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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

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: 001-38306

 

Ensysce Biosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware   82-2755287

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

7946 Ivanhoe Avenue, Suite 201

La Jolla, California

  92037
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (858) 263-4196

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.0001 par value per share   ENSC   The Nasdaq Stock Market LLC

 

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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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
Non-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 ☐ No

 

As of November 9, 2023, the registrant had 3,146,076 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:

 

  our estimates regarding expenses, revenue, capital requirements and timing and availability of and the need for additional financing will almost certainly not match actual amounts and timing;
     
  our ability to continue as a going concern for the next twelve months;
     
  the risk that our lead product candidate PF614 and PF614-MPAR may not be successful in limiting or impeding abuse, overdose, or misuse or providing additional safety upon commercialization;
     
  the need for substantial additional funding to complete the development and commercialization of our product candidates;
     
  the risk that our clinical trials may fail to replicate positive results from earlier preclinical studies or clinical trials conducted by us or third parties;
     
  the risk that the potential product candidates that we develop may not progress through clinical development or receive required regulatory approvals within expected timelines or at all;
     
  the risk that clinical trials may not confirm any safety, potency, or other product characteristics described or assumed in this Quarterly Report on Form 10-Q;
     
  the risk that we will be unable to successfully market or gain market acceptance of our product candidates;
     
  the risk that our product candidates may not be beneficial to patients or successfully commercialized;
     
  the risk that we have overestimated the size of the target market, patients’ willingness to try new therapies, and the willingness of physicians to prescribe these therapies;
     
  effects of competition;

 

i
 

 

  the risk that third parties on which we depend for laboratory, clinical development, manufacturing, and other critical services will fail to perform satisfactorily;
     
  the risk that we will be unable to obtain and maintain sufficient intellectual property protection for our investigational products or will infringe the intellectual property protection of others;
     
  the loss of key members of our management team;
     
  changes in our regulatory environment;
     
  the ability to attract and retain key scientific, medical, commercial, or management personnel;
     
  changes in our industry;
     
  our ability to remediate any material weaknesses or establish and maintain effective internal controls over financial reporting;
     
  the risk that our common stock will be delisted from Nasdaq;
     
  other factors disclosed in this Quarterly Report on Form 10-Q; and
     
  other factors beyond our control.

 

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 on Ensysce. There can be no assurance that future developments affecting Ensysce will be those that Ensysce has anticipated. These forward-looking statements involve 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, 2022 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.

 

ii
 

 

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
2022 Notes   The senior secured convertible promissory notes in the aggregate original principal amount of $8.48 million, sold in two closings on June 30, 2022 and August 8, 2022, respectively, pursuant to the Securities Purchase Agreement entered into on June 30, 2022
2022 December Offering   The Company’s December 2022 registered direct offering of common stock (including pre-funded warrants in lieu thereof). The Offering closed on December 9, 2022 for aggregate consideration of $4.1 million
2023 February Offering   The Company’s February 2023 registered direct offering of common stock and private placement warrants for aggregate consideration of $3.0 million
2023 May Offering   The Company’s May 2023 registered direct offering of common stock (including pre- funded warrants in lieu thereof) for aggregate consideration of $7.0 million
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 definitive merger agreement among LACQ, Merger Sub and Former Ensysce, dated January 31, 2021, 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
CMOs   Contract manufacturing organizations
Company   Ensysce Biosciences, Inc. and its consolidated subsidiaries
COVID-19   Novel coronavirus disease
Covistat   A subsidiary renamed EBIR, Inc.
CROs   Contract research organizations
Draw Down Limit   400% of the average daily trading volume for the 30 trading days immediately preceding the date the Company delivers the draw down notice with respect to the GEM Agreement
EB   Ensysce Biosciences, Inc. prior to its merger with Signature Acquisition Corp. pursuant to the EB-ST Agreement.
EBIR   Previously known as Covistat, Inc., EBIR, Inc. is 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

 

iii
 

 

EB-ST Agreement   Agreement and Plan of Merger, dated as of December 28, 2015, by and among Signature, SAQ, and EB
Ensysce   Ensysce Biosciences Inc. and its consolidated subsidiaries
Exchange Act   Securities Exchange Act of 1934, as amended
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
GEM Warrants   4,608 shares of common stock that may be issued upon the exercise of warrants issued to GYBL under the terms of the GEM Agreement at an exercise price of $3.64 per share
GYBL   GEM Yield Bahamas Limited
JOBS Act   Jumpstart Our Business Startups Act of 2012
LACQ   Leisure Acquisition Corp., a Delaware Corporation
LACQ Warrants   Warrants that relate to the Business Combination or were issued prior to it and are exercisable for 21,993 shares of our common stock at a weighted average exercise price of $2,725.90 per share
Merger   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.
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 MPAR® overdose prevention technology awarded to the Company by NIH through NIDA in September 2018
Nasdaq   The Nasdaq Stock Market LLC

 

iv
 

 

