What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-16 · 236 added, 192 removed, 410 unchanged (51% of the section changed)

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have incurred significant operating losses since inception.

As of June 30, 2021, we had an accumulated deficit of $57.8 million.

As of September 30, 2021, we had an accumulated deficit of $75.0 million.

We expect to continue to incur net losses for the foreseeable future, and we expect our clinical development expenses, and general and

administrative expenses to continue to increase.

We expect that our expenses and capital requirements will increase substantially in connection

with our ongoing development activities, particularly if and as we:

We expect that our expenses and capital requirements will increase substantially in

connection with our ongoing development activities, particularly if and as we:

preclinical studies and continue existing and initiate new clinical trials for PF614, PF614-MPAR™ and nafamostat, our lead

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Combination Transaction

January 31, 2021, LACQ executed a definitive merger agreement among it, Merger Sub and Former Ensysce, providing for, among

other things, and subject to terms and conditions therein, the business combination between LACQ and Former Ensysce pursuant to the merger

of Merger Sub with and into Former Ensysce, with Former Ensysce continuing as the surviving entity and as a wholly-owned subsidiary of

LACQ (the “Business Combination”).

January 31, 2021, LACQ executed a definitive merger agreement among it, Merger Sub and Former Ensysce, providing for, among other things,

and subject to terms and conditions therein, the business combination between LACQ and Former Ensysce pursuant to the merger of Merger

Sub with and into Former Ensysce, with Former Ensysce continuing as the surviving entity and as a wholly-owned subsidiary of LACQ (the

“Business Combination”).

On June 30, 2021, the Business Combination was consummated.

In connection

with the Business Combination, the stockholders of Former Ensysce exchanged their interests for shares of the combined

company’s common stock at an exchange ratio of 0.06585.

Immediately following the Business Combination, the stockholders

of Former Ensysce owned approximately 71.8% of the outstanding common stock of the combined company.

Former Ensysce’s existing

equity incentive plans were terminated;

awards issued under the existing equity incentive plans were exchanged for awards

issued under the Company’s 2021 Omnibus Incentive Plan, a new equity incentive plan that we and the stockholders

adopted in connection with the Business Combination.

We received net proceeds of approximately $7.8 million at the closing of

the Business Combination and we continue to operate under our management team, led by our Chief Executive Officer Lynn Kirkpatrick.

On July 2, 2021, the combined company’s common stock began trading on Nasdaq under the ticker symbol “ENSC”.

In connection with the Business Combination,

the stockholders of Former Ensysce exchanged their interests for shares of the combined company’s common stock at an exchange ratio

Immediately following the Business Combination, the stockholders of Former Ensysce owned approximately 71.8% of the outstanding

common stock of the combined company.

Former Ensysce’s existing equity incentive plans were terminated;

awards issued under the

existing equity incentive plans were exchanged for awards issued under the Company’s 2021 Omnibus Incentive Plan, a new equity

incentive plan that we and the stockholders adopted in connection with the Business Combination.

We received net proceeds of approximately

$7.8 million at the closing of the Business Combination and we continue to operate under our management team, led by our Chief Executive

Officer Lynn Kirkpatrick.

On July 2, 2021, the combined company’s common stock began trading on Nasdaq under the ticker symbol

of Ensysce’s Operating Results

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our MPAR TM overdose prevention technology (the “MPAR Grant”).

In September 2019, we were awarded a second

research and development grant related to the development of our TAAP/MPAR TM abuse deterrent technology for Opioid

Use Disorder (“OUD”) (the “OUD Grant”).

Grant funds are awarded annually through a Notice of Award which contains

certain terms and conditions including, but not limited to, complying with the grant program legislation, regulation and policy requirements,

complying with conditions on expenditures of funds with respect to other applicable statutory requirements such as the federal appropriations

acts, periodic reporting requirements, and budget requirements.

In September 2019, we were awarded a second research

and development grant related to the development of our TAAP/MPAR TM abuse deterrent technology for Opioid Use Disorder (“OUD”)

(the “OUD Grant”).

Grant funds are awarded annually through a Notice of Award which contains certain terms and conditions

including, but not limited to, complying with the grant program legislation, regulation and policy requirements, complying with conditions

on expenditures of funds with respect to other applicable statutory requirements such as the federal appropriations acts, periodic reporting

requirements, and budget requirements.

and development expenses

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recognize external development costs as incurred.

