UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) |
Name of each exchange on which registered | ||
The
The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
☒ | Smaller reporting company | |||||
Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As of November 12, 2021, 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 registration statement/prospectus; | |
● | 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; | |
● | the ability to recognize the anticipated benefits of the Business Combination (as defined below), which may be affected by, among other things, the factors described above; | |
● | potential litigation associated with the Business Combination; | |
● | other factors disclosed in this registration statement/prospectus; and | |
● | other factors beyond Ensysce’s control. |
The foregoing list of forward-looking statements is not exhaustive. These statements speak only as of the date of this report and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The section of this report titled “Section 1A. Risk Factors” identifies important factors that could harm our business and financial performance and cause our actual results to differ materially from those expressed or implied by our forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise, except as required by law.
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Table of Contents
Page | ||
PART I. | FINANCIAL INFORMATION | 1 |
Item 1. | Financial Statements (Unaudited) | 1 |
Consolidated Balance Sheets | 1 | |
Consolidated Statements of Operations | 2 | |
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) | 3 | |
Consolidated Statements of Cash Flows | 5 | |
Notes to Unaudited Consolidated Financial Statements | 6 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 34 |
Item 4. | Controls and Procedures | 35 |
PART II. | OTHER INFORMATION | 36 |
Item 1. | Legal Proceedings | 36 |
Item 1A. | Risk Factors | 36 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 86 |
Item 3. | Defaults Upon Senior Securities | 87 |
Item 4. | Mine Safety Disclosures | 87 |
Item 5. | Other Information | 87 |
Item 6. | Exhibits | 88 |
Signatures | 89 |
ii |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Ensysce Biosciences, Inc.
Consolidated Balance Sheets
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
(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’ deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses and other liabilities | ||||||||
Lease liability | ||||||||
Notes payable and accrued interest | ||||||||
Embedded derivative on convertible notes | - | |||||||
Total current liabilities | ||||||||
Long-term liabilities: | ||||||||
Notes payable, net of current portion | - | |||||||
Other long term liabilities | - | |||||||
Total long-term liabilities | - | |||||||
Total liabilities | ||||||||
Commitments and contingencies (Note 6) | ||||||||
Stockholders’ deficit | ||||||||
Preferred stock, $par value, shares authorized, shares issued and outstanding at September 30, 2021 (unaudited) and December 31, 2020 | - | - | ||||||
Common stock, $par value, shares authorized; and shares issued at September 30, 2021 (unaudited) and December 31, 2020, respectively; and shares outstanding at September 30, 2021 (unaudited) and December 31, 2020, respectively | ||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Ensysce Biosciences, Inc. stockholders’ deficit | ( | ) | ( | ) | ||||
Noncontrolling interests in stockholders’ deficit | ( | ) | ( | ) | ||||
Total stockholders’ deficit | ( | ) | ( | ) | ||||
Total liabilities and stockholders’ deficit | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
1 |
Ensysce Biosciences, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Federal grants | $ | $ | $ | $ | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | ||||||||||||||||
General and administrative | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income (expense): | ||||||||||||||||
Adjustment to initial fair value of debt | ( | ) | - | ( | ) | - | ||||||||||
Issuance costs for convertible notes | ( | ) | - | ( | ) | - | ||||||||||
Change in fair value of liabilities | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Loss on extinguishment of debt | - | - | ( | ) | - | |||||||||||
Other income and expense, net | - | - | ||||||||||||||
Total other income (expense), net | ( | ) | ( | ) | ||||||||||||
Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
Net loss attributable to noncontrolling interests | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Net income (loss) attributable to common stockholders | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
Net income (loss) per basic share: | ||||||||||||||||
Net income (loss) per share attributable to common stockholders, basic | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
Weighted average common shares outstanding, basic | ||||||||||||||||
Net income (loss) per diluted share: | ||||||||||||||||
Net income (loss) per share attributable to common stockholders, diluted | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
Weighted average common shares outstanding, 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 June 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
Stock-based compensation | - | |||||||||||||||||||||||
Net income (loss) | - | ( | ) | |||||||||||||||||||||
Balance on September 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
Balance on June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
Stock-based compensation | - | |||||||||||||||||||||||
Issuance of warrants | - | |||||||||||||||||||||||
Warrants modification | - | |||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
Balance on September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these consolidated financial statements.
3 |
Ensysce Biosciences, Inc.