NIDA   National Institute of Drug Abuse
NIH   National Institutes of Health
OUD Grant   Research and development grant related to the development of its TAAP/MPAR® abuse deterrent technology for Opioid Use Disorder awarded to the Company by NIH/NIDA in September 2019
Prior Warrants   Warrants issued pursuant to the Securities Purchase Agreement. The Prior Warrants issued in (i) 2021 are exercisable for an aggregate of 4,512 shares of our common stock at an exercise price of $3.64 per share and (ii) 2022 are exercisable for an aggregate of 38,894 shares of our common stock at an exercise price of $3.64 per share
Public Warrants   The redeemable warrants issued by us and sold as part of the units in the LACQ IPO (whether they were purchased in the LACQ IPO or thereafter in the open market). The Public Warrants are exercisable for an aggregate of approximately 41,666 shares of our common stock at an exercise price of $2,760.00 per share
SAQ   Signature Acquisition Corp., a wholly-owned subsidiary of Signature
SEC   U.S. Securities and Exchange Commission
Securities Act   Securities Act of 1933, as amended
Securities Purchase Agreement   The Securities Purchase Agreement, dated as of September 24, 2021, June 30, 2022 or October 23, 2023, as the context dictates, by and between Ensysce and the institutional investors party thereto
Signature   Signature Therapeutics Inc.
SPA   A Securities Purchase Agreement, dated as of September 24, 2021, June 30, 2022 or October 23, 2023, as the context dictates, by and between Ensysce and the institutional investors party thereto
TAAP   Trypsin Activated Abuse Protection

 

v
 

 

Table of Contents

 

    Page
     
  Forward-Looking Statements i
  Glossary iii
     
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 Consolidated Financial Statements (Unaudited) 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
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 36
Item 3. Defaults Upon Senior Securities 36
Item 4. Mine Safety Disclosures 36
Item 5. Other Information 36
Item 6. Exhibits 36
Signatures 37

 

vi
 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

ENSYSCE BIOSCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   September 30, 2023   December 31, 2022 
Assets          
Current assets:          
Cash and cash equivalents  $1,464,381   $3,147,702 
Unbilled receivable   107,738    276,821 
Right-of-use asset   2,717    27,165 
Prepaid expenses and other current assets   1,182,967    1,847,481 
Total current assets   2,757,803    5,299,169 
Other assets   460,883    585,883 
Total assets  $3,218,686   $5,885,052 
Liabilities and stockholders’ deficit          
Current liabilities:          
Accounts payable  $916,416   $2,943,791 
Accrued expenses and other liabilities   760,458    2,226,494 
Lease liability   2,732    27,315 
Notes payable and accrued interest   350,932    4,266,610 
Total current liabilities   2,030,538    9,464,210 
Long-term liabilities:          
Notes payable, net of current portion   -    140,148 
Liability classified warrants   30,473    310,346 
Total long-term liabilities   30,473    450,494 
Total liabilities  $2,061,011   $9,914,704 
Commitments and contingencies (Note 6)   -     -  
Stockholders’ equity (deficit)          
Preferred stock, $0.0001 par value, 1,500,000 shares authorized, no shares issued and outstanding at September 30, 2023 and December 31, 2022  $-   $- 
Common stock, $0.0001 par value, 250,000,000 shares authorized at September 30, 2023 and December 31, 2022; 2,864,085 and 534,571 shares issued at September 30, 2023 and December 31, 2022, respectively; 2,864,004 and 534,490 shares outstanding at September 30, 2023 and December 31, 2022, respectively   287    53 
Additional paid-in capital   119,537,611    107,216,566 
Accumulated deficit   (118,052,779)   (110,931,063)
Total Ensysce Biosciences, Inc. stockholders’ equity (deficit)   1,485,119    (3,714,444)
Noncontrolling interests in stockholders’ equity (deficit)   (327,444)   (315,208)
Total stockholders’ equity (deficit)   1,157,675    (4,029,652)
Total liabilities and stockholders’ equity (deficit)  $3,218,686   $5,885,052 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

1
 

 

Ensysce Biosciences, Inc.

Consolidated Statements of Operations

(Unaudited)

 

   2023   2022   2023   2022 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2023   2022   2023   2022 
Federal grants  $435,380   $279,351   $1,715,488   $1,089,920 
Operating expenses:                    
Research and development   1,914,970    4,756,096    5,354,713    13,393,948 
General and administrative   1,227,724    1,686,580    3,923,277    5,717,281 
Total operating expenses   3,142,694    6,442,676    9,277,990    19,111,229 
                     
Loss from operations   (2,707,314)   (6,163,325)   (7,562,502)   (18,021,309)
                     
Other income (expense):                    
Issuance costs for convertible notes   -    (1,118,721)   -    (1,118,721)
Loss on issuance of convertible notes   -    (3,609,944)   -    (3,609,944)
Change in fair value of convertible notes   -    3,491,513    146,479    6,169,929 
Issuance of liability classified warrants   -    (3,737,371)   -    (3,737,371)
Change in fair value of liability classified warrants   17,223    2,683,340    279,873    5,626,130 
Loss on debt conversions   -    (1,404,877)   -    (4,000,155)
Interest expense, net   (7,649)   (4,859)   (9,146)   (57,662)
Other income, net   6,934    8,679    23,382    19,494 
Total other income (expense), net   16,508    (3,692,240)   440,588    (708,300)
                     