Any advance payments that we makes for goods or services to be received in the future

Any advance payments that we make for goods or services to be received in the future

for use in research and development activities are recorded as prepaid expenses.

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administrative costs as incurred.

anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the continued

development of our product candidates.

We also anticipate that we will incur significantly increased accounting, audit, legal, regulatory,

compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a

public company.

Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase

in payroll and other employee-related expenses as a result of our preparation for commercial operations, especially as it relates to

the sales and marketing of that product candidate.

anticipate that our general and administrative expenses, excluding non-cash expenses to recognize the fair value of warrants, will increase

in the future as we increase our headcount to support the continued development of our product candidates.

We also anticipate that we

will incur significantly increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well

as investor and public relations expenses associated with operating as a public company.

Additionally, if and when we believe a regulatory

approval of a product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result

of our preparation for commercial operations, especially as it relates to the sales and marketing of that product candidate.

income (expense)

in fair value of derivative liability

entered into a series of notes that were determined to have embedded derivative instruments in the form of a contingent put option.

notes were recognized at the value of proceeds received after allocating issuance proceeds to the bifurcated contingent put option.

notes were subsequently measured at amortized cost using the effective interest method to accrete interest over their term to bring the

notes’ initial carrying value to their principal balance at maturity.

The bifurcated put option was initially measured at fair

value and subsequently measured at fair value with changes in fair value recognized as a component of other expenses in the consolidated

statements of operations.

in fair value of liabilities

2018 and 2021, we entered into a series of notes that were determined

to have embedded derivative instruments in the form of a contingent put option.

The notes were recognized at the value of proceeds received

after allocating issuance proceeds to the bifurcated contingent put option.

The notes were subsequently measured at amortized cost using

the effective interest method to accrete interest over their term to bring the notes’ initial carrying value to their principal

balance at maturity.

The bifurcated put option was initially measured at fair value and subsequently measured at fair value with changes

in fair value recognized as a component of other expenses in the consolidated statements of operations.

We elected the fair value option to account

for the 2021 convertible notes as we believe the fair value option provides users of the financial statements with greater ability to

estimate the outcome of future events as facts and circumstances change, particularly with respect to changes in the fair value of the

common stock underlying the conversion option.

We use a Monte Carlo analysis to estimate the fair value of the notes, which relies on

unobservable Level 3 inputs.

Changes in the fair value of the notes are recognized through earnings for each reporting period.

expense consists of interest accrued on our convertible and other promissory notes and the amortization of debt discounts due to embedded

derivative instruments in our convertible promissory notes.

derivative instruments in our convertible promissory notes that were settled on June 30, 2021, in conjunction with the Business Combination.

for Income Taxes

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of Operations

of the three months ended June 30, 2021 and 2020

following table summarizes the significant items within our results of operations for the three months ended June 30, 2021 and 2020:

Three Months Ended June 30,

of the three months ended September 30, 2021 and 2020

following table summarizes the significant items within our results of operations for the three months ended September 30, 2021 and 2020:

Months Ended September 30,

Federal grant funding

$ (1,380,165 )

Research and development expenses

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grant funding

from federal grants for the three months ended June 30, 2021 and 2020 totaled $0.4 million and $1.8 million, respectively, representing

a decrease of $1.4 million.

Funding decreased by $1.7 million under the MPAR Grant, offset by an increase of $0.3 million under the OUD

from federal grants for the three months ended September 30, 2021 and 2020 totalled $1.2 million and $0.8 million, respectively, representing

an increase of $0.4 million.

Funding increased by $0.7 million under the MPAR Grant, offset by a decrease of $0.3 million under the OUD

Grant, due to the timing of research activities eligible for funding.

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and development expenses

and development expenses for the three months ended June 30, 2021 and 2020 were $0.5 million and $1.4 million, respectively, representing

a decrease of $0.9 million.

The decrease was primarily the result of reduced external research and development costs related to preclinical

programs for PF614-MPAR™ and Phase 1 clinical trial activities of nafamostat.

and development expenses for the three months ended September 30, 2021 and 2020 were $1.7 million and $0.9 million, respectively, representing

an increase of $0.8 million.

The increase was primarily the result of increased external research and development costs related to clinical

programs for PF-614 and preclinical programs for PF614-MPAR™.