Consolidated Statements of Changes in Stockholders’ EQUITY (Deficit)
(Unaudited)
Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||
Number of Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Noncontrolling interests | Total | |||||||||||||||||||
Balance on December 31, 2019 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
Stock-based compensation | - | |||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
Balance on September 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
Balance on December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
Exercise of stock options | ||||||||||||||||||||||||
Settlement of convertible notes | ||||||||||||||||||||||||
Issuance of common stock for business combination, net of transaction costs | ||||||||||||||||||||||||
Stock-based compensation | - | |||||||||||||||||||||||
Issuance of warrants | - | |||||||||||||||||||||||
Warrants modification | - | |||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
Balance on September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these consolidated financial statements.
4 |
Ensysce Biosciences, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | ||||||||
Accrued interest | ||||||||
Accretion of discounts on promissory notes | ||||||||
Change in fair value of embedded derivative | ( | ) | ( | ) | ||||
Change in fair value of convertible debt | ( | ) | - | |||||
Loss on extinguishment of debt | - | |||||||
Stock-based compensation | ||||||||
Adjustment to fair value of financial instruments | - | |||||||
Issuance of warrants for share subscription facility | - | |||||||
Commitment fee for share subscription facility | - | |||||||
Warrant modification | - | |||||||
Lease cost | ( | ) | - | |||||
Issuance costs for convertible notes | - | |||||||
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: | ||||||||
Purchases of property and equipment | - | ( | ) | |||||
Net cash used by investing activities | - | ( | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of convertible notes | ||||||||
Issuance costs for convertible notes | ( | ) | - | |||||
Proceeds from issuance of promissory notes to related parties | ||||||||
Repayment of promissory notes and accrued interest | ( | ) | - | |||||
Proceeds from exercise of stock options | - | |||||||
Proceeds from issuance of common stock for business combination, net of transaction costs | - | |||||||
Repayment of financed insurance premiums | ( | ) | - | |||||
Contribution from noncontrolling interests | - | |||||||
Net cash provided by financing activities | ||||||||
Increase in cash and cash equivalents | ||||||||
Cash and cash equivalents beginning of period | ||||||||
Cash and cash equivalents end of period | $ | $ | ||||||
Supplemental cash flow information: | ||||||||
Income tax payments | $ | $ | ||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Fair value of embedded derivative at issuance | $ | $ | ||||||
Settlement of convertible notes into common stock | $ | $ | ||||||
Net assets acquired in business combination | $ | $ | ||||||
Proceeds from financed insurance premiums | $ | $ | ||||||
Share subscription facility transaction costs | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
ENSYSCE BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Ensysce Biosciences, Inc. (“Ensysce”), along with its subsidiary, Covistat Inc. (“Covistat”) and its wholly owned subsidiary EBI Operating, Inc. (collectively, the “Company”), is engaged in the development of small and large molecule drug delivery platforms targeting pain and cancer markets. The primary focus of the Company is its small molecule program developing abuse and overdose resistant pain technology with a clinical stage program being 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 development work applying its TAAP and MPARTM technology to a methadone prodrug for use in the treatment of Opioid Use Disorder (OUD).
On January 31, 2021, 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. As of the date of issuance of the consolidated financial statements, 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.
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.
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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 and nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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, 2020, which may be found in the Company’s Form S-1 registration statement filed with the SEC on August 9, 2021.
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 $
The
Business Combination triggered the conversion of the 2015 convertible notes, the 2018 convertible notes and the 2021 convertible note
of Former Ensysce into common stock. In connection with the Closing, the 2020 convertible notes were amended to provide for automatic
conversion of the outstanding principal and interest into shares common stock of Ensysce. The Company had recorded $
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
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.
7 |
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 of $
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company will recognize an impairment loss only if the carrying amount is not recoverable through its undiscounted cash flows and measure any impairment loss based on the difference between the carrying amount and estimated fair value. There were no such losses for the three and nine months ended September 30, 2021 and 2020.
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.
8 |
Between January 2018 and January 2021, the Company entered into a series of notes that were determined to have embedded derivative instruments in the form of a contingent put option. The notes are recognized at the value of proceeds received after allocating issuance proceeds to the bifurcated contingent put option. The notes are 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 is 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 (see Note 7). The notes and the contingent put option are classified as either long-term or short-term liabilities based on the maturity date of the related loan.
All outstanding derivative liabilities were settled in connection with the conversion of outstanding notes payable on June 30, 2021. Refer to Note 7 for details of the conversion.
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.
