SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2022

Accounting Policies [Abstract]

Basis of Presentation and Principal of Consolidation

Basis of Presentation and Principal of Consolidation

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 8 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 months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2021 and related notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s significant accounting policies and recent accounting standards are summarized in Note 2 of the Company’s financial statements for the year ended December 31, 2021. There were no significant changes to these accounting policies during the three months ended March 31, 2022.

Reclassification

Reclassification

Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. Certain amounts related to depreciation and amortization from the prior period were reclassified from General and administrative line item to Depreciation and amortization line item on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). These reclassifications had no net effect on loss from operations, net loss, or cash flows as previously reported.

Use of Estimates

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.

Foreign Currency Translation

Foreign Currency Translation

From inception through March 31, 2022, the reporting currency of the Company was the United States dollar while the functional currency of the Company’s subsidiaries was the Canadian dollar. For the reporting periods ended March 31, 2022 and March 31, 2021, the Company engaged in a number of transactions denominated in Canadian dollars. As a result, the Company is subject to exposure from changes in the exchange rates of the Canadian dollar and the U.S. dollar.

The Company translates the assets and liabilities of its Canadian subsidiaries into the U.S. dollar at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate in effect during each monthly period. Unrealized translation gains and losses are recorded as foreign currency translation gain (loss), which is included in the consolidated statements of shareholders’ equity as a component of accumulated other comprehensive income (loss).

The Company has not entered into any financial derivative instruments that expose it to material market risk, including any instruments designed to hedge the impact of foreign currency exposures. The Company may, however, hedge such exposure to foreign currency exchange fluctuations in the future.

Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss) as incurred.

Warrant Liability

Warrant Liability

The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company accounts for warrants for shares of the Company’s common stock that are not indexed to its own stock as derivative liabilities at fair value on the unaudited condensed consolidated balance sheets. The Company accounts for common stock warrants with put options as liabilities under ASC 480. Such warrants are subject to remeasurement at each unaudited condensed consolidated balance sheet date and any change in fair value is recognized as a component of other expense on the unaudited condensed consolidated statements 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

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.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Net Loss per Share

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). The computation of basic net loss per share for the three months ended March 31, 2022 and 2021 excludes potentially dilutive securities. The computations of net loss per share for each period presented is the same for both basic and fully diluted. In accordance with ASC 260-10-45-13, penny warrants were included in the calculation of weighted average shares outstanding for purposes of calculating basic and diluted earnings per share.

Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share for the three months ended March 31, 2022 and 2021 because the effect of their inclusion would have been anti-dilutive.

	For the Three Months Ended March 31,
	2022		2021
Warrants to purchase shares of common stock		32,768,766		5,979,611
Restricted stock units - vested and unissued		2,785,820		1,207,825
Restricted stock units - unvested		4,793,102		2,071,459
Restricted stock awards - vested and unissued		42,131		44,390
Restricted stock awards - unvested		6,477		26,596
Options to purchase shares of common stock		1,141,434		369,361
Total potentially dilutive securities		41,537,730		9,699,242

Fair Value Measurements

Fair Value Measurements

Fair value is defined as the price 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. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

For certain financial instruments, including cash, accounts receivable, and accounts payable, the carrying amounts approximate their fair values as of March 31, 2022 and December 31, 2021 because of their short-term nature.

The following table provides the financial liabilities measured on a recurring basis and reported at fair value on the balance sheet as of March 31, 2022 and indicates the fair value of the valuation inputs the Company utilized to determine such fair value:

	Level	March 31, 2022		December 31, 2021
Warrant liabilities - January 2021 Warrants	3	$	41,201	$	333,471
Warrant liabilities - February 2021 Warrants	3		41,695		320,203
Warrant liabilities - February 2022 Warrants	3		3,890,229		—
Fair value as of March 31, 2022		$	3,973,125	$	653,674

The warrant liabilities are all 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.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Initial measurement

The Company established the initial fair value of its warrant liabilities at the respective dates of issuance. The Company used a Black Scholes valuation model in order to determine their value. The key inputs into the Black Scholes valuation model for the initial valuations are below:

	February 2022 Warrants
	February 15, 2022
Term (years)		5.0
Stock price	$	0.32
Exercise price	$	0.55
Dividend yield		—	%
Expected volatility		74.1	%
Risk free interest rate		1.9	%
Number of warrants		23,000,000
Value (per share)	$	0.16

Subsequent measurement

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

	Total Warrant Liabilities
Fair value as of December 31, 2021	$	653,674
Issuance of February 2022 warrants		3,595,420
Change in fair value		(275,969	)
Fair value as of March 31, 2022	$	3,973,125

The key inputs into the Black Scholes valuation model for the Level 3 valuations as of March 31, 2022 are below:

	January 2021 Warrants			February 2021 Warrants			February 2022 Warrants
Term (years)		3.8			3.9			4.9
Stock price	$	0.33		$	0.33		$	0.33
Exercise price	$	4.95		$	4.90		$	0.55
Dividend yield		—	%		—	%		—	%
Expected volatility		76.0	%		76.0	%		75.3	%
Risk free interest rate		2.44	%		2.44	%		2.42	%
Number of warrants		1,821,449			1,714,005			23,000,000
Value (per share)	$	0.02		$	0.02		$	0.17

Leases

Leases

Operating lease assets are included within right-of-use operating lease asset and operating lease liabilities are included in current portion of right-of-use operating lease obligation and non-current portion of right-of-use operating lease obligation on the consolidated balance sheet as of March 31, 2022. The Company has elected not to present short-term leases as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Company’s leases do not provide an implicit rate of return, the Company used an incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.