Ensysce does not currently track expenses on a program-by-program

We expect research and development expenses to increase in the future due to planned clinical trials and higher preclinical

and clinical development costs for our product candidates.

We expect research and development expenses to increase in the future due to planned clinical trials and higher preclinical and

clinical development costs for our product candidates.

and administrative expenses

and administrative expenses for the three months ended June 30, 2021 and 2020 were $0.4 million and $0.3 million, respectively, representing

an increase of $0.1 million.

The increase was primarily a result of higher legal and other professional services expenses related to

post-Business Combination corporate matters.

We expect our general and administrative expenses to increase in the future due

to increased director and officer insurance costs and various expenses related to operating as a public company.

Other income (expense), net

income (expense), net resulted in expense of $0.5 million

for the three months ended June 30, 2021, compared to expense of $0.8 million for the three months ended June 30, 2020.

in net expenses is largely driven by changes in fair value of the derivative liability which provided income of $0.7 million in

the 2021 period compared to expense of $0.6 million in the 2020 period.

The change resulted from the decreased likelihood

of realization of the embedded derivative instrument in convertible notes payable.

Interest expense increased $0.7 million in the

2021 period due to the accelerated recognition of $0.6 million of unamortized debt discounts upon the conversion of outstanding convertible

notes on June 30, 2021.

A loss on extinguishment of debt of $0.3 million in the 2021 period also contributed to the change

in other income (expense), net.

of the six months ended June 30, 2021 and 2020

following table summarizes the significant items within our results of operations for the six months ended June 30, 2021 and 2020:

Six Months Ended June 30,

Federal grant funding

General and administrative expenses for the

three months ended September 30, 2021 and 2020 were $16.4 million and $0.3 million, respectively, representing an increase of

$16.0 million.

The increase was primarily a result of a one-time $11.6 million non-cash expense related to warrants

issued for the share subscription facility, reflecting the fair value of 1,106,108 warrants issued with an exercise price

of $10.01 per share in July 2021, based on the $14.49 share price on the date of issuance.

Also contributing to the increase was $2.3

million of non-cash expense for consultants and $1.1 million expense for commitment fees for the share subscription facility.

the one-time expenses related to the share subscription facility, which were recorded due to the uncertainty of future issuance of

shares under the facility, and consideration due to the consultants, we expect our general and administrative expenses to increase

in the future due to increased expenses related to operating as a public company.

income (expense), net

income (expense), net resulted in net expense of $0.3 million for the three months ended September 30, 2021, compared to

other net income of $1.9 million for the three months ended September 30, 2020.

increase in net expenses during the three months ended September 30, 2021 is largely driven by a decrease in the

fair value of liabilities of $1.4 million as a result of a decrease in the stock price on September 30, 2021 compared to the stock

price at issuance on September 24, 2021.

The gain related to the change in the fair value of the liabilities was offset by an

initial loss related to an adjustment to recognize the initial fair value of the convertible debt and related warrants of $1.3 million.

The Company also recognized $0.5 million of transaction costs related to the issuance of the convertible note.

decrease in the fair value of liabilities during the three months ended September 30, 2020 resulted from the decreased likelihood

of realization of the embedded derivative instrument in convertible notes payable, resulting in a gain of $2.2 million during the

three months ended September 30, 2020.

expense decreased $0.2 million in the 2021 period due to the conversion of outstanding convertible notes on June 30, 2021.

of the nine months ended September 30, 2021 and 2020

following table summarizes the significant items within our results of operations for the nine months ended September 30, 2021 and 2020:

Months Ended September 30,

Federal grant

$ (1,618,813 )

Research and development expenses

$ (1,402,593 )

General and administrative expenses

General and administrative

Other income (expense), net

grant funding

from federal grants for the six months ended June 30, 2021 and 2020 totaled $0.7 million and $2.7 million, respectively, representing

from federal grants for the nine months ended September 30, 2021 and 2020 totalled $1.9 million and $3.5 million, respectively, representing

a decrease of $1.6 million.

Funding decreased by $2.3 million under the MPAR Grant, offset by an increase of $0.3 million under the OUD

Grant, due to the timing of research activities eligible for funding.

We expect funding from federal grants to increase in the future

due to the timing of preclinical and clinical development activities under the grants.