ASC 820 requires all entities to disclose the fair value of financial instruments, both assets and liabilities, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of September 30, 2021 and December 31, 2020, 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.
Convertible notes
On
September 24, 2021, the Company issued convertible notes with a face value of $
The
carrying value of outstanding notes payable at December 31, 2020 approximates the estimated aggregate fair value as the embedded contingent
put option is recognized at fair value and classified with the debt host. The put option allows certain notes payable to be converted
into common stock, contingent upon completion of an equity financing transaction with gross proceeds above certain thresholds. The fair
value estimate of the embedded put option is based on the probability-weighted discounted value of the put feature and represents a Level
3 measurement. Significant assumptions used to determine the fair value of the put feature include the estimated probability of exercise
of the put option and the discount rate used to calculate fair value. The estimated probability of exercise is based on management’s
expectation for future equity financing transactions. The discount rate is based on the weighted average effective yield of notes payable
previously issued by the Company, adjusted for changes in market yields of healthcare sector CCC-rated debt. As of December 31, 2020,
assumptions included a probability of exercise of the put option of
Warrants
On September 24, 2021, the Company issued liability classified warrants in connection with the issuance of convertible notes. The Company uses a Black Scholes model to estimate the fair value of the warrants, which relies on unobservable Level 3 inputs. Changes in the fair value of the warrants are recognized through earnings for each reporting period. Refer to Note 8.
9 |
The following tables present assets and liabilities measured and recorded at fair value on the Company’s consolidated balance sheet as of September 30, 2021 and December 31, 2020. As of September 30, 2021, all contingent put options were settled upon conversion of the notes at the closing of the Business Combination.
September 30, 2021 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Convertible note | $ | $ | $ | $ | ||||||||||||
Liability classified warrants | ||||||||||||||||
Total | $ | $ | - | $ | - | $ |
December 31, 2020 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Contingent put option | $ | $ | $ | $ | ||||||||||||
Total | $ | $ | - | $ | - | $ |
The following table summarizes the change in fair value of the Company’s Level 3 assets and liabilities:
For the nine months ended September 30, 2021 | ||||||||||||||||
Total | Contingent put option | Convertible notes | Liability classified warrants | |||||||||||||
Fair value, December 31, 2020 | $ | $ | $ | $ | ||||||||||||
Additions | ||||||||||||||||
Change in fair value | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Fair value, September 30, 2021 | $ | $ | $ | $ |
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 concluded the government grants are not within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), as government entities do not meet the definition of a “customer” as defined by ASC 606, as there is not considered to be a transfer of control of goods or services to the government entity funding the grant. Additionally, the Company has concluded the government grants do not meet the definition of a contribution and is a non-reciprocal transaction, therefore, ASC 958-605, Not-for-Profit-Entities-Revenue Recognition does not apply, as the Company is a business entity, and the grant is with a governmental agency. Revenues from the grants are based upon internal costs incurred that are specifically covered by the grants, plus an additional rate that provides funding for overhead expenses. Revenue is recognized when the Company incurs costs related to the grants. The Company believes this policy is consistent with the overarching premise in 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.
10 |
The revenue recognized under the MPAR Grant and OUD Grant was as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
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 and nine months ended September 30, 2021 and 2020, stock-based compensation costs are recorded in general and administrative 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.
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.
11 |
The basic earnings per share is calculated by dividing the Company’s net income or loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. The diluted earnings per share is calculated by dividing the Company’s net earnings attributable to common stockholders by the diluted weighted average number of common shares outstanding during the period, determined using the treasury stock method and the average stock price during the period. A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows:
Three Months Ended September 30, | Nine Months Ended September 30, |
|||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
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 | $ | ( | ) | $ | $ | ( |
) | $ | ( |
) | ||||||
Net income (loss) per share attributable to common stockholders, diluted | ( | ) | ( |
) | ( |
) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
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. Early adoption is permitted. The Company is evaluating the impact of ASU 2019-12 on the consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Topic 470) to address issues identified as a result of the complexity with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock, resulting in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Certain types of convertible instruments will continue to be subject to separation models: (a) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (b) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. For convertible instruments, the contracts primarily affected are those with beneficial conversions or cash conversion features as the accounting models for those specific features have been removed. For contracts in an entity’s own equity, the contracts primarily affected are freestanding instruments and embedded features that are accounted for as derivatives due to a failure to meet the settlement conditions of the derivatives scope exceptions. The FASB simplified the settlement assessment by removing the requirements to (a) consider whether the contract would be settled in registered shares, (b) to consider whether collateral is required to be posted, and (c) assess shareholder rights. The FASB also decided to enhance information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 and early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. Entities must adopt the guidance as of the beginning of its annual fiscal year and a modified retrospective or fully retrospective transition approach is permitted. The Company is evaluating the impact of ASU 2020-06 on the consolidated financial statements.
