Enveric Biosciences, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The company is an early-stage biosciences developer focused on cannabinoid-based cancer treatments; the September quarter also includes MagicMed following its acquisition on September 16, 2021. Financial statements are unaudited.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $1.22 million | $63,302 | $2.30 million | $134,259 |
| General and administrative | $2.12 million | $426,532 | $10.86 million | $1.96 million |
| Total operating expenses | $3.52 million | $489,834 | $13.64 million | $2.09 million |
| Net loss | $2.71 million | $565,335 | $6.87 million | $2.48 million |
| Net loss per share | $0.12 | $0.10 | $0.34 | $0.43 |
No revenue was reported, so a revenue-based margin is not meaningful. Nine-month operating cash use was $7.39 million, versus $1.64 million a year earlier. Investing activities provided $2.38 million, largely reflecting $3.06 million of cash acquired with MagicMed, offset by the $675,000 Diverse Bio license payment. Financing activities provided $24.90 million, including $21.61 million of net stock-and-warrant proceeds and $3.29 million from warrant exercises.
At September 30, cash was $21.45 million and working capital was $20.12 million. Total assets were $69.76 million; total liabilities were $14.39 million, including $2.16 million of current liabilities, a $3.17 million warrant liability, and a $9.06 million deferred tax liability. The balance sheet reports no borrowings at period end. Accumulated deficit was $18.63 million. Intangible assets were $38.27 million and goodwill was $9.06 million.
Changes versus prior period and notable items
- Operating expenses rose substantially year over year, reflecting increased development activity, higher staffing, insurance, legal and compliance costs, acquisition-related activity, and stock-based compensation. Nine-month stock-based compensation totaled $4.83 million.
- The company recorded a $7.08 million nine-month gain from remeasuring warrant liabilities, which reduced reported net loss. This noncash, fair-value item is sensitive to stock-price and valuation assumptions; excluding it, operating losses remained significant.
- MagicMed was acquired September 16 for preliminary consideration of approximately $48.10 million, primarily equity, including 9.95 million common shares issued. The purchase accounting remains provisional. The acquired Psybrary focuses initially on psilocybin and DMT derivatives. MagicMed contributed no revenue and $183,753 of net loss from acquisition through September 30.
- Common shares outstanding increased to 31.38 million from 10.10 million at December 31, 2020, due to offerings, warrant exercises, and the MagicMed acquisition. The filing also reports 10.58 million warrants outstanding and 5.78 million restricted stock units granted during the nine-month period.
- Interest expense declined sharply as prior-year promissory notes had been retired. The filing does not report revenue, gross profit, or operating margins.
Outlook, risks and contingencies
- Management stated that cash on hand was expected to fund operations for at least 12 months following filing, but additional financing would likely be needed over the following years. Future funding may not be available on acceptable terms; the company may have to reduce development plans.
- No specific financial guidance was provided. Development plans include cannabinoid-based supportive-care products and therapies for cancers including glioblastoma. A planned Israel-based GBM study was awaiting primary approval from the Israeli Ministry of Health; regional instability could delay or impede it.
- Key risks include early-stage development and clinical-trial uncertainty, regulatory approval, manufacturing and collaboration execution, intellectual-property protection, competition, COVID-19 disruption, and successful integration of MagicMed. The company noted foreign-currency exposure and no hedging instruments.
- Management concluded disclosure controls were ineffective at September 30, 2021 because material weaknesses in internal control over financial reporting persisted, including inadequate segregation of duties. Remediation was underway.
- Several stockholder demands and a lawsuit concerning disclosures and the prior reverse split were described. The company reported the demands were resolved or claims mooted; the lawsuit was voluntarily dismissed October 25, 2021. Related counsel payments included $65,000 paid and $90,000 accrued at quarter end and paid subsequently.
- The company accrued a $200,000 patent milestone payment after the relevant patent milestone was achieved. A further $300,000 payment is contingent on initiation of a Phase II(b) study; the filing says that milestone had not been achieved.
Important facts for investors to verify
- Cash runway assumptions, projected spending, and the timing and terms of any future capital raises.
- Progress, regulatory status, funding needs, and clinical timelines for the cannabinoid and MagicMed programs, including the planned Israel study.
- Final MagicMed purchase-price allocation and valuation of acquired research assets, goodwill, and deferred tax liabilities.
- Warrant valuation assumptions, potential share issuance from warrants, options and restricted stock units, and resulting dilution.
- Remediation of the disclosed material weaknesses and effectiveness of financial-reporting controls in subsequent filings.