Funding decreased by $1.7 million under the MPAR Grant, offset by a nominal increase under the OUD Grant,

due to the timing of research activities eligible for funding.

We expect funding from federal grants to increase in the future due to

the timing of preclinical and clinical development activities under the grants.

and development expenses

and development expenses for the six months ended June 30, 2021 and 2020 were $0.8 million and $2.2 million, respectively, representing

and development expenses for the nine months ended September 30, 2021 and 2020 were $2.5 million and $3.1 million, respectively, representing

a decrease of $0.6 million.

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Ensysce does not currently track expenses on a program-by-program

We expect research and development expenses to increase in the future due to planned clinical trials and higher preclinical

and clinical development costs for our product candidates.

We expect research and development expenses to increase in the future due to planned clinical trials and higher preclinical and

clinical development costs for our product candidates.

and administrative expenses

and administrative expenses for six months ended June 30, 2021 and 2020 were $0.9 million and $0.6 million, respectively,

representing an increase of $0.3 million.

The increase was primarily driven by increases in accounting, auditing, and tax services

as well as legal fees related to post-Business Combination corporate matters.

We expect our general and

administrative expenses to increase in the future due to increased director and officer insurance costs and various expenses related

to operating as a public company.

Other income (expense), net

Other income (expense), net resulted in expense of $0.9

million for the six months ended June 30, 2021, compared to expense of $1.6 million for the six months ended June 30, 2020.

The decrease in net expense was largely due to changes in fair value of the derivative liability which provided income of

$0.7 million in the 2021 period compared to expense of $1.1 million in the 2020 period.

The change resulted from the decreased likelihood

of realization of the embedded derivative instrument in convertible notes payable.

Interest expense increased $0.7 million in the

2021 period due to the accelerated recognition of $0.6 million of unamortized debt discounts upon the conversion of outstanding

convertible notes on June 30, 2021.

A loss on extinguishment of debt of $0.3 million in the 2021 period also contributed to the change in other income

(expense), net.

General and administrative expenses for nine

months ended September 30, 2021 and 2020 were $17.3 million and $0.9 million, respectively, representing an increase of $16.4

The increase was primarily driven by a one-time $11.6 million non-cash expense related to warrants issued

for the share subscription facility, reflecting the fair value of 1,106,108 warrants issued with an exercise price of $10.01

per share in July 2021, based on the $14.49 share price on the date of issuance.

Also contributing to the increase was $2.3 million

of non-cash expense for consultants and $1.1 million expense for commitment fees for the share subscription facility.

Excluding the

one-time expenses related to the share subscription facility, which were recorded due to the uncertainty of future issuance of shares

under the facility, and consultant expenses, we expect our general and administrative expenses to increase in the future due

to increased director and officer insurance costs and various expenses related to operating as a public company.

income (expense), net

income (expense), net resulted in net expense of $1.2 million for the nine months ended September 30, 2021, compared to other net income

of $0.3 million for the nine months ended September 30, 2020.

increase in net expenses during the nine months ended September 30, 2021 is largely driven by interest expense of $1.3 million related

to the stated interest expense and debt discount accretion for the convertible notes converted upon the closing of the Business Combination

on June 30, 2021 compared to $0.7 million of similar expenses recognized during the nine months ended September 30, 2020.

Additionally,

we recognized an initial loss related to an adjustment to recognize the initial fair value of the convertible debt and related warrants

of $1.3 million and $0.5 million of transaction costs related to the issuance of the convertible note during the nine months ended September

losses were offset by a decrease in the fair value of liabilities of $2.1 million as a result of a decrease in the stock price on September

30, 2021 compared to the stock price at issuance on September 24, 2021, as well as a gain on the final fair value measurement of the

contingent put option immediately prior to the settlement of the convertible notes upon the closing of the merger.

The decrease in the

fair value of liabilities during the nine months ended September 30, 2020 resulted from the decreased likelihood of realization of the

embedded derivative instrument in convertible notes payable, resulting in a gain of $1.1 million during the nine months ended September

and capital resources

of liquidity and capital

of June 30, 2021, we had $8.0 million of cash and cash equivalents.

Since inception, we have generated limited revenues and have incurred

significant operating losses and negative cash flows from our operations, and we anticipate that we will continue to incur losses for

at least the foreseeable future.

of September 30, 2021, we had $6.8 million of cash and cash equivalents.