12 |
NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
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:
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Consultant stock compensation expenses | $ | $ | ||||||
Share subscription facility commitment fees | ||||||||
Professional fees | - | |||||||
Accrued research and development | ||||||||
Accrued scientific advisory board fees | ||||||||
Deferred grant revenue | - | |||||||
Other accrued liabilities | ||||||||
Total accrued expenses and other liabilities | $ | $ |
Other long-term liabilities consisted of the following:
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Share subscription facility commitment fees | $ | $ | ||||||
Liability classified warrants | - | |||||||
Total other long-term liabilities | $ | $ |
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Litigation
As of September 30, 2021 and December 31, 2020, 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.
On July 12, 2021, following the Business Combination with LACQ, the Company’s former financial advisor filed an action against the Company and its Chief Executive Officer alleging that the common stock and warrants issued to the former advisor in satisfaction of its advisory fee should have been registered and immediately tradeable. On August 3, 2021, the parties entered into a settlement agreement whereby the former advisor would have their common stock and the common stock underlying their warrants registered on the Company’s resale Registration Statement on Form S-1 that it filed on August 9, 2021 (the “Resale Registration Statement”). In addition, the warrants would be modified to allow for cashless exercise and to reduce the exercise price from $/share to $/share. In consideration for this, both parties agreed to release the other from any past, present, or future claims. In addition, the former advisor agreed to immediately stay the proceedings and inform the Superior Court of a conditional settlement and to dismiss the lawsuit with prejudice five days following the effectiveness of the Resale Registration Statement. See Note 11 for additional information.
Lease
During the three and nine months ended September 30, 2020, the Company leased office space on a month-to-month basis.
In August 2020, the Company entered into an agreement to lease office space. The lease commencement date was October 1, 2020 and the lease will terminate October 31, 2021 with no option to renew.
In August 2021, the Company entered into an amendment of the aforementioned lease, whereby the term of the lease was extended 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 September 30, 2021, the future lease payments totalled $
The
Company recognized total rent expense of $
Share-based 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
13 |
NOTE 7 - NOTES PAYABLE
The following table provides a summary of the Company’s outstanding debt as of September 30, 2021:
Principal balance | Accrued interest | Fair value adjustment | Net debt balance | |||||||||||||
2021 convertible notes | $ | $ | $ | ( | ) | $ | ||||||||||
Financed insurance | ||||||||||||||||
Total | $ | $ | $ | ( | ) | $ |
The following table provides a summary of the Company’s outstanding debt as of December 31, 2020:
Principal balance | Accrued interest | Unamortized debt discount | Net debt balance | |||||||||||||
2015 convertible notes | $ | $ | $ | $ | ||||||||||||
2018 convertible notes | ( | ) | ||||||||||||||
2020 promissory notes | ||||||||||||||||
2020 convertible notes | ( | ) | ||||||||||||||
Total | $ | $ | $ | ( | ) | $ |
The interest expense recognized for notes payable was as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Stated interest accrual | $ | $ | $ | $ | ||||||||||||
Debt discount amortization | - | |||||||||||||||
Total | $ | $ | $ | $ |
2015 Convertible Notes Payable
During
2015, the Company issued certain convertible promissory notes in the aggregate principal amount of $
2018 Convertible Notes Payable
Between
January 2018 and December 2020, the Company received financing totaling $
Additionally,
if there is an initial public offering or reverse merger that results in Ensysce becoming publicly listed, the promissory notes automatically
convert to equity at the lower of $
In June 2020, the board resolved to extend the maturity of all 2018 convertible notes payable issued in 2018 by year. The Company did not incur legal fees or other additional costs to effect the modification. The modification met the criteria to be classified as a troubled debt restructuring under ASC 470-50. The effective interest rate was recalculated to reflect the modified expected term of the notes and no gain or loss was recognized.
2020 Convertible Notes Payable
During
the year ended December 31, 2020, Covistat received financing totaling $
2020 Promissory Notes Payable
During
the year ended December 31, 2020, the Company received financing totaling $
2021 Convertible Note Payable
In
January 2021, the Company received financing totaling $
2021 Promissory Notes
In
March and May 2021, the Company received financing totaling $
14 |
Settlement of Convertible Notes Payable
On
June 30, 2021, the Company consummated the Business Combination with LACQ, which triggered the automatic conversion into common stock
of the 2015 convertible notes payable, the 2018 convertible notes payable, and the 2021 convertible notes payable. In connection with
certain closing conditions, the 2020 convertible notes were amended to provide for automatic conversion of the outstanding principal
and interest into common stock. The modification resulted in a loss on extinguishment of debt of $
The
Company applied ASC 470-20-40-1 to the accounting of the conversion, which requires the accelerated recognition of unamortized debt discounts
as interest expense upon conversion. Accordingly, $
The table below summarizes the conversion of each class of notes payable:
Immediately prior to Business Combination | ||||||||||||||||||||
Note series | Principal | Interest | Carrying value of debt converted | Shares of common stock issued | Outstanding debt, June 30, 2021 |
|||||||||||||||
2015 Convertible Note | $ | $ | $ | $ | ||||||||||||||||
2018 Convertible Notes | ||||||||||||||||||||
2020 Convertible Notes | ||||||||||||||||||||
2021 Convertible Note | ||||||||||||||||||||
Total | $ | $ | $ | $ |
September 2021 Convertible Notes Payable
On
September 24, 2021, the Company entered into an agreement with institutional investors to issue $
The proceeds of the sale of the securities 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
convertible
notes mature on
The
Company elected to apply the fair value option to the measurement of the Convertible Notes and accordingly recorded a charge
to other income (expense), net for issuance costs of $
The
convertible 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 convertible notes for cash in an amount equal to 100% of the outstanding principal amount of the principal to be redeemed, plus accrued but unpaid interest, plus all other amounts due with respect to the convertible notes.
On
January 1, 2022, and the first of each subsequent month, terminating upon the full redemption of the Convertible 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 Convertible Notes. If the Company elects to settle such redemptions in shares (with a total maximum of shares issuable), 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 Convertible Notes are outstanding, the Company carries out one or more capital raises in excess of $
Financed insurance premiums
During
the nine months ended September 30, 2021, the Company financed its directors and officers liability insurance in the amount of $
NOTE 8 - STOCKHOLDERS’ EQUITY
In June 2021, in connection with the Business Combination, the Company amended and restated its Certificate of Incorporation to authorize shares of common stock and shares of preferred stock, both with par value equal to $. As of September 30, 2021 and December 31, 2020, 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. | |
● | ||
● |
15 |
Warrants
In
February 2013, the Company issued
On September 30, 2021, outstanding warrants to purchase shares of common stock are as follows:
Reference | Shares Underlying Outstanding Warrants | Exercise Price | Description |
Classification | ||||||||
(a) | $ | - | Equity | |||||||||
(b) | $ | Equity | ||||||||||
(c) | $ | Liability | ||||||||||
(a) | On
June 30, 2021, as a result of the Closing, the Company assumed a total of |
On August 3, 2021, the Company
entered into an agreement with an existing warrant holder to reduce the exercise price of | |
(b) | |
(c) |
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:
Share
subscription facility | Liability classified warrants (grant date 9/24/2021) | Liability classified warrants (remeasured at 9/30/2021) | ||||||||||
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.
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. No further awards may be made under the Former Ensysce stock plans.
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Legacy Plans | ||||||||
2016 Plan | ||||||||
2019 Directors Plan | ||||||||
2021 Omnibus Plan | ||||||||
Total options outstanding |
Option Activity
During the three and nine months ended September 30, 2020, the Company granted stock options to purchase an aggregate of and shares of common stock to members of the board of directors. The options vest over and have an exercise price of $per share.
16 |
The Company recognized within general and administrative expense stock-based compensation expense of $and $for the three and nine months ended September 30, 2021, respectively. The Company recognized within general and administrative expense stock-based compensation expense of $and $for the three and nine months ended September 30, 2020, respectively. During the three and nine months ended September 30, 2021 and 2020, there was stock-based compensation allocated to research and development expense.
Weighted average | ||||||||||||||||
Options | Exercise price | Remaining contractual life | Intrinsic value | |||||||||||||
Outstanding at December 31, 2020 | $ | $ | ||||||||||||||
Granted | ||||||||||||||||
Exercised | ( | ) |