Net loss  $(2,690,806)  $(9,855,565)  $(7,121,914)  $(18,729,609)
Net loss attributable to noncontrolling interests   (1,235)   (21,492)   (12,236)   (47,619)
Deemed dividend related to warrants down round provision   -    63,539    12,038    881,598 
Net loss attributable to common stockholders  $(2,689,571)  $(9,897,612)  $(7,121,716)  $(19,563,588)
Net loss per basic and diluted share:                    
Net loss per share attributable to common stockholders, basic and diluted  $(0.87)  $(61.58)  $(3.32)  $(140.90)
Weighted average common shares outstanding, basic and diluted   3,085,873    160,719    2,145,505    138,849 

 

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              
   Number of Shares   Amount   Additional Paid-In Capital   Accumulated Deficit   Noncontrolling interests   Total 
                         
Balance on June 30, 2022   148,037   $14   $95,019,893   $(95,511,543)  $(305,942)  $(797,578)
Conversion of convertible notes   35,700    4    4,074,059    -    -    4,074,063 
Stock-based compensation   -    -    157,148    -    -    157,148 
Settlement of restricted stock units   208    -    -    -    -    - 
Deemed dividend related to warrants down round provision   -    -    63,539    (63,539)   -    - 
Net loss   -    -    -    (9,834,073)   (21,492)   (9,855,565)
Balance on September 30, 2022   183,945   $18   $99,314,639   $(105,409,155)  $(327,434)  $(6,421,932)
                               
Balance on June 30, 2023   2,669,792   $267   $119,481,957   $(115,363,208)  $(326,209)  $3,792,807 
Settlement of restricted stock units   314    -    -    -    -    - 
Issuance of common stock upon exercise of warrants   193,898    20    (20)   -    -    - 
Stock-based compensation   -    -    55,674    -    -    55,674 
Net loss   -    -    -    (2,689,571)   (1,235)   (2,690,806)
Balance on September 30, 2023   2,864,004   $287   $119,537,611   $(118,052,779)  $(327,444)  $1,157,675 
                               
Balance on December 31, 2021   102,678   $10   $77,967,314   $(85,845,567)  $(279,815)  $(8,158,058)
Consultant Compensation   208    -    54,250    -    -    54,250 
Conversion of convertible notes   78,155    8    17,868,089    -    -    17,868,097 
Settlement of restricted stock units   2,904    -    -    -    -    - 
Stock-based compensation   -    -    2,543,388    -    -    2,543,388 
Deemed dividend related to warrants down round provision   -    -    881,598    (881,598)   -    - 
Net loss   -    -    -    (18,681,990)   (47,619)   (18,729,609)
Balance on September 30, 2022   183,945   $18   $99,314,639   $(105,409,155)  $(327,434)  $(6,421,932)
                               
Balance on December 31, 2022   534,490   $53   $107,216,566   $(110,931,063)  $(315,208)  $(4,029,652)
Settlement of restricted stock units   938    -    -    -    -    - 
Settlement of commitment fee   44,444    4    399,996    -    -    400,000 
Conversion of convertible notes   408,580    41    3,056,851    -    -    3,056,892 
Public offerings, net   1,381,619    139    9,049,865    -    -    9,050,004 
Transaction costs associated with public offerings   -    -    (447,879)   -    -    (447,879)
Issuance of common stock upon exercise of warrants   494,795    50    (50)   -    -    - 
Stock-based compensation   -    -    250,224         -    250,224 
Reverse split fractional shares   (862)   -    -    -    -    - 
Deemed dividend related to warrants down round provision   -    -    12,038    (12,038)   -    - 
Net loss   -    -    -    (7,109,678)   (12,236)   (7,121,914)
Balance on September 30, 2023   2,864,004   $287   $119,537,611   $(118,052,779)  $(327,444)  $1,157,675 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3
 

 

Ensysce Biosciences, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

   2023   2022 
   Nine Months Ended September 30, 
   2023   2022 
Cash flows from operating activities:          
Net loss  $(7,121,914)  $(18,729,609)
Adjustments to reconcile net loss to net cash used in operating activities:          
Gain on sale of asset   -    (4,500)
Accrued interest   9,146    57,536 
Change in fair value of liability classified warrants   (279,873)   (5,626,130)
Loss on issuance of convertible notes   -    3,609,944 
Change in fair value of convertible notes   (146,479)   (6,169,929)
Stock-based compensation   250,224    855,160 
Issuance of liability classified warrants   -    3,737,371 
Lease cost   (135)   (63)
Issuance costs paid to close convertible notes   -    946,085 
Loss on debt conversions   -    4,000,155 
Changes in operating assets and liabilities:          
Unbilled receivable   169,083    300,908 
Prepaid expenses and other assets   1,235,252    475,499 
Accounts payable   (2,027,375)   984,410 
Accrued expenses and other liabilities   (1,066,036)   971,344 
Net cash used in operating activities   (8,978,107)   (14,591,819)
Cash flows from investing activities:          
Proceeds from sale of asset   -    4,500 
Net cash provided by investing activities   -    4,500 
Cash flows from financing activities:          
Proceeds public offerings, net   9,050,004    - 
Proceeds from issuance of convertible notes, net   -    7,533,915 
Transaction costs associated with public offerings   (447,879)   - 
Repayments of convertible notes   (1,000,208)   (265,812)
Repayment of financed insurance premiums   (307,131)   (442,439)
Net cash provided by financing activities   7,294,786    6,825,664 
Decrease in cash and cash equivalents   (1,683,321)   (7,761,655)
Cash and cash equivalents beginning of period   3,147,702    12,264,736 
Cash and cash equivalents end of period  $1,464,381   $4,503,081 
           