Since inception, we have generated limited revenues and have

incurred significant operating losses and negative cash flows from our operations, and we anticipate that we will continue to incur losses

for at least the foreseeable future.

We have not yet commercialized any of our product candidates and we do not expect to generate revenue

from sales of any product candidates for several years, if at all.

As of June 30, 2021, we had an accumulated deficit of $57.8

As of September 30, 2021, we had an accumulated deficit of $75.0

have funded our operations to date primarily with proceeds from the sale of common equity, funding under federal research grants and

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financing will be available to us on favorable terms, if at all.

Current remaining funding under two approved

federal research grants totals $6.6 million and is expected to be utilized by December 31, 2022.

Pursuant to the terms and conditions

of the two grants, we are required to submit progress reports to NIDA on an annual basis and a final research performance progress report

within 120 days of the performance period end date.

Additionally, the grants limit the use of funds to activities that are clearly severable

and independent from activities that involve human subjects until the receipt by NIDA of (i) Institutional Review Board (“ IRB ”)

approval, (ii) federal-wide assurance from the Office for Human Research Protections, (iii) a Data and Safety Monitoring Plan, (iv) certification

that all key personnel have completed education on the protection of human subjects and (v) a Clinical Trials Dissemination Plan.

must also comply with the data sharing policies of NIDA and the NIH Public Access Policy, that require submission of final peer-reviewed

journal manuscripts that arise from the use of grants to PubMed Central immediately upon acceptance for publication.

remaining funding under two approved federal research grants totals $5.6 million and is expected to be utilized by December 31,

Pursuant to the terms and conditions of the two grants, we are required to submit progress reports to NIDA on an annual basis and

a final research performance progress report within 120 days of the performance period end date.

Additionally, the grants limit the use

of funds to activities that are clearly severable and independent from activities that involve human subjects until the receipt by NIDA

of (i) Institutional Review Board (“ IRB ”) approval, (ii) federal-wide assurance from the Office for Human Research

Protections, (iii) a Data and Safety Monitoring Plan, (iv) certification that all key personnel have completed education on the protection

of human subjects and (v) a Clinical Trials Dissemination Plan.

We must also comply with the data sharing policies of NIDA and the NIH

Public Access Policy, that require submission of final peer-reviewed journal manuscripts that arise from the use of grants to PubMed

Central immediately upon acceptance for publication.

grant has to be repaid.

To receive the remaining funding for each respective study covered by a grant, we must meet the certain milestones.

To receive the remaining funding for each respective study covered by a grant, we must meet certain milestones.

We have met the required milestones under the MPAR Grant.

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common stock.

On June 30, 2021, we consummated the Business Combination with LACQ, resulting in the public listing of our shares

of common stock on Nasdaq on July 2, 2021.

Concurrent with the public listing of our shares of common stock on Nasdaq,

we were also required to issue to the investor 1,106,108 warrants with a strike price of $10.01 per share.

The number of shares

of common stock underlying the warrant as well as the strike price is subject to adjustments for recapitalizations, reorganizations,

change of control, stock split, stock dividend, reverse stock splits and certain issuances of additional shares of our common stock.

On June 30, 2021, we consummated the Business Combination with LACQ, resulting in the public listing of our shares of common

stock on Nasdaq on July 2, 2021.

Concurrent with the public listing of our shares of common stock on Nasdaq, we were also required to

issue to the investor 1,106,108 warrants with a strike price of $10.01 per share.

The number of shares of common stock underlying the

warrant as well as the strike price is subject to adjustments for recapitalizations, reorganizations, change of control, stock split,

stock dividend, reverse stock splits and certain issuances of additional shares of our common stock.

Our ability to utilize the share

subscription facility is restricted while the convertible notes described below are outstanding.

September 24, 2021, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) for an aggregate

financing of $15.9 million with institutional investors.

At the first closing under the Securities Purchase Agreement, which occurred

on September 24, 2021, we issued to the investors (i) senior secured convertible promissory notes (“Investor Notes”) in the

aggregate principal amount of $5.3 million for an aggregate purchase price of $5.0 million and (ii) warrants (“Investor

Warrants”) to purchase 361,158 shares of common stock in the aggregate at an exercise price of $7.63 per share.

