Use of Estimates

The preparation of the unaudited condensed consolidated 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, accruals associated with third party providers supporting research and development efforts, estimated fair values of long lives assets used to record impairment charges related to intangible assets, acquired in-process research and development (“IPR&D), and goodwill, and allocation of purchase price in business acquisitions. Actual results could differ from those estimates.

Enveric Biosciences, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Offering Costs

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 unaudited condensed consolidated statement of operations.

Fair Value Measurement

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 unaudited 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 unaudited condensed consolidated balance sheet as of September 30, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

	Level		September 30, 2021
Warrant liabilities – January Warrants		3	$	1,487,234
Warrant liabilities – February Warrants		3		1,416,391
Put rights in warrants issued prior to and surviving amalgamation with Ameri		2		262,491
Fair value as of September 30, 2021			$	3,166,116

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 analysed 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		$	4.90
Dividend yield		0.0	%		0.0	%
Expected volatility		84.7	%		84.7	%
Risk free interest rate		0.5	%		0.5	%

Number of shares		1,821,449			1,714,005
Value (per share)	$	2.66		$	3.00

Enveric Biosciences, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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		(3,358,767	)		(3,718,609	)		(7,077,376	)

Fair value of put rights in warrants issued prior to and surviving amalgamation with Ameri								262,491
Fair value as of September 30, 2021	$	1,487,234		$	1,416,391		$	3,166,116

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

	January Warrants			February Warrants
Term (years)		4.3			4.3
Stock price	$	2.07		$	2.07
Exercise price	$	4.95		$	4.90
Dividend yield		0.0	%		0.0	%
Expected volatility		77.1	%		76.7	%
Risk free interest rate		0.98	%		0.98	%

Number of shares		1,821,449			1,714,005
Value (per share)	$	0.82		$	0.83

Certain warrants issued by Ameri prior to the December 30, 2020 amalgamation with the Company, and containing put rights, remain outstanding and operative, with the put rights contained therein representing a liability to the Company classified as Level 2, due to the pricing input per warrant share, prior to adjustment for the reverse split subsequent to issuance of the warrants, and the number of warrant shares being directly observable as of the reporting date.

Intangible Assets

Intangible Assets

Intangible assets consist of in-process research and development acquired. The intangible assets are valued using the discounted cash flows method. The Company assesses the carrying value of its intangible assets for impairment each year. License agreements are recorded at cost and amortized over the life of the license.

Intangible assets related to acquired IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment. Impairment testing is performed at least annually or when a triggering event occurs that could indicate a potential impairment. If and when development is complete, which generally occurs when regulatory approval to market a product is obtained, the associated assets are deemed finite-lived and are amortized over a period that best reflects the economic benefits provided by these assets.

Enveric Biosciences, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Stock-Based Compensation

Stock-Based Compensation

The Company recognizes compensation expense for all equity-based payments in accordance with ASC 718 “Compensation – Stock Compensation” which addresses the accounting for stock-based payment transactions, requiring such transactions to be accounted for using the fair value method. Awards of shares for property or services are recorded at the more readily measurable of the estimated fair value of the stock award and the estimated fair value of the service. The Company uses the Black-Scholes option-pricing model to determine the grant date fair value of stock-based awards under ASC 718. The estimated fair value is amortized as a charged to earnings on a straight-line basis depending on the terms and conditions of the award, and the nature of the relationship of the recipient of the award to the Company. The Company records the grant date fair value in line with the period over which it was earned. For employees and consultants, this is typically considered to be the vesting period of the award . Under fair value recognition provisions, the Company accounts for forfeitures when they occur. Stock-based compensation expense recognized in the financial statements is reduced by the actual awards forfeited.

Restricted stock units, restricted stock awards, and stock options are granted at the discretion of the Compensation Committee of the Company’s board of directors (the “Board of Directors”). These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically over a 12 to 48-month period.

Long Lived Assets

Long Lived Assets

Property and equipment and intangible assets are recorded at cost. Major property additions, replacements, and betterments are capitalized, while maintenance and repairs that do not extend the useful lives of an asset or add new functionality are expensed as incurred. Depreciation and amortization are recorded using the straight-line method over the respective estimated useful lives of the Company’s long-lived assets. The estimated useful lives are typically 3 to 5 years for office furniture and equipment and are depreciated on a straight-line basis. The estimated useful life of the Company’s intellectual property is equal to the term of the related license, if applicable or 10 years and is amortized on a straight-line basis

The Company reviews its long-lived assets for impairment whenever events or changes indicate that the carrying value of the long-lived assets may not be fully recoverable. In cases where the Company does not expect to recover its carrying costs, an impairment charge is recorded. The Company measures and records impairment losses on its long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amount. Considerable judgment by management is necessary to estimate undiscounted future operating cash flows and fair values and, accordingly, actual results could vary significantly from such estimates.

Income Taxes

Income Taxes

The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse.

The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liabilities. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of September 30, 2021 and December 31, 2020, no liability for unrecognized tax benefits was required to be recorded.

The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of operating expenses. There were no amounts accrued for penalties and interest for the years ended December 31, 2020 and 2019. The Company does not expect its uncertain tax positions to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

The Company has identified its United States and Canadian federal tax return, its state and provincial tax returns in Florida, Alberta (Canada) and Ontario (Canada) as its “major” tax jurisdictions. The Company is in the process of filing its corporate tax returns for the years ended December 31, 2020 and December 31, 2019. Net operating losses for these periods will not be available to reduce future taxable income until the returns are filed.