Supplemental cash flow information:          
Income tax payments  $-   $1,600 
Supplemental disclosure of non-cash investing and financing activities:          
Stock-based compensation  $-   $1,742,478 
Conversions of convertible notes into common stock  $3,056,892   $13,879,535 
Payable to related parties  $-   $800,000 
Proceeds from financed insurance premiums, net  $445,737   $399,949 
Settlement of commitment fee in shares  $400,000   $- 
Deemed dividend related to warrants down round provision  $12,038   $881,598 

 

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 79.2%-owned subsidiary, EBIR, Inc. (“EBIR”, formerly known as Covistat, Inc.) and its wholly-owned subsidiaries EBI Operating, Inc. and EBI OpCo, Inc. (collectively, the “Company”), is a clinical-stage biotech company using its proprietary technology platforms to develop safer prescription drugs. The primary focus of the Company is its 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 MPAR® (Multi-Pill Abuse Resistance) technology for overdose protection which will be applied to the PF614 program. The Company is also applying its TAAP and MPAR® technology to a methadone prodrug for use in the treatment of Opioid Use Disorder.

 

In 2020, the Company commenced an initiative to develop a therapeutic for the treatment of certain coronavirus infections through the formation of a separate entity, EBIR, a Delaware corporation. Pursuant to the certificate of incorporation, EBIR was authorized to issue 1,000,000 shares of common stock, $0.001 par value per share, and 100,000 shares of preferred stock, $0.001 par value per share. Ensysce is a 79.2% stockholder in EBIR, with 19.8% and 1.0% of the shares held by certain key personnel of the Company and an unrelated party, respectively. The non-Ensysce owned shares and the activity are reflected on the financial statements as noncontrolling interests.

 

The Company currently operates in one business segment, which is pharmaceuticals. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chief operating decision maker, the Chief Executive Officer.

 

NOTE 2 - BASIS OF PRESENTATION

 

The consolidated financial statements have been prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC. The consolidated financial statements include the accounts of Ensysce Biosciences, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in the consolidation.

 

In the opinion of management, all adjustments considered necessary for a fair presentation have been included in these unaudited consolidated financial statements. Operating results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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, 2022, which may be found in the Company’s Form 10-K filed with the SEC on March 30, 2023.

 

5
 

 

Reverse stock split

 

In March 2023, the Company completed a 1-for-12 reverse split of its outstanding common stock. All references in these unaudited consolidated financial statements to shares and per share amounts in all periods have been retroactively restated to reflect the split. The number of authorized shares and the par value of the shares did not change as a result of the reverse stock split.

 

Going concern

 

The accompanying unaudited 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 $118.0 million at September 30, 2023. There is no assurance that profitable operations will ever be achieved, and, if achieved, could be sustained on a continuing basis. Product development activities, clinical and pre-clinical testing, and commercialization of the Company’s product candidates are necessary to develop the Company’s products and will require significant additional financing. There can be no assurance the Company will be able to obtain such funds. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

In December 2020, the Company executed the GEM Agreement. Under the agreement, the investor agreed to provide the Company with a share subscription facility of up to $60.0 million for a 36-month term following the public listing of the Company’s common stock. The Company controls 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, 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 4,608 warrants with a three-year term to purchase common stock of Ensysce at an exercise price of $2,402.40 per share (Note 8). The Company was required to pay a commitment fee to the investor of $1.2 million with $0.8 million due on the first anniversary of the public listing date and $0.4 million due on the 18-month anniversary of the public listing date. The first $0.8 million of the commitment fee was paid in July 2022 in common stock of the Company and the remaining $0.4 million was paid in January 2023 in common stock of the Company. Usage of the GEM facility is limited by other agreements of the Company. The Company has not raised any capital to date pursuant to the GEM facility and may not raise any capital pursuant to it prior to its expiration.

 

6
 

 

While the Company believes in the viability of its strategy to ultimately realize revenues and in its ability to raise additional funds, management cannot be certain that additional funding will be available on acceptable terms, or at all. The Company’s ability to continue as a going concern is dependent upon its ability to obtain adequate financing and achieve profitable operations. As a result, these plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months following the date these consolidated financial statements were issued.

 

These unaudited 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 accrued research and development services, the valuation allowance of deferred tax assets resulting from net operating losses, and the fair value of warrants and options to purchase the Company’s common stock and convertible 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 currently exceed federally insured limits. 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. Property and equipment are fully depreciated as such there is no depreciation recognized in the three and nine months ended September 30, 2023. Depreciation expense is classified in general and administrative expense in the accompanying consolidated statements of operations.

 

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. As of September 30, 2023 and December 31, 2022, the Company did not have any bifurcated embedded derivatives in the Company’s consolidated balance sheets.

 

Fair Value Measurement

 

ASC 820, Fair Value Measurements, (“ASC 820”) provides guidance on the development and disclosure of fair value measurements. Pursuant to ASC 820, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

 

The accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:

 

  Level 1:   Quoted prices in active markets for identical assets or liabilities.
  Level 2:   Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
  Level 3:   Unobservable inputs which are supported by little, or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

 

The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them for each reporting period. This determination requires significant judgments to be made by the Company.

 

As of September 30, 2023 and December 31, 2022, 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 and elected the fair value option to account for the convertible notes as it believes 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 and redemption feature. The fair value estimate of the 2021 Notes was based on a discounted cash flow model and a Monte Carlo simulation, which represent Level 3 measurements. Significant assumptions include the discount rate used in the discounted cash flow model and the expected premium for conversion used in the Monte Carlo simulation. Changes in the fair value of the notes are recognized in other income (expense) for each reporting period. Refer to Note 7 for details of the terms and conditions of the 2021 Notes.

 

2022 Notes

 

In July 2022 the Company issued convertible notes accounted for under ASC 480 – Distinguishing Liabilities from Equity, due to share settlement features contained within the notes. As a result, the 2022 Notes are recorded as liabilities at fair value at the balance sheet date with changes in the fair value of the notes recognized in other income (expense) for each reporting period. The fair value estimate of the 2022 Notes was based on a discounted cash flow model and a Monte Carlo simulation, which represent Level 3 measurements. Significant assumptions include the discount rate used in the discounted cash flow model and the expected premium for conversion used in the Monte Carlo simulation. Refer to Note 7 for details of the terms and conditions of the 2022 Notes.

 

8
 

 

Warrants

 

The Company issued liability-classified warrants in connection with the issuance of the 2021 and 2022 Notes. The warrants were liability-classified due to certain cash settlement features and are 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 at each balance sheet date. Changes in the fair value of the warrants are recognized in other income (expense) for each reporting period. Refer to Note 8 for details of the warrants.

 

The following tables present liabilities measured and recorded at fair value on the Company’s consolidated balance sheets as of September 30, 2023, and December 31, 2022.

 

   Total   Level 1   Level 2   Level 3 
   September 30, 2023 
   Total   Level 1   Level 2   Level 3 
Liability classified warrants  $30,473   $      -   $      -   $30,473 
Total  $30,473   $-   $-   $30,473 

 

   Total   Level 1   Level 2   Level 3 
   December 31, 2022 
   Total   Level 1   Level 2   Level 3 
Fair value of convertible note  $4,203,579   $      -   $      -   $4,203,579 
Liability classified warrants   310,346    -    -    310,346 
Total  $4,513,925   $-   $-   $4,513,925 

 

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, 2023:

 

   Total   Convertible note  

Liability

classified

warrants

 
Fair value, December 31, 2022  $4,513,925   $4,203,579   $310,346 
Conversions   (3,056,892)   (3,056,892)   - 
Cash payments   (415,351)   (415,351)   - 
Cash true-up liability   (584,857)   (584,857)   - 
Change in fair value   (426,352)   (146,479)   (279,873)
Fair value, September 30, 2023  $30,473   $-   $30,473 

 

Federal Grants

 

In September 2018, the National Institutes of Health (“NIH”) through the National Institute on Drug Abuse (“NIDA”) awarded the Company a research and development grant related to the development of its MPAR® overdose prevention technology (the “MPAR Grant”). The total approved budget for the initial two-year period was approximately $5.4 million ($3.2 million and $2.2 million in years 1 and 2, respectively) of which the Company must contribute $1.1 million in the first year of the grant. In August 2019, the grant was amended such that the approved budget for the two-year period decreased to approximately $5.1 million ($2.1 million and $3.0 million in years 1 and 2, respectively). In June 2021, the Company received a Notice of Award for an additional $2.8 million of funding in year 3 under the MPAR Grant beginning July 1, 2021. In June 2022, the Company received a Notice of Award for an additional $2.8 million of funding in year 4 under the MPAR Grant from July 1, 2022 through June 30, 2023, subsequently extended through December 31, 2023. This brings total funding under this grant to approximately $10.7 million.

 

In September 2019, the NIH/NIDA awarded the Company a second research and development grant related to the development of its TAAP/MPAR® abuse deterrent technology for Opioid Use Disorder (the “OUD Grant”). The total approved budget was approximately $5.4 million, and the current grant period ends in August of 2024.

 

9
 

 

The Company recognizes revenue when costs related to the grants are incurred and assessed as reimbursable. The Company believes this policy is consistent with the overarching premise in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), applied by analogy, to ensure that it recognizes revenues to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services, even though there is no “exchange” as defined in ASC 606. The Company believes the recognition of revenue as costs are incurred and reimbursable amounts become due is analogous to the concept of transfer of control of a service over time under ASC 606.

 

The revenue recognized under the MPAR Grant and OUD Grant:

 

   2023   2022   2023   2022 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2023   2022   2023   2022 
MPAR  $119,942   $206,290   $1,038,484   $710,761 
TAAP/OUD   315,438    73,061    677,004    379,159 
Total  $435,380   $279,351   $1,715,488   $1,089,920 

 

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 sheets. As all amounts are expected to be remitted in a timely manner, 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.

 

Stock-based compensation

 

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. Stock-based compensation costs are recorded in general and administrative expenses and research and development expenses in the consolidated statements of operations.

 

From time-to-time equity classified awards may be modified. On the modification date, the Company estimates the fair value of the awards immediately before and immediately after modification. The incremental increase in fair value is recognized as expense immediately to the extent the underlying equity awards are vested and over the same remaining amortization schedule as the unvested underlying equity awards.

 

10
 

 

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.

 

Net loss per share

 

The basic net loss per share is calculated by dividing the Company’s net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Basic shares outstanding include the weighted average effect of the Company’s outstanding pre-funded warrants, the exercise of which requires little or no consideration for the delivery of shares of common stock. The diluted net loss per share is calculated by dividing the Company’s net loss 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.

