SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 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 and nine months ended September 30, 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.

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 and nine months ended September 30, 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.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 September 30, 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 September 30, 2022 and September 30, 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 and Investment Options

Warrant Liability and Investment Options

The Company evaluates all of its financial instruments, including issued stock purchase warrants and investment options, 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 and investment options 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 and investment options with put options as liabilities under ASC 480. Such warrants and investment options 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 and investment options. At that time, the portion of the warrant liability and investment options related to such common stock warrants will be reclassified to additional paid-in capital.

Modification of Warrants

Modification of Warrants

A change in any of the terms or conditions of warrants is accounted for as a modification. For a warrant modification accounted for under ASC 815, the effect of a modification shall be measured as the difference between the fair value of the modified warrant over the fair value of the original warrant immediately before its terms are modified, measured based on the fair value of the shares and other pertinent factors at the modification date. The accounting for incremental fair value of warrants is based on the specific facts and circumstances related to the modification. When a modification is directly attributable to equity offerings, the incremental change in fair value of the warrants are accounted for as equity issuance costs.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Derivative Liability

Derivative Liability

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. For derivative financial instruments that are accounted for as assets or liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the unaudited condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as assets or liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the unaudited condensed consolidated balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

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.

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 and nine months ended September 30, 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.

During the three and nine months ended September 30, 2022 the Company issued 767,500 pre-funded common stock warrants, which were exercised on various dates during the three and nine months ended September 30, 2022. The pre-funded common stock warrants became exercisable on July 26, 2022 based on the terms and conditions of the agreements. As the pre-funded common stock warrants are exercisable for $0.0001, these shares are considered outstanding common shares and are included in the computation of basic and diluted Earnings Per Share as the exercise of the pre-funded common stock warrants is virtually assured. The Company included these pre-funded common stock warrants in basic and diluted earnings per share when all conditions were met on July 26, 2022.

Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share for the three and nine months ended September 30, 2022 and 2021 because the effect of their inclusion would have been anti-dilutive.

	For the three and nine months ended September 30, 2022		For the three and nine months ended September 30, 2021
Warrants to purchase shares of common stock		655,463		211,534
Restricted stock units - vested and unissued		61,428		—
Restricted stock units - unvested		65,117		115,504
Restricted stock awards - vested and unissued		974		—
Restricted stock awards - unvested		—		578
Investment options to purchase shares of common stock		1,070,000		—
Options to purchase shares of common stock		22,829		22,947
Total potentially dilutive securities		1,875,811		350,563

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.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 September 30, 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 September 30, 2022 and indicates the fair value of the valuation inputs the Company utilized to determine such fair value of warrant liabilities, derivative liability, and investment options:

	Level		September 30, 2022		December 31, 2021
Warrant liabilities - January 2021 Warrants		3	$	1,011	$	333,471
Warrant liabilities - February 2021 Warrants		3		1,101		320,203
Warrant liabilities - February 2022 Warrants		3		652,825		—
Fair value as of September 30, 2022			$	654,937	$	653,674

	Level		September 30, 2022		December 31, 2021
Derivative liability - May 2022		3	$	686,000	$	—
Fair value as of September 30, 2022			$	686,000	$	—

	Level		September 30, 2022		December 31, 2021
Wainwright investment options		3	$	139,314	$	—
RD investment options		3		890,549		—
PIPE investment options		3		1,484,249		—
Fair value as of September 30, 2022			$	2,514,112	$	—

The warrant liabilities, derivative liability, and investment options 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.

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 of the warrant liabilities are below:

	February 2022 Warrants			February 2022 Post-Modification Warrants
	February 15, 2022			July 26, 2022
Term (years)		5.0			5.5
Stock price	$	15.75		$	6.33
Exercise price	$	27.50		$	7.78
Dividend yield		—	%		—	%
Expected volatility		74.1	%		80.0	%
Risk free interest rate		1.9	%		2.9	%
Number of warrants		460,000			122,000
Value (per share)	$	8.00		$	4.07

The Company established the initial fair value of its derivative liability at the respective date of issuance. The Company used a Weighted Expected Return valuation model in order to determine their value. The key inputs into the Weighted Expected Return valuation model for the initial valuations of the warrant liabilities are below:

	May 2022 Derivative Liability
	May 5, 2022
Principal	$	1,000,000
Dividend rate		5.0	%
Market rate		4.4	%

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company established the initial fair value of its investment options 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 of the investment options are below:

	Wainwright Options			RD Options			PIPE Options
	July 26, 2022			July 26, 2022			July 26, 2022
Term (years)		5.0			5.5			5.5
Stock price	$	6.33		$	6.33		$	6.33
Exercise price	$	10.00		$	7.78		$	7.78
Dividend yield		—	%		—	%		—	%
Expected volatility		80.0	%		80.0	%		80.0	%
Risk free interest rate		2.9	%		2.9	%		2.9	%
Number of investment options		70,000			375,000			625,000
Value (per share)	$	3.60		$	4.07		$	4.07

Subsequent measurement

The following table presents the changes in fair value of the warrant liabilities, derivative liability, and investment options:

	Total Warrant Liabilities
Fair value as of December 31, 2021	$	653,674
Issuance of February 2022 warrants		3,595,420
Change in fair value due to modification of February 2022 warrants as part of July 2022 raise		251,357
Change in fair value		(3,845,514	)
Fair value as of September 30, 2022	$	654,937

	Total Derivative Liability
Fair value as of December 31, 2021	$	—
Issuance of May 2022 convertible preferred stock		402,000
Change in fair value		284,000
Fair value as of September 30, 2022	$	686,000

	Total Investment Options
Fair value as of December 31, 2021	$	—
Issuance of July 2022 investment options		4,323,734
Change in fair value		(1,809,622	)
Fair value as of September 30, 2022	$	2,514,112

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The key inputs into the Black Scholes valuation model for the Level 3 valuations of the warrant liabilities as of September 30, 2022 are below:

	January 2021 Warrants			February 2021 Warrants			February 2022 Warrants			February 2022 Post-Modification Warrants
Term (years)		3.3			3.4			4.4			5.3
Stock price	$	4.22		$	4.22		$	4.22		$	4.22
Exercise price	$	247.50		$	245.00		$	27.50		$	7.78
Dividend yield		—	%		—	%		—	%		—	%
Expected volatility		78.0	%		78.0	%		80.0	%		79.0	%
Risk free interest rate		4.20	%		4.20	%		4.10	%		4.00	%
Number of warrants		36,429			34,281			338,000			122,000
Value (per share)	$	0.03		$	0.03		$	1.07		$	2.37

The key inputs into the Weighted Expected Return valuation model for the Level 3 valuations of the derivative liability as of September 30, 2022 are below:

	May 2022 Derivative Liability
Principal	$	1,000,000
Dividend rate		5.0	%
Market rate		6.8	%

The key inputs into the Black Scholes valuation model for the Level 3 valuations of the investment options as of September 30, 2022 are below:

	Wainwright Options			RD Options			PIPE Options
Term (years)		4.8			5.3			5.3
Stock price	$	4.22		$	4.22		$	4.22
Exercise price	$	10.00		$	7.78		$	7.78
Dividend yield		—	%		—	%		—	%
Expected volatility		78.0	%		79.0	%		79.0	%
Risk free interest rate		4.10	%		4.00	%		4.00	%
Number of investment options		70,000			375,000			625,000
Value (per share)	$	1.99		$	2.37		$	2.37

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 September 30, 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.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Redeemable Non-controlling Interest

Redeemable Non-controlling Interest

In connection with the issuance of Akos Series A Preferred Stock, the Akos Purchase Agreement and certificate of designation contain a put right guaranteed by the Company as defined in Note 6. Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer. As a result of this feature, the Company recorded the non-controlling interests as redeemable non-controlling interests and classified them in temporary equity within its unaudited condensed consolidated balance sheet initially at its acquisition-date estimated redemption value or fair value. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument by accreting the embedded derivative at each reporting period over 12 months.

The Akos Series A Preferred Certificate of Designations provides that upon the earlier of (i) the one-year anniversary of May 5, 2022, and only in the event that the Spin-Off has not occurred; or (ii) such time that Akos and the Company have abandoned the Spin-Off or the Company is no longer pursuing the Spin-Off in good faith, the holders of the Akos Series A Preferred Stock shall have the right (the “Put Right”), but not the obligation, to cause Akos to purchase all or a portion of the Akos Series A Preferred Stock for a purchase price equal to $1,000 per share, subject to certain adjustments as set forth in the Akos Series A Preferred Certificate of Designations, plus all the accrued but unpaid dividends per share. Pursuant to the Akos Purchase Agreement, the Company has guaranteed the payment of the purchase price for the shares purchased under the Put Right.

Segment Reporting

Segment Reporting

The Company determines its reporting units in accordance with FASB ASC 280, “Segment Reporting” (“ASC 280”). The Company evaluates a reporting unit by first identifying its operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has multiple operations related to psychedelics and cannabinoids. Both of these operations exist under one reporting unit: Enveric. The Company has one operating segment and reporting unit. The Company is organized and operated as one business. Management reviews its business as a single operating segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate.