Enveric Biosciences, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The unaudited statements compare with Q1 2020. Enveric is an early-stage company developing cannabinoid-based products and combination therapies for cancer care; it reported no revenue.
Financial performance and position
| Metric | Q1 2021 / March 31, 2021 | Comparable period / December 31, 2020 |
|---|---|---|
| Revenue | None reported | None reported |
| Operating expenses | $6.765 million | $0.837 million in Q1 2020 |
| Operating loss | $6.765 million | $0.837 million in Q1 2020 |
| Net loss | $3.251 million | $1.098 million in Q1 2020 |
| Net loss per share | $0.20 | $0.19 in the financial statements; MD&A reports $0.04 |
| Cash | $22.657 million | $1.578 million |
| Working capital | $16.630 million | Prior-period value not stated here |
| Total assets | $25.787 million | $4.097 million |
| Total liabilities | $6.795 million, including $6.168 million of warrant liabilities | $0.681 million |
| Operating cash flow | $(3.162) million | $(0.894) million in Q1 2020 |
| Investing cash flow | $(0.675) million | No investing cash flow |
| Financing cash flow | $24.882 million | $1.212 million in Q1 2020 |
Profitability and margins are not meaningful because the company had no revenue. The filing reports no interest expense in Q1 2021; it does not show debt outstanding on the March 31 balance sheet.
Changes and notable items
- General and administrative expense rose $5.770 million, or 690%, year over year. The company attributed the increase mainly to $3.592 million in stock-based compensation, $0.299 million in option-exchange inducement expense, and $0.583 million in higher public-company costs.
- Research and development expense was $0.158 million, versus none in Q1 2020, related primarily to preparation for a glioblastoma study and formulation work for a radiation-dermatitis study.
- A $3.813 million noncash gain from remeasuring warrant liabilities, primarily reflecting a decrease in the share price, reduced the reported net loss. Warrant liabilities are Level 3 fair-value estimates.
- January and February equity offerings and warrant exercises generated substantial financing proceeds. The company also converted all 3.275 million Series B preferred shares into common shares; common shares outstanding were 19.450 million at quarter-end.
- Enveric paid $0.675 million for an exclusive license covering five therapeutic candidates from Diverse Biotech. The agreement also provides for royalties beginning with commercial sales. A separate three-year agreement made PureForm the exclusive synthetic cannabidiol supplier for specified development plans, subject to an initial minimum order.
Outlook, risks and controls
Management said cash and financing commitments were expected to cover requirements over the next year, but additional financing would likely be needed over the following several years. It cautioned that financing may not be available on acceptable terms and that development plans could be reduced if funding is insufficient. The company reported approximately $22 million of cash as of May 14, 2021.
Key risks include early-stage product development and clinical/regulatory uncertainty, dependence on future financing, possible COVID-19 disruption, cannabinoid safety and efficacy uncertainties, manufacturing and collaboration risks, and political and military instability in Israel. The planned Phase 1/2 glioblastoma study in Israel was awaiting primary approval from the Israeli Ministry of Health.
Management concluded disclosure controls were not effective as of March 31, 2021 because material weaknesses in internal control over financial reporting continued. The filing describes remediation efforts but says additional measures may be needed. A stockholder demand challenged the 2020 reverse split approval process; the company disputed the allegations and ratified the amendment in May 2021.
Important facts for investors to verify
- Reconcile the Q1 2020 loss-per-share and weighted-average-share figures: the financial statements show $0.19 loss per share and 5.654 million weighted-average shares, while MD&A reports $0.04 and 25.607 million shares.
- Reconcile offering proceeds: the offering notes report net proceeds of approximately $8.806 million and $11.624 million, while MD&A gives $9.463 million and $12.151 million; the cash flow statement reports $21.614 million in net stock-sale proceeds.
- Assess the assumptions behind the $3.813 million warrant remeasurement gain and the $6.168 million ending warrant liability, both based on Level 3 valuation inputs.
- Track cash burn, development spending, financing needs, and progress toward Israeli study approval and other regulatory milestones.
- Monitor remediation of the disclosed material weaknesses and the company’s ability to maintain effective financial reporting controls.