 

The following weighted average shares have been excluded from the calculations of diluted weighted average common shares outstanding because they would have been anti-dilutive:

 

   2023   2022   2023   2022 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2023   2022   2023   2022 
Stock options   26,354    29,249    26,354    27,378 
RSUs   63    4,261    63    3,317 
Warrants   4,711,236    87,878    2,876,380    87,878 
Convertible notes   -    267,957    -    89,647 
Total   4,737,653    389,345    2,902,797    208,220 


 

Recently Issued Accounting Pronouncements

 

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 adopted the standard with an effective date of January 1, 2023 and the adoption did not have a significant impact on the consolidated financial statements.

 

NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

   September 30,
2023
   December 31,
2022
 
Prepaid research and development  $581,985   $1,300,473 
Prepaid insurance   547,776    445,583 
Other prepaid expenses   45,206    101,425 
Other current assets   8,000    - 
Total prepaid expenses and other current assets  $1,182,967   $1,847,481 

 

NOTE 5 – ACCRUED EXPENSES AND OTHER LIABILITIES

 

   September 30,
2023
   December 31,
2022
 
Accrued research and development  $500,197   $1,332,713 
Share subscription facility commitment fees   -    400,000 
Professional fees   164,100    421,530 
Other accrued liabilities   96,161    72,251 
Total accrued expenses and other liabilities  $760,458   $2,226,494 

 

11
 

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES

 

Purchase Commitments

 

As of September 30, 2023, the Company’s commitments included an estimated $17.8 million related to the Company’s open purchase orders and contractual obligations that occurred in the ordinary course of business, including commitments with contract research organizations for multi-year pre-clinical and clinical research studies. Although open purchase orders are considered enforceable and legally binding, the terms generally allow the Company the option to cancel, reschedule, and adjust its requirements based on its business needs prior to the delivery of goods or the performance of services.

 

Litigation

 

As of September 30, 2023 and December 31, 2022, 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

 

The Company’s current lease agreement (as amended) has a term that extends through October 31, 2024 with no option to renew. As of September 30, 2023, the future lease payments totaled $2,732. The Company recognized total rent expense of $8,375 and $25,124 in the three and nine months ended September 30, 2023 and $7,939 and $23,606 in the three and nine months ended September 30, 2022.

 

NOTE 7 – NOTES PAYABLE

 

The Company’s outstanding notes payable balance was $350,932 as of September 30, 2023 consisting solely of the principal balance on the Company’s financing of their current Directors’ and Officers’ insurance premiums.

 

The following table provides a summary of the Company’s outstanding debt as of December 31, 2022:

 

 

  

Principal

balance

  

Accrued

interest

   Fair value adjustment  

Net debt

balance

 
2022 Notes  $3,905,264   $10,544   $287,771   $4,203,579 
Financed insurance   195,273    7,906    -    203,179 
Total  $4,100,537   $18,450   $287,771   $4,406,758 

 

12
 

 

Interest expense

 

The interest expense recognized for financed insurance was $7,649 and $9,146 for the three and nine months ended September 30, 2023 and $4,859 and $6,864 for the three and nine months ended September 30, 2022.

 

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 $5.3 million (resulting in net proceeds of $4.6 million) which closed on September 24, 2021. The second closing for $10.6 million (resulting in net proceeds of $9.4 million) which closed on November 5, 2021.

 

The 2021 Notes included a stated rate of interest of 5% per annum, in addition to an original issue discount of 6%. The interest could be settled in cash or shares at the option of the Company and was payable together with monthly redemptions of the outstanding principal amount of the debt.

 

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 $15.9 million. The Company recorded total issuance costs of $1.9 million representing investment banking and legal fees of $1.0 million and original issue discounts of $0.9 million. The fair value measurement includes the assumption of accrued interest and interest expense (at the stated rate plus an 8% cash settlement premium) and thus the related interest expense is not presented as a separate amount on the consolidated statements of operations.

 

The 2021 Notes were settled on October 11, 2022 and were not outstanding during the quarter ended September 30, 2023.

 

2022 Notes

 

On June 30, 2022, the Company entered into an $8.0 million convertible financing agreement with institutional investors. The agreement provided for two closings, each for notes payable of $4.24 million (resulting in gross cash proceeds of $4.0 million per closing). Funds were received for the first closing on July 1, 2022 and for the second closing on August 9, 2022.

 

On the issuance date, the Company assessed the probability of the potential settlement scenarios under the terms of the 2022 Notes and determined that the predominant settlement feature of the 2022 Notes was the redemption feature into shares of the Company’s common stock issuable at the lower of the conversion price or 92% of the average of the three lowest VWAPs in the 10 trading days immediately preceding the redemption date. As the predominant settlement feature of the 2022 Notes is to settle a fixed monetary amount into a variable number of shares, the 2022 Notes fell within the scope of ASC 480. Accordingly, the Company determined that the 2022 Notes should be recorded at fair value on its issuance date and remeasured as of each reporting date with the change in fair value recorded as a component of other income (expense) in the Company’s consolidated statements of operations.