At the second closing

under the Securities Purchase Agreement, which occurred on November 5, 2021, we issued to the institutional investors referenced above,

(i) Investor Notes in the aggregate principal amount of $10.6 million for an aggregate purchase price of $10.0 million and (i)

Investor Warrants to purchase 722,317 shares of common stock in the aggregate at an exercise price of $7.63 per share.

following table summarizes our cash flows for each of the periods presented:

Six Months Ended June 30,

Months Ended September 30,

Net cash used in operating activities

Net cash provided by financing activities

Net increase in cash and cash equivalents

the six months ended June 30, 2021 and 2020, we used cash in operating activities of $0.6 million and $0.6 million, respectively, primarily

resulting from legal and accounting fees, changes in prepaid expenses and accrued expenses due to the advancement of our product candidates,

and the timing of vendor invoicing and payments.

the six months ended June 30, 2021, net cash provided by financing activities was $8.5 million, primarily consisting of proceeds from

the Business Combination.

During the six months ended June 30, 2020, net cash provided by financing activities was $0.8 million,

primarily consisting of proceeds from the issuance of convertible notes.

$ (4,474,364 )

Net cash used in investing activities

Net cash provided by financing

Net increase in cash and

cash equivalents

the nine months ended September 30, 2021 and 2020, we used cash in operating activities of $4.4 million and $0.7 million, respectively,

primarily resulting from legal and accounting fees, the clinical advancement of our product candidates, the timing of vendor

invoicing and payments, and increased costs related to operating as a public company.

the nine months ended September 30, 2021, net cash provided by financing activities was $11.1 million, primarily consisting of

proceeds from the Business Combination and convertible note financing.

During the nine months ended September 30, 2020, net cash provided

by financing activities was $1.1 million, primarily consisting of proceeds from the issuance of convertible notes.

primary use of cash is to fund operating expenses, primarily related to our research and development activities.

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and clinical trials of our product candidates.

In addition, upon the completion of the Business Combination, we have incurred,

and will continue to incur, additional costs associated with operating as a public company, including significant legal, accounting,

insurance, investor relations and other expenses that we did not incur as a private company.

In addition, upon the completion of the Business Combination, we have incurred, and will

continue to incur, additional costs associated with operating as a public company, including significant legal, accounting, insurance,

investor relations and other expenses that we did not incur as a private company.

The timing and amount of our operating expenditures

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the costs of operating as a public company.

have generated limited revenues and have incurred significant operating losses since our inception and, as of June 30, 2021, had an accumulated

deficit of $57.8 million.

We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable

the completion of the Business Combination and public listing of our common stock on Nasdaq, we now have access to up to

$60 million from a share subscription facility entered into in December 2020.

Management believes that its existing cash resources and

the proceeds available through the existing share subscription facility are sufficient to allow us to fund current planned operations

through the next 12 months following the filing of this Quarterly Report on Form 10-Q.

have generated limited revenues and have incurred significant operating losses since our inception and, as of September 30, 2021, had

an accumulated deficit of $75.0 million.

We expect to continue to incur significant and increasing expenses and operating losses

for the foreseeable future.

the completion of the Business Combination and public listing of our common stock on Nasdaq, we had access to up to $60.0 million

from a share subscription facility entered into in December 2020.

The Securities Purchase Agreement for convertible notes entered in

September 2021 limits our ability to execute certain debt and equity financings, including its existing $60.0 million share subscription

facility, while the notes are outstanding.

Without the availability of proceeds through the share subscription facility, existing cash

resources are not sufficient to allow us to fund current planned operations through the next 12 months following the filing of this Quarterly

Report on Form 10-Q, which raises substantial doubt about the Company’s ability to continue as a going concern.

additional information on risks associated with our capital requirements, please read the section titled “ Risk Factors ”

included elsewhere in this Quarterly Report on Form 10-Q.

included elsewhere in this.

of the numerous risks and uncertainties associated with research, development and commercialization of biologic product candidates, we

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consolidated financial statements are prepared in accordance with GAAP.

The preparation of our consolidated financial statements

and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and

We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable

under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities

that are not readily apparent from other sources.

The preparation of our consolidated financial statements and

related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses.

We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under

the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that

are not readily apparent from other sources.

We evaluate our estimates and assumptions on an ongoing basis.

Our actual results may

differ from these estimates under different assumptions or conditions.

Our actual results may differ

from these estimates under different assumptions or conditions.

our significant accounting policies are described in more detail in Note 3 to our unaudited interim consolidated financial statements

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in connection with drug substance and drug product formulation of preclinical studies and clinical trial materials.

based our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended

base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended

pursuant to quotes and contracts with multiple research institutions and CROs that supply, conduct and manage preclinical studies and

30 unchanged sentences

interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.

value of liabilities

elected the fair value option to account for the convertible notes as we believe the fair value option provides users of the financial

statements with greater ability to estimate the outcome of future events as facts and circumstances change, particularly with respect

to changes in the fair value of the common stock underlying the conversion option.

We use a Monte Carlo to estimate the fair value of

the notes, which relies on unobservable Level 3 inputs.

Changes in the fair value of the notes are recognized through earnings for each

reporting period.

Determination

of the fair value of common stock

there has historically been no public market for Former Ensysce common stock prior to the date of the Closing of the

Business Combination, the estimated fair value of Former Ensysce common stock was determined by our most recently

available third-party valuations of common stock.

These third-party valuations were performed in accordance with the guidance

outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of

Privately-Held-Company Equity Securities Issued as Compensation.

Our common stock valuations were prepared using an option pricing

method (“ OPM ”).

The OPM treats common stock and preferred stock as call options on the total equity value of a

company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s

securities changes.

Under the OPM method, the common stock has value only if the funds available for distribution to stockholders

exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a

A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common

These third-party valuations were performed at various dates, which resulted in valuations of Former Ensysce common

stock of $1.37 per share as of July 1, 2017, $1.82 per share as of February 28, 2018, $2.58 per share as of

October 1, 2018, and $2.58 per share as of December 31, 2019 (prices adjusted for the exchange ratio of 0.06585 per the

merger agreement).

there has historically been no public market for Former Ensysce common stock prior to the date of the Closing of the Business Combination,

the estimated fair value of Former Ensysce common stock was determined by our most recently available third-party valuations of common

These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public

Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

common stock valuations were prepared using an option pricing method (“ OPM ”).

The OPM treats common stock and preferred

stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation

among the various holders of a company’s securities changes.

Under the OPM method, the common stock has value only if the funds

available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity

event, such as a strategic sale or a merger.

A discount for lack of marketability of the common stock is then applied to arrive at an

indication of value for the common stock.

These third-party valuations were performed at various dates, which resulted in valuations

of Former Ensysce common stock of $1.37 per share as of July 1, 2017, $1.82 per share as of February 28, 2018, $2.58 per share as of

October 1, 2018, and $2.58 per share as of December 31, 2019 (prices adjusted for the exchange ratio of 0.06585 per the merger agreement).

addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective

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stock and our stock-based compensation expense could have been materially different.

of our common stock are now listed and trade on Nasdaq, so it will no longer be necessary for our board of directors to

estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may

grant, as the fair value of our common stock will be determined based on the publicly-traded quoted market price of our common stock.

of our common stock are now listed and trade on Nasdaq, so it will no longer be necessary for our board of directors to estimate the

fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the

fair value of our common stock will be determined based on the publicly-traded quoted market price of our common stock.

sheet arrangements

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description of recently issued accounting pronouncements that may potentially impact Ensysce’s financial position and results of

operations is disclosed in Note 3 to our consolidated financial statements included elsewhere in this Quarterly Report on Form

operations is disclosed in Note 3 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

growth company and smaller reporting company status

are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”),

and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies

that are not emerging growth companies.

We may take advantage of these exemptions until we are no longer an emerging growth company under

Section 107 of the JOBS Act, which provides that an emerging growth company can take advantage of the extended transition period afforded

by the JOBS Act for the implementation of new or revised accounting standards.

are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and

we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are

not emerging growth companies.

We may take advantage of these exemptions until we are no longer an emerging growth company under Section

107 of the JOBS Act, which provides that an emerging growth company can take advantage of the extended transition period afforded by

the JOBS Act for the implementation of new or revised accounting standards.

We have elected to avail ourselves of the extended transition

period and, therefore, while we are an emerging growth company we are not be subject to new or revised accounting standards at the same

period and, therefore, while we are an emerging growth company we are not subject to new or revised accounting standards at the same

time that they become applicable to other public companies that are not emerging growth companies, unless we choose to early adopt a

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis