AMALGAMATION WITH MAGICMED INDUSTRIES INC.

9 Months Ended

Sep. 30, 2021

Business Combination and Asset Acquisition [Abstract]

AMALGAMATION WITH MAGICMED INDUSTRIES INC.

NOTE 6 – AMALGAMATION WITH MAGICMED INDUSTRIES INC.

On May 24, 2021, the Company entered into an Amalgamation Agreement (the “Amalgamation Agreement”) with 1306432 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of the Company (“HoldCo”), 1306436 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of HoldCo (“Purchaser”), and MagicMed Industries Inc., a corporation existing under the laws of the Province of British Columbia (“MagicMed”), pursuant to which, among other things, the Company, indirectly through Purchaser, acquired all of the outstanding securities of MagicMed in exchange for securities of the Company by way of an amalgamation under the British Columbia Business Corporations Act, upon the terms and conditions set forth in the Amalgamation Agreement, such that, upon completion of the Amalgamation (as defined herein), the amalgamated corporation (“Amalco”) will be an indirect wholly-owned subsidiary of the Company. The Amalgamation was completed on September 16, 2021.

At the effective time of the Amalgamation (the “Effective Time”), holders of outstanding common shares of MagicMed (the “MagicMed Shares”) received such number of shares of common stock of the Company (“Company Shares”) representing, together with the Company Shares issuable upon exercise of the Warrants and the Converted Options (each as defined herein), approximately 36.6% of the issued and outstanding Company Shares (on a fully-diluted basis). The MagicMed Shares were initially converted into Amalco Redeemable Preferred Shares (as defined in the Amalgamation Agreement), which immediately following the Amalgamation were redeemed for 0.000001 of a Company Share. Following such redemption, the shareholders of MagicMed received additional Company Shares equal to the product of the Exchange Ratio (as defined in the Amalgamation Agreement) multiplied by the number of MagicMed Shares held by each such shareholder. Additionally, following the Effective Time (i) each outstanding MagicMed stock option was converted into and became an option to purchase (the “Converted Options”) the number of Company Shares equal to the Exchange Ratio multiplied by the number of MagicMed Shares subject to such MagicMed stock option, and (ii) each holder of an outstanding MagicMed warrant (including Company Broker Warrants (as defined in the Amalgamation Agreement), the “Warrants”) received upon exercise of such Warrant that number of Company Shares which the holder would have been entitled to receive as a result of the Amalgamation if, immediately prior to the date of the Amalgamation (the “Effective Date”), such holder had been the registered holder of the number of MagicMed Shares to which such holder would have been entitled if such holder had exercised such holder’s Warrants immediately prior to the Effective Time (the foregoing collectively, the “Amalgamation”). In aggregate, holders of MagicMed Shares received 9,951,237 Company Shares representing approximately 31.7% of the Company Shares following the consummation of the Amalgamation. The maximum number of Company Shares to be issued by the Company as in respect of the Warrants and Converted Options shall not exceed 7,404,101 Company Shares.

The aggregate number of Company Shares that the Company issued in connection with the Amalgamation (collectively, the “Share Consideration”) was in excess of 20% of the Company’s pre-transaction outstanding Company Shares. Accordingly, the Company sought and received stockholder approval of the issuance of the Share Consideration in the Amalgamation in accordance with the NASDAQ Listing Rules.

Pursuant to the terms of the Amalgamation Agreement, the Company appointed, effective as of the Effective Time two individuals selected by MagicMed to the Company Board of Directors, Dr. Joseph Tucker and Dr. Brad Thompson.

The Amalgamation Agreement contained representations and warranties, closing deliveries and indemnification provisions customary for a transaction of this nature. The closing of the Amalgamation was conditioned upon, among other things, (i) the Share Consideration being approved for listing on Nasdaq, (ii) the effectiveness of a Registration Statement on Form S-4 registering the Share Consideration (the “S-4 Registration Statement”) and (iii) the approval (a) of the MagicMed stockholders of the Amalgamation and (b) of the Company’s stockholders of each of the Amalgamation and the issuance of the Share Consideration in the Amalgamation. The closing of the Amalgamation occurred on September 16, 2021.

MagicMed Industries develops and commercializes psychedelic-derived pharmaceutical candidates. MagicMed’s psychedelic derivatives library, the Psybrary^™, is an essential building block from which industry can develop new patented products. The initial focus of the Psybrary^™ is on psilocybin and DMT derivatives, and it is then expected to be expanded to other psychedelics.

On September 16, 2021, the Company (“Purchaser”), in connection with the Amalgamation Agreement entered into on May 24, 2020, acquired MagicMed Industries Inc., and its wholly owned subsidiary MagicMed USA, Inc. (“MagicMed”), (the “Acquisition”). In exchange for a total purchase price valued at $48,104,210 the Company acquired 37,463,673 shares of Common Stock from MagicMed, which represents 100% of the outstanding and issued shares of Common Stock of MagicMed, for equity consideration on the date of closing valued at $27,067,310. The Purchaser also agreed that it would issue Company Shares in lieu of shares of MagicMed Shares for any warrants to purchase MagicMed Shares that were exercised, with the maximum number of Company Shares issuable pursuant to such warrant exercises being 5,913,672. The fair value of the warrants on the closing date of the Amalgamation was $10,724,579. Additionally, the Purchaser agreed that it would issue issued Company Shares in lieu of shares of MagicMed Shares for any options to purchase MagicMed Shares that were exercised, with the maximum number of Company Shares issuable pursuant to such option exercises being 973,840. The fair value of the options on the closing date of the Amalgamation was $1,535,790, with $1,250,394 included in the purchase price and $285,396 to be recognized as expense in the post combination period.

The goodwill of $9,061,927 is related to deferred tax liabilities arising from the Company’s purchase of the MagicMed Shares.

The following table represents the preliminary purchase price:

Stock (9,951,217 common shares issued)	$	27,067,310
Fair value of warrants		10,724,578
Fair value of options		1,250,394
Deferred tax liability incurred		9,061,927
Total Purchase Price	$	48,104,209

Enveric Biosciences, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

The Acquisition is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the Acquisition. These values are provisional and subject to change pending the calculation of the final purchase price, finalization of the opening balance sheet, the final valuation report, and allocation of the total consideration transferred.

The Company has made a preliminary allocation of the purchase price of the Acquisition to the assets acquired and the liabilities assumed as of the purchase date.

The following table summarizes the preliminary purchase price allocations relating to the Acquisition:

Description	Fair Value
Assets acquired:
Cash	$	3,055,327
Prepaid expenses and other current assets		440,968
Government remittances recoverable		25,607
Property and equipment		143,945
Other assets		11,182
In process research and development		36,246,678
Goodwill		9,061,927
Total assets acquired	$	48,985,634
Liabilities assumed:
Accounts payable	$	811,961
Accrued expenses and other liabilities		69,464
Deferred Tax Liabilities		9,061,927
Total liabilities assumed		9,943,352
Estimated fair value of net assets acquired attributable to the Company	$	39,042,282

The goodwill represents the excess fair value after the allocation to the identifiable net assets, with such being specifically attributable to the deferred tax liabilities incurred. The calculated goodwill is not deductible for tax purposes.

Certain adjustments to the assessed fair values of the assets and liabilities made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. 

Total acquisition-related costs for the Acquisition incurred by the Company during the period ended September 30, 2021 was approximately $200,000 and is included in general and administrative expenses in the Unaudited condensed consolidated statement of operations.

HISTORICAL AND PROFORMA FINANCIAL INFORMATION

The amounts of MagicMed’s revenues and net loss included in the Company’s unaudited consolidated condensed statements of operations and comprehensive loss for the period from the acquisition date to September 30, 2021 were $0 and $183,753 respectively. The following unaudited proforma financial information presents the consolidated results of operations of the Company and MagicMed for the three and nine months ended September 30, 2021 and September 30, 2020, as if the acquisition had occurred as of the beginning of the first period presented instead of on September 16, 2021. The proforma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during those periods.

		For the Three Months Ended September 30, 2020			For the Nine Months Ended September 30, 2020
Revenues	$	-		$	-
Net loss	$	(862,582	)	$	(2,810,104	)

Enveric Biosciences, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

		For the Three Months Ended September 30, 2021			For the Nine Months Ended September 30, 2021
Revenues	$	-		$	-
Net loss	$	(3,726,677	)	$	(10,922,678	)