Enveric Biosciences, Inc. — FY2021 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021; comparisons are to FY2020, a period that is not fully comparable because Enveric acquired MagicMed on September 16, 2021. Enveric is a pre-revenue, early-stage biosciences company developing psychedelic-derived candidates for mental health indications and cannabinoid-based candidates for cancer supportive care. Its pipeline remained largely in discovery, research and development, or lead optimization.
Financial results and liquidity
| Metric | FY2021 / Dec. 31, 2021 | FY2020 / Dec. 31, 2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $4.79 million | $0.17 million |
| General and administrative expense | $20.50 million | $5.32 million |
| Impairment of intangible assets and goodwill | $38.68 million | None |
| Total operating expenses / operating loss | $64.62 million | $5.62 million |
| Net loss | $48.98 million | $6.86 million |
| Net loss per share, basic and diluted | $2.07 | $1.19 |
| Net cash used in operating activities | $11.46 million | $3.89 million |
| Cash | $17.36 million | $1.58 million |
| Working capital | $15.65 million | Not clearly stated in the filing text |
| Total liabilities | $4.41 million | $0.68 million |
Margins are not meaningful because the company had no revenue. At year-end, Enveric reported total assets of $26.72 million and shareholders’ equity of $22.31 million. It reported no notes payable or convertible notes payable; liabilities included lease obligations, deferred tax, accounts payable, accruals and $0.65 million of warrant liability.
FY2021 net loss included substantial non-cash items: $38.68 million of impairment charges, $12.60 million of stock-based compensation, a $9.33 million non-cash gain from the change in warrant-liability fair value, and a $7.45 million income-tax benefit. The impairment followed a sustained decline in the share price and reduced the carrying value of acquired goodwill and intangible assets.
Material changes and significant transactions
- MagicMed was acquired for stated purchase consideration of approximately $39.04 million, primarily equity. The transaction issued 9,951,217 Enveric shares to MagicMed shareholders; the filing says they received approximately 31.7% of shares after closing, with potential additional shares for converted options and warrants.
- The acquisition added the Psybrary psychedelic-derivatives library and in-process research and development. Enveric initially recognized $35.5 million of acquired indefinite-lived intangible assets and $9.83 million of goodwill. By year-end, impairment charges reduced goodwill by $8.23 million and indefinite-lived intangibles by $29.05 million; an additional $1.40 million impairment was recorded against definite-lived intangibles.
- Operating expenses rose by $59.01 million year over year, reflecting the impairment, expanded research and development, increased stock compensation, and higher legal, accounting, insurance and personnel costs. The acquisition also affects year-over-year comparability.
- Financing activities provided $24.90 million in 2021, including $21.61 million of net proceeds from stock and warrant sales and $3.29 million from cash warrant exercises. The MagicMed acquisition added $3.06 million of cash through investing activities.
Outlook, risks and unusual items
- Management said cash resources, including net proceeds from a February 2022 offering, were sufficient to fund operations for at least the next 12 months after filing. The February offering raised approximately $9.2 million net through 20 million shares and accompanying warrants, with additional warrants purchased by the underwriter. The filing also says further financing will be needed to carry out development plans over the following years.
- Enveric has no approved products, has generated no revenue, and expects continuing losses and negative operating cash flows. Management provided no quantified revenue, earnings or cash-flow guidance.
- Key development risks include early-stage candidates and uncertain clinical and regulatory outcomes; controlled-substance regulation for psychedelic compounds; uncertain regulation of synthetic CBD; dependence on external research, manufacturing and supply partners; intellectual-property protection; competition; and possible delays from COVID-19 or instability affecting planned research in Israel. Inflation and higher labor and materials costs were also identified as potential pressures.
- In February 2022, Nasdaq notified the company that its share price had not met the $1.00 minimum bid requirement. Enveric had until August 17, 2022 to regain compliance, with possible additional time subject to Nasdaq requirements; delisting remained a risk.
- Management reported material weaknesses in internal control over financial reporting as of December 31, 2021, including inadequate documentation and testing of controls and insufficient segregation of duties. Management described remediation efforts, but concluded both internal controls and disclosure controls were not effective. The auditor’s report did not express an opinion on internal control effectiveness.
- The company disclosed stockholder demand letters and a lawsuit related to the MagicMed transaction disclosures; the lawsuit was voluntarily dismissed and certain demands were resolved after disclosure changes and payments to counsel. Management said no pending litigation was expected to have a material adverse effect. A $200,000 patent milestone was accrued and paid in January 2022; a further $300,000 milestone is contingent on starting a Phase II(b) study.
Most important facts for investors to verify
- Cash and expected cash runway after the February 2022 offering, relative to the operating burn rate and planned research commitments.
- Remaining potential dilution from warrants, options and restricted stock units, including the terms of the 2022 offering warrants and the status of required share authorization.
- The assumptions and sensitivity of the MagicMed valuation and impairment analysis, including development costs, probability of clinical success and projected future cash flows.
- Progress toward defined clinical and regulatory milestones for the psychedelic and cannabinoid programs, including any approvals needed for the proposed Israel study.
- Whether internal-control remediation is completed and independently validated, and whether Nasdaq bid-price compliance was regained by the stated deadline.