Ensysce Biosciences, Inc. 10-Q

Item 1. Legal Proceedings. From time to time, we could become involved in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically, we review the status of significant matters, if any exist, and assesses its potential financial exposure. If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation. In July 2021, following the Business Combination with LACQ, our former financial advisor, Del Morgan Group, LLC and Globalist Capital, LLC (together, “ Plaintiffs ”) filed an action against us and our Chief Executive Officer (together, “ Defendants ”) alleging that the Common Stock and Common Stock Warrants (together, “ Securities ”) issued to Plaintiffs in satisfaction of its advisory fee should have been registered and the Securities immediately tradeable. The Plaintiffs asserted various causes of action in furtherance of their claims. The Plaintiffs are seeking registered and freely tradeable Securities and damages arising from their inability to trade the Securities, which Plaintiffs assert are in the millions of dollars. The Defendants believe there are meritorious defenses to the Plaintiffs claims, and possible counterclaims. On August 3, 2021, the Plaintiffs and Defendants entered into a Settlement Agreement and Mutual General Release whereby Plaintiffs would have their Common Stock, and the Common Stock underlying their Warrants registered on our Resale Registration Statement. In addition, the Warrants would be modified to allow for cashless exercise and to reduce the exercise price from $11.50/share to $10.00/share. In consideration for this, both Parties agreed to release the other from any past, present or future claims. In addition, the Plaintiffs agreed to immediately stay the proceedings and inform the Superior Court of a conditional settlement and to dismiss the lawsuit with prejudice five days following the effectiveness of the Resale Registration Statement. Following effectiveness of the Form S-1 Registration Statement, upon Plaintiffs application to the Superior Court on October 5, 2021, the Superior Court dismissed the case with prejudice on October 6, 2021.