 

The Company initially recorded the 2022 Notes at a fair value of $12.09 million which included a loss upon issuance of $3.6 million due to the current share price at issuance exceeding the conversion price. Additionally, the Company recorded issuance costs of $1.1 million representing a 6% original issue discount of $0.5 million and $0.6 million of legal and investment banking fees, which were immediately expensed.

 

In connection with each of the first and second closings of the 2022 Notes, the Company also issued warrants to purchase 38,894 shares of the Company’s common stock. The warrants had an original exercise price of $170.04 and are exercisable for five years following issuance of the 2022 Notes. The issuance of these warrants required the Company to reduce the conversion price of the 2021 Notes and the exercise price of the outstanding warrants associated with the 2021 Notes to $187.20. In connection with 2023 May Offering, and in exchange for $0.125 per outstanding warrant, the exercise prices of the 2022 Notes warrants and 2021 Notes warrants were reduced to $3.64 per share.

 

The proceeds of the 2022 Notes were used for working capital purposes subject to certain customary restrictions are secured by the Company’s rights to its patents and licenses. The Company is restricted from issuing certain additional debt or equity without the prior written consent of the holders for certain specified periods set forth in the 2022 Notes. If, at any time while the 2022 Notes are outstanding, the Company carries out one or more capital raises in excess of $5.0 million, the holder has the right to require the Company to use up to 20% of the gross proceeds of such transaction to redeem all or a portion of the convertible notes for an amount in cash equal to the cash Mandatory Redemption Amount (i.e., 108% of outstanding principal and unpaid interest). The Company triggered this provision in connection with the public offering of securities in December of 2022, the resulting principal payments and interest were reflected as a reduction to the outstanding balance of the 2022 Notes. The 8% premium was paid in cash and was reflected as interest expense within the consolidated statement of operations.

 

The 2022 Notes were scheduled to mature on December 29, 2023 and February 7, 2024, for the first and second closings, respectively. The notes bear interest at a rate of 6% per annum, in addition to an original issue discount of 6%. The interest may be settled in cash or shares at the option of the Company and is payable together with monthly redemptions of the outstanding principal amount of the debt. The outstanding principal and interest balances were satisfied in March 2023.

 

In January 2023, the Company entered into a letter agreement to reduce the conversion price for the remaining balance of the Company’s outstanding 2022 Notes from $24.07 to $9.01 for the period from January 12, 2023 until May 12, 2023. Cash true-up payments totaling $0.6 million for conversions below the adjusted price were due to be paid within 120 days from January 12, 2023 in accordance with the Letter Agreement. On May 12, 2023, the Company paid $0.6 million of cash true-up payments to the holders of the 2022 Notes.

 

Financed insurance premiums

 

In June 2023, the Company renewed and financed its directors’ and officers’ liability insurance in the amount of $0.4 million. Monthly payments commenced in July 2023 and are scheduled through March 2024. During the year ended December 31, 2022, the Company financed its directors’ and officers’ liability insurance in the amount of $0.4 million and the liability was paid in full by March 31, 2023. The Company paid a total of $9,402 in interest from inception through March 2023 when the note was paid in full. The Company incurred $7,649 and $9,146 of interest expense for the three and nine months ended September 30, 2023.

 

13
 

 

NOTE 8 - STOCKHOLDERS’ EQUITY

 

In June 2021, the Company amended and restated its Certificate of Incorporation to authorize 150,000,000 shares of common stock and 1,500,000 shares of preferred stock, both with par value equal to $0.0001. In September 2022, the Company amended and restated its Certificate of Incorporation to authorize shares up to a total of 250,000,000 shares of common stock. As of September 30, 2023 and December 31, 2022, there were no shares of preferred stock issued and outstanding.

 

2023 February Offering

 

On February 2, 2023, the Company agreed to issue and sell in a registered direct offering an aggregate of 297,619 shares of common stock of the Company, par value $0.0001 per share, at an offering price of $10.08 per share, for gross proceeds of approximately $3.0 million before the deduction of placement agent fees and related costs of $0.3 million. The closing occurred on February 6, 2023. The warrants issued in connection with the 2023 February Offering are described further below.

 

2023 May Offering

 

On May 12, 2023, the Company completed a public offering of an aggregate of 1,800,876 shares of its common stock at par value $0.0001 per share (including pre-funded warrants in lieu thereof) at a combined offering price of $3.887 per share, gross proceeds from this offering were approximately $7.0 million before the deduction of placement agent fees and related costs of $0.7 million. The warrants issued in connection with the 2023 May Offering are described further below.

 

In connection with the offering, the Company also agreed to amend certain existing warrants to purchase up to an aggregate of 210,085 shares of the Company’s common stock that were previously issued in September 2021 through December 2022 to purchasers in the offering at exercise prices ranging from $16.80 to $187.20 per share, such that effective upon the closing of the offering, the amended warrants had a reduced exercise price of $3.64 per share at an additional offering price of $0.125 per amended warrant.

 

Warrants

 

As of September 30, 2023, outstanding warrants to purchase shares of common stock are as follows:

 

  

Shares

Underlying

Outstanding

           
Reference  Warrants    Exercise Price  Description  Classification
(a)   63,659    $2,400.00 - 2,760.00  LACQ warrants  Equity
(b)   4,608    $3.64  Share subscription facility  Equity
(c)   4,512    $3.64  2021 Notes  Liability
(d)   38,894    $3.64  2022 Notes  Liability
(e)   549,987    $3.64 - 16.80  Public offering  Equity
(f)   318,451    $8.58 - 12.60  Public offering  Equity
(g)   3,727,813    $3.64 - 4.86  Public offering  Equity
(h)   222,072    $0.0001  Public offering  Equity
    4,929,996            

 

a)

On June 30, 2021, as a result of the Business Combination, the Company assumed a total of 78,751 warrants previously issued by LACQ (subsequently in December 2022 and August 2023, 7,782 and 7,310 warrants, respectively, were cancelled). The warrants provide holders the right to purchase common stock at a strike price between $2,400.00 and $2,760.00 per share and expire June 30, 2026, five years following the completion of the Business Combination. A total of 41,666 of the outstanding warrants are public warrants which trade on the OTC Pink Open Market under the ticker symbol ENSCW. The remaining 21,993 warrants are private warrants with restrictions on transfer and which have the right to a cashless exercise at the option of the holder.

 

On August 3, 2021, the Company entered into an agreement with an existing warrant holder to reduce the price of 2,083 warrants issued on June 30, 2021 from $2,760.00 to $2,400.00.

   
b) On July 2, 2021, upon public listing of the Company’s shares, the Company issued 4,608 three-year warrants to purchase common stock pursuant to the share subscription facility. The grant date fair value of the warrants, based on the $3,477.60 stock price on the date of issuance, was $11.6 million, and was recognized in general and administrative expense due to the uncertainty of future issuance of shares under the share subscription facility.

 

14
 

 

  The warrants have been subject to multiple exercise price reductions as required by a down round adjustment feature of the warrant, due to common stock issued at a price below the then current exercise price. The adjustments have progressed from the original exercise price of $2,402.40 per share to the current exercise price at September 30, 2023 of $3.64 per share. The difference in fair value of the existing warrant prior to the adjustment and the value of the warrant after (utilizing a Black-Scholes model) is reflected on the consolidated statement of operations as a deemed dividend.
   
c) On September 24, 2021 and November 5, 2021, the Company issued 1,504 and 3,008 warrants in connection with the issuance of the 2021 Notes. The warrants were immediately exercisable with an exercise price of $1,831.20 (subject to downward revision protection in the event the Company makes certain issuances of common stock at prices below the exercise price) and expire on September 23, 2026. As a result of the issuance of the 2022 Notes in July 2022, the exercise price of these warrants was adjusted down to $187.20. On May 12, 2023, in exchange for $0.125 per outstanding warrant, the Company amended the warrants to reduce their exercise price to $3.64.
   
d) On July 1, 2022 and August 9, 2022, the Company issued 19,447 warrants each in connection with the issuance of the 2022 Notes. The warrants were immediately exercisable with an exercise price of $170.04 (subject to downward revision protection in the event the Company makes certain issuance of common stock at prices below the conversion price) and expire on June 29, 2027 and August 8, 2027, respectively. As a result of the issuance of shares and warrants in connection with the December public offering, the exercise price of these warrants was adjusted down to $24.07. On May 12, 2023, in exchange for $0.125 per outstanding warrant, the Company amended the warrants to reduce their exercise price to $3.64.
   
e) On December 9, 2022, the Company issued 549,987 equity classified warrants in connection with a public offering. The warrants were immediately exercisable with an exercise price of $16.80 and expire on December 9, 2027. On May 12, 2023, in exchange for $0.125 per applicable warrant, the Company amended 166,667 of these warrants to reduce their exercise price to $3.64.
   
f) On February 6, 2023, the Company issued 318,451 equity classified warrants in connection with a public offering. The warrants were immediately exercisable with an exercise price of $8.58 - $12.60 and expire on February 2, 2028, and August 7, 2028.
   
(g) On May 12, 2023, the Company issued 3,727,813 equity classified warrants (series A-1, A-2 and placement agent warrants) in connection with a public offering. The warrants were immediately exercisable with an exercise price of $3.64 - $4.86 and expire on November 12, 2024, May 10, 2028, and May 12, 2028.
   
(h) On May 12, 2023 the Company also issued 1,451,876 pre-funded warrants in connection with a public offering, 885,000 pre-funded warrants were exercised in connection with the closing of the public offering, 344,804 were exercised between the closing date and September 30, 2023. As of September 30, 2023, 222,072 pre-funded warrants remain outstanding. The pre-funded warrants are immediately exercisable with an exercise price of $0.0001.

 

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:

 

   Stock price  Exercise price   Expected term (years)   Volatility   Risk free rate 
(a) LACQ warrants (grant date varies)  $3,477.60  $2,400.00 - 2,760.00     3.00    110.0%   0.5%
(b) Share subscription facility (grant date 7/2/21)  $3,477.60  $2,402.40    3.00    110.0%   0.5%
(b) Share subscription facility (remeasurement date varies)  $ 3.53- 116.64   $3.64 - 201.60      1.15 - 1.47    91.25% - 96.0%   3.9%-4.12%
(c) Liability classified warrants (grant date 9/24/21)  $1,077.60  $1,831.20    5.00    94.1%   1.0%
(c) Liability classified warrants (grant date 11/5/21)  $540.00  $1,831.20    5.00    94.1%   1.0%
(c) Liability classified warrants (remeasured at 9/30/23)  $1.36  $3.64    3.00 - 3.10    95.8% - 97.0%