Enveric Biosciences, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. Enveric is a pre-revenue biotechnology company developing psychedelic-derived therapeutics and cannabinoid-based programs. Management said its principal focus was psychedelics; a planned spin-off of cannabinoid assets to majority-owned Akos remained subject to conditions.
Financial highlights
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | None generated since inception | |||
| Operating expenses | $5.66 million | $3.52 million | $15.16 million | $13.64 million |
| Operating loss | $5.66 million | $3.52 million | $15.16 million | $13.64 million |
| Net loss | $2.48 million | $2.71 million | $9.79 million | $6.87 million |
| Net loss attributable to shareholders | $2.60 million | $2.71 million | $10.00 million | $6.87 million |
| Net cash used in operating activities | Not presented for quarter | $13.68 million | $7.39 million |
With no revenue, gross margin and operating margin are not meaningful. Q3 net loss was lower year over year despite higher operating expenses, primarily because of noncash gains from changes in fair value of warrant and investment-option liabilities. For the nine-month period, net loss increased year over year.
- Liquidity at September 30: Cash of $21.20 million, current assets of $22.27 million, current liabilities of $2.60 million, and working capital of $19.67 million. Total liabilities were $7.25 million; the balance sheet lists lease obligations and fair-value liabilities, but no conventional borrowings.
- Cash movement: Cash increased $3.85 million to $21.20 million during the first nine months. Financing provided $18.18 million, offset by operating use of $13.68 million, investing use of $0.58 million, and foreign-exchange effects.
- Capital raised: February and July 2022 offerings generated approximately $17.22 million of net proceeds in aggregate from common stock, warrants and investment options. The July financing also included securities with substantial potential dilution.
- Other balance-sheet items: Accumulated deficit was $70.53 million. Redeemable non-controlling interest was $0.76 million; the company guaranteed Akos preferred-share redemption, with a stated redemption value of approximately $1.02 million including accrued dividends at September 30.
Material changes and unusual items
- Q3 general and administrative expense rose 65% to $3.51 million, driven in part by offering-related transaction costs, professional fees and marketing fees. Nine-month G&A fell 19% to $8.78 million, primarily because stock-based compensation declined.
- Research and development expense rose 69% in Q3 to $2.06 million and 167% for the nine-month period to $6.13 million, reflecting increased product development, particularly psychedelic-molecule research.
- The nine-month operating cash outflow increased to $13.68 million from $7.39 million in 2021. Property and equipment purchases were $0.58 million, mainly for the Calgary research facility.
- A 1-for-50 reverse stock split took effect July 14, 2022. Common shares outstanding were 2,078,271 at September 30 and 2,078,271 at November 11, 2022; share and per-share figures in the filing reflect the split.
- Noncash fair-value movements materially affected reported earnings: nine-month gains were $3.85 million for warrant liabilities and $1.81 million for investment-option liabilities, partially offset by a $0.28 million expense from the derivative liability. These amounts are subject to valuation estimates.
- Foreign-currency translation loss was $0.61 million for the first nine months, versus $0.004 million in 2021, reflecting Canadian-dollar exposure.
Outlook, risks and contingencies
- Management stated that available working capital was sufficient for material cash requirements over the next 12 months, but expected to need additional financing over the following years. Further funding may not be available on acceptable terms; absent funding, the company may delay, reduce or discontinue development programs or relinquish candidate rights.
- Key risks include early-stage development and clinical/regulatory uncertainty, ability to secure funding and collaborations, intellectual-property protection, manufacturing and commercialization capability, competition, COVID-19-related disruption, currency exposure, and execution of the Akos spin-off.
- The Akos spin-off was not assured. If it does not occur or is abandoned under specified circumstances, the preferred investor may have a put right; Enveric guaranteed payment. The additional $4 million contemplated under the Akos private placement was tied to the spin-off.
- The company reported no material pending litigation. It disclosed approximately $2.4 million of future cash commitments under consulting, clinical-support and testing agreements, plus a $0.3 million milestone payable upon initiation of a specified Phase II(b) study if achieved.
- Nasdaq bid-price compliance was regained in July 2022. Continued listing remains a risk. Management also reported that material weaknesses in internal control over financial reporting persisted at September 30; disclosure controls were deemed ineffective.
Investor facts to verify
- Whether cash burn and development spending remain consistent with the stated 12-month funding sufficiency, and when additional capital may be required.
- Progress, costs, and conditions for the Akos spin-off, including the guaranteed redemption exposure and remaining private-placement funding.
- Potential dilution from outstanding warrants, investment options, stock awards, and the incentive plan’s evergreen provision.
- Progress of psychedelic programs from discovery and preclinical work toward clinical development, and any associated regulatory or partnership milestones.
- Remediation of the disclosed material weaknesses and restoration of effective disclosure controls.