaller reporting company status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We may take advantage of these exemptions until we are no longer an emerging growth company under Section 107 of the JOBS Act, which provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to avail ourselves of the extended transition period and, therefore, while we are an emerging growth company we are not subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies, unless we choose to early adopt a new or revised accounting standard.
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250 million as of the prior June 30, or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the prior June 30.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Our cash and cash equivalents as of March 31, 2022 consisted of cash and a money market fund account. Because of the short-term nature of our money market fund, a sudden change in market interest rates would not be expected to have a material impact on our financial position or results of operations.
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Inflation Risk
We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a–15(e) and 15d-15(e)) as of March 31, 2022. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2022 due to the material weaknesses in our internal controls over financial reporting described below. Notwithstanding these material weaknesses, management has concluded that our financial statements included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with GAAP for each of the periods presented therein.
Material Weaknesses and Remediation Plan
In connection with the preparation of our consolidated financial statements for the years ended December 31, 2021 and 2020, and our unaudited interim consolidated financial statements for the three months ended March 31, 2022 and 2021, we concluded that there were material weaknesses in our internal controls over financial reporting. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal controls over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified are insufficient internal controls because of inadequate technical accounting expertise and inappropriate level of supervision and review due to the limited number of accounting personnel.
We are taking steps to remediate the material weaknesses in our internal controls over financial reporting, including hiring a Chief Financial Officer in February 2021. Further, we plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we 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, we review 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, we accrue 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, we reassess the potential liability related to pending claims and litigation.
Item 1A. Risk Factors.
While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical, under the circumstances, some level of risk and uncertainty will always be present. Part I, Item 1A. Risk Factors of our 2021 Annual Report on Form 10-K includes a detailed discussion of our risk factors. Those risks and uncertainties have the potential to materially affect our financial condition and results of operations. There have been no material changes in our risk factors from those previously disclosed in Part I, Item 1A, of our 2021 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We entered into an Investor Relations Consulting Agreement with MZHCI, LLC on December 20, 2021, through which we receive ongoing stock market support services and other consulting services. Pursuant to that agreement, we pay a monthly fee and we issued 50,000 unregistered shares of our common stock in February 2022. The issuance of our shares was exempt from registration under Section 4(a)(2) of the Securities Act as it was a private transaction between MZHCI, LLC and us. We received no proceeds in connection with our issuance of those 50,000 shares.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits.
The following exhibits are filed as part of this report:
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ENSYSCE BIOSCIENCES, INC. | |
| Date: May 12, 2022 | /s/ David Humphrey |
| David Humphrey | |
| Chief Financial Officer, Secretary and Treasurer |
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Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lynn Kirkpatrick, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Ensysce Biosciences, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313); | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 12, 2022 | ||
| /s/ Lynn Kirkpatrick | ||
| Name: | Lynn Kirkpatrick | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David Humphrey, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Ensysce Biosciences, Inc. ; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313); | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 12, 2022 | ||
| /s/ David Humphrey | ||
| Name: | David Humphrey | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ensysce Biosciences, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn Kirkpatrick, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and results of operations of the Company for the period covered by the Report. |
| Date: | May 12, 2022 | /s/ Lynn Kirkpatrick |
| Lynn Kirkpatrick | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
This certification accompanies the Report and shall not be deemed “filed” by the Company with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ensysce Biosciences, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Humphrey, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| 1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2) | The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and results of operations of the Company for the period covered by the Report. |
| Dated: | May 12, 2022 | /s/ David Humphrey |
| David Humphrey | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
This certification accompanies the Report and shall not be deemed “filed” by the Company with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.