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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 6 Months Ended
Jun. 30, 2021
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Management’s opinion is that all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2020 and related notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on April 1, 2021.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and expenses during the periods reported. By their nature, these estimates are subject to measurement uncertainty and the effects on the financial statements of changes in such estimates in future periods could be significant. Significant areas requiring management’s estimates and assumptions include determining the fair value of transactions involving common stock and the valuation of stock-based compensation. Actual results could differ from those estimates.

 

 

Enveric Biosciences, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

 

Foreign Currency Translation

 

The reporting currency of the Company is the United States Dollar. The financial statements of companies located outside of the U.S. are measured in their functional currency, which is the local currency. The functional currency of the Company is the United States dollar. Monetary assets and liabilities are translated using public exchange rates at the balance sheet date. Income and expense items are translated using average monthly exchange rates. Shareholders’ equity accounts and non-monetary assets are translated at their historical exchange rates. Translation adjustments are included in accumulated other comprehensive loss in the accompanying balance sheets.

 

Cash and cash equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents as of June 30, 2021 and December 31, 2020.

 

Warrant Liability

 

The Company accounts for warrants for shares of the Company’s common stock that are not indexed to its own stock as liabilities at fair value on the balance sheet. Such warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of other expense on the statement of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of such common stock warrants. At that time, the portion of the warrant liability related to such common stock warrants will be reclassified to additional paid-in capital.

 

Offering Costs

 

The Company allocates offering costs to the different components of the capital raise on a pro rata basis. Any offering costs allocated to common stock are charged directly to additional paid-in capital. Any offering costs allocated to warrant liabilities are charged to general and administrative expenses on the Company’s statement of operations.

 

Net Loss per Share

 

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method) and convertible notes. The computation of basic net loss per share for the three and six months ended June 30, 2021 and 2020 excludes potentially dilutive securities. The computations of net loss per share for each period presented is the same for both basic and fully diluted.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

 

Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share for the six months ended June 30, 2021 and June 30, 2020 because the effect of their inclusion would have been anti-dilutive.

 

   For the three and six months ended June 30, 2021   For the three and six months ended June 30, 2020 
Warrants to purchase shares of common stock   4,553,610    1,504,593 
Convertible notes   -    380,920 
Restricted stock units   2,596,459    - 
Restricted stock awards   13,298    - 
Options to purchase shares of common stock   225,565    3,604,348 
Total potentially dilutive securities   7,388,932    5,489,861 

 

 

Enveric Biosciences, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

 

Fair Value Measurement

 

The Company follows Accounting Standards Codification (“ASC”) 820–10 “Fair Value Measurement” of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification to measure the fair value of its financial instruments and disclosures about fair value of its financial instruments. ASC 820–10 establishes a framework for measuring fair value and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820–10 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.

 

The three (3) levels of fair value hierarchy defined by ASC 820–10 are described below:

 

Level 1   Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
     
Level 2   Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
     
Level 3   Pricing inputs that are generally unobservable inputs and not corroborated by market data.

 

Financial assets or liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these instruments.

 

The Company uses Level 3 of the fair value hierarchy to measure the fair value of its warrant liabilities. The Company revalues such liabilities at every reporting period and recognizes gains or losses as change in fair value of warrant liabilities in the condensed consolidated statements of operations that are attributable to the change in the fair value of the warrant liabilities.

 

The following table provides the financial liabilities measured on a recurring basis and reported at fair value on the balance sheet as of June 30, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

 

Fair Value Measurement, continued

   Level   June 30, 2021 
Warrant liabilities – January Warrants   3   $1,895,303 
Warrant liabilities – February Warrants   3    1,813,154 
Fair value as of June 30, 2021       $3,708,457 

 

 

Enveric Biosciences, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

 

The Company had no assets or liabilities measured at fair value on December 31, 2020.

 

Both the January and February Warrants are classified as Level 3, for which there is no current market for these securities such as the determination of fair value requires significant judgment or estimation. Changes in fair value measurement categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

 

Initial measurement

 

   January Warrants   February Warrants 
   January 13, 2021   February 12, 2021 
Term (years)   5.0    5.0 
Stock price  $4.21   $4.62 
Exercise price  $4.95   $4.95 
Dividend yield   0.0%   0.0%
Expected volatility   84.7%   84.7%
Risk free interest rate   0.5%   0.5%
           
Number of shares   1,821,514    1,714,005 
Value (per share)  $2.66   $3.00 

 

Subsequent measurement  

 

The following table presents the changes in fair value of the warrant liabilities:

 

   January Warrants   February Warrants   Total Warrant Liability 
Fair value as of December 31, 2020  $-   $-   $- 
Initial value of warrant liability   4,846,000    5,135,000    9,981,000 
Change in fair value   (2,950,697)   (3,321,846)   (6,272,543)
                
Fair value as of June 30, 2021  $1,895,303   $1,813,154   $3,708,457 

 

The key inputs into the Black Scholes valuation model for the Level 3 valuations as of June 30, 2021 are below:

 

   January Warrants   February Warrants 
Term (years)   4.5    4.6 
Stock price  $2.38   $2.38 
Exercise price  $4.95   $4.90 
Dividend yield   0.0%   0.0%
Expected volatility   76.6%   76.5%
Risk free interest rate   0.87%   0.87%
           
Number of shares   1,821,449    1,714,005 
Value (per share)  $1.04   $1.06 

 

 

Enveric Biosciences, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

 

Recent Accounting Pronouncements

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, Income Taxes (Topic 740: Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which removes certain exceptions to the general principles in Topic 740. ASU 2019-12 is effective for the fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company’s financial statements.

 

In October 2020, the FASB issued ASU 2020-10, “Codification Improvements.” The new accounting rules improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50) that had only been included in the Other Presentation Matters Section (Section 45) of the Codification. Additionally, the new rules also clarify guidance across various topics including defined benefit plans, foreign currency transactions, and interest expense. The new accounting rules were effective for the Company in the first quarter of 2021. The adoption of the new accounting rules did not have a material impact on the Company’s financial statements.

 

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The amendments in ASU No. 2021-04 provides guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU No. 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, including interim periods within those fiscal years. As a result, the Company will not be required to adopt ASU 2021-04 until January 1, 2022. The Company is currently evaluating the impact of the adoption of this principle on the Company’s condensed consolidated financial statements.

 

Subsequent Events

 

The Company has evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Other than as described in these financial statements, the Company did not identify any subsequent events that would have required adjustment to or disclosure in the financial statements.

 

 

Enveric Biosciences, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements