What changed in this filing

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Item 1. Financial Statements

2022-05-12 compared with 2021-11-15 · 468 added, 779 removed, 390 unchanged (76% of the section changed)

2 unchanged sentences

Balance Sheets

March 31, 2022

Current assets:

Cash and cash

Cash and cash equivalents

Unbilled receivable

Right-of-use asset

expenses and other current assets

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Liabilities and stockholders’ deficit

Liabilities and stockholders’ equity (deficit)

Current liabilities:

Accounts payable

Accrued expenses and other

Accrued expenses and other liabilities

Lease liability

Notes payable and accrued

derivative on convertible notes

Notes payable and accrued interest ($ 6,073,057 and $ 12,358,886 at fair value at March 31, 2022 and December 31, 2021, respectively)

Total current liabilities

Long-term liabilities:

Notes payable, net of current

long term liabilities

Notes payable, net of current portion (at fair value)

Other long-term liabilities

Total long-term liabilities

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Commitments and contingencies (Note 6)

Stockholders’ deficit

Preferred stock, $ 0.0001

par value, 1,500,000

shares authorized, no

shares issued and outstanding at September 30, 2021 (unaudited)

and December 31, 2020

Common stock, $ 0.0001

par value, 150,000,000

shares authorized;

and 15,768,725

shares issued at September 30, 2021 (unaudited) and December

31, 2020, respectively;

24,255,786 and

15,768,725 shares

outstanding at September 30, 2021 (unaudited) and December 31, 2020, respectively

Stockholders’ equity (deficit)

Preferred stock, $ 0.0001 par value, 1,500,000 shares authorized, no shares issued and outstanding at March 31, 2022 (unaudited) and December 31, 2021

Common stock, $ 0.0001 par value, 150,000,000 shares authorized;

29,968,787 and 24,662,904 shares issued at March 31, 2022 (unaudited) and December 31, 2021, respectively;

29,949,032 and 24,643,149 shares outstanding at March 31, 2022 (unaudited) and December 31, 2021, respectively

Additional paid-in capital

Accumulated deficit

( 87,512,253 )

( 85,845,567 )

Total Ensysce Biosciences,

stockholders’ deficit

Total Ensysce Biosciences, Inc.

stockholders’ equity (deficit)

( 7,878,243 )

Noncontrolling

interests in stockholders’ deficit

stockholders’ deficit

Noncontrolling interests in stockholders’ equity (deficit)

Total stockholders’ equity (deficit)

( 8,158,058 )

liabilities and stockholders’ deficit

Total liabilities and stockholders’ equity (deficit)

accompanying notes are an integral part of these consolidated financial statements.

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Statements of Operations

Months Ended September 30,

Three Months Ended March 31,

Federal grants

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Research and development

and administrative

operating expenses

General and administrative

Total operating expenses

Loss from operations

( 4,802,804 )

( 17,863,686 )

Other income (expense):

Adjustment to initial fair value of debt

( 1,325,804 )

Change in fair value of derivative liabilities

Change in fair value of convertible notes

Change in fair value of liability classified warrants

Loss on debt conversions

( 1,702,642 )

Issuance costs for convertible notes

Change in fair value of

Interest expense

( 1,282,820 )

Loss on extinguishment

income and expense, net

other income (expense), net

( 1,245,091 )

income (loss)

$ ( 17,199,474 )

$ ( 19,108,777 )

$ ( 179,215 )

Net loss attributable to

noncontrolling interests

Net income (loss) attributable

to common stockholders

$ ( 17,163,526 )

$ ( 19,046,801 )

$ ( 157,225 )

Net income (loss) per basic

Net income (loss) per

share attributable to common stockholders, basic

Weighted average common shares outstanding, basic

Net income (loss) per diluted

Net income (loss) per

share attributable to common stockholders, diluted

Weighted average common shares outstanding, diluted

accompanying notes are an integral part of these consolidated financial statements.

Biosciences, Inc.

Statements of Changes in Stockholders’ EQUITY (Deficit)

Stockholders’

Equity (Deficit)

Noncontrolling

Balance on June 30, 2020

$ ( 57,743,231 )

$ ( 8,337,421 )

Stock-based compensation

Issuance of warrants

Warrants modification

Business combination adjustment

Exercise of stock options

Exercise of stock options, shares

Settlement of convertible notes

Settlement of convertible notes, shares

Issuance of common stock for business combination,

net of transaction costs

Issuance of common stock for business combination,

net of transaction costs, shares

Other income and expense, net

Total other income (expense), net

Net income (loss)

Balance on September

$ ( 950,925 )

$ ( 911,692 )

Balance on June 30, 2021

$ ( 57,841,991 )

$ ( 243,653 )

Stock-based compensation

Issuance of warrants

Warrants modification

( 17,163,526 )

( 17,199,474 )

Balance on September

$ ( 75,005,517 )

Net income (loss) attributable to noncontrolling interests

Deemed dividend related to warrants down round provision

Net loss attributable to common stockholders

$ ( 1,666,686 )

$ ( 907,731 )

Net loss per share:

Net loss per share attributable to common stockholders, basic and diluted

Weighted average common shares outstanding, basic and diluted

accompanying notes are an integral part of these consolidated financial statements.

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Statements of Changes in Stockholders’ EQUITY (Deficit)

Stockholders’

Equity (Deficit)

Stockholders’ Equity (Deficit)

Number of Shares

Paid-In Capital

Accumulated Deficit

Noncontrolling

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$ ( 217,625 )

Stock-based compensation

Balance on September

$ ( 6,658,427 )

$ ( 6,735,405 )

Balance on December 31, 2020

Retroactive application of recapitalization

( 223,696,435 )

Balance on December 31, 2020, after effect of reverse recapitalization

( 55,958,716 )

( 6,658,427 )

Beginning balance, value

Exercise of stock options

Stock-based compensation

Balance on March 31, 2021

$ ( 56,866,447 )

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$ ( 7,263,437 )

Exercise of stock options

Settlement of convertible notes

Issuance of common stock for business combination,

net of transaction costs

Stock-based compensation

Issuance of warrants

Warrants modification

Balance on December 31, 2021

$ ( 85,845,567 )

$ ( 279,815 )

Net income (loss)

$ ( 8,158,058 )

$ ( 85,845,567 )

Balance on September

$ ( 279,815 )

$ ( 8,158,058 )

Consultant compensation

Conversions of convertible notes

Settlement of restricted stock units

Stock-based compensation

Deemed dividend related to warrants down round provision

Balance on March 31, 2022

$ ( 87,512,253 )

Ending balance, value

$ ( 279,633 )

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Statements of Cash Flows

Months Ended September 30,

Cash flows from operating

Months Ended March 31,

flows from operating activities:

$ ( 950,925 )

Adjustments to reconcile net loss to net cash

used in operating activities:

Accrued interest

Accretion of discounts

on promissory notes

Change in fair value of

embedded derivative

$ ( 911,692 )

Change in fair value of

convertible debt

to reconcile net loss to net cash used in operating activities:

on sale of asset

of discounts on promissory notes

in fair value of embedded derivative

in fair value of liability classified warrants

( 2,794,398 )

Loss on extinguishment

Stock-based compensation

Adjustment to fair value

of financial instruments

Issuance of warrants for share subscription

Commitment fee for share subscription

Warrant modification

Issuance costs for

convertible notes

Changes in operating assets

and liabilities:

Unbilled receivable

Prepaid expenses and other

Accounts payable

in fair value of convertible notes

( 2,767,178 )

on debt conversions

in operating assets and liabilities:

expenses and other assets

expenses and other liabilities

cash used in operating activities

( 3,437,014 )

Net cash used in operating

flows from investing activities:

from sale of asset

cash provided by investing activities

flows from financing activities:

from issuance of promissory notes

from issuance of promissory notes to related parties

from exercise of stock options

of financed insurance premiums

cash (used in) provided by financing activities

(decrease) in cash and cash equivalents

( 3,823,784 )

Cash flows from investing

of property and equipment

Net cash used by investing

Cash flows from financing

Proceeds from issuance

of convertible notes

Issuance costs for

convertible notes

Proceeds from issuance

of promissory notes to related parties

Repayment of promissory

notes and accrued interest

Proceeds from exercise

of stock options

Proceeds from issuance

of common stock for business combination, net of transaction costs

Repayment of financed insurance

from noncontrolling interests

Net cash provided by financing

Increase in cash and cash equivalents

and cash equivalents beginning of period

and cash equivalents end of period

Supplemental cash flow information:

Income tax payments

Supplemental disclosure

of non-cash investing and financing activities:

Fair value of embedded

derivative at issuance

Settlement of convertible

notes into common stock

Net assets acquired in

business combination

Proceeds from financed

insurance premiums

Share subscription facility

transaction costs

cash flow information:

disclosure of non-cash investing and financing activities:

value of embedded derivative at issuance

transaction costs in accounts payable

transaction costs in accrued expenses and other liabilities

Stock-based compensation

of convertible notes into common stock

dividend related to warrants down round provision

accompanying notes are an integral part of these consolidated financial statements.

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(“Ensysce”), along with its subsidiary, Covistat Inc.

(“Covistat”) and its wholly owned subsidiary

(“Covistat”) and its wholly owned subsidiaries

EBI Operating, Inc.

(collectively, the “Company”), is engaged in the development of small and large molecule drug delivery

platforms targeting pain and cancer markets.

The primary focus of the Company is its small molecule program developing abuse and overdose

resistant pain technology with a clinical stage program being the abuse resistant, TAAP (Trypsin Activated Abuse Protection) opioid product

candidate, PF614.

In addition, the Company is developing its MPAR TM (Multi-Pill Abuse Resistant) technology for overdose protection

which will be applied to the PF614 program.

In 2019, the Company commenced development work applying its TAAP and MPAR TM technology

to a methadone prodrug for use in the treatment of Opioid Use Disorder (OUD).

and EBI OpCo, Inc.

(collectively, the “Company”), is a clinical-stage biotech company using its two novel

proprietary technology platforms to develop what the Company believe to be safer prescription drugs.

The primary focus of the Company

is developing abuse and overdose resistant pain drugs, with a clinical stage program for the abuse resistant, TAAP (Trypsin Activated

Abuse Protection) opioid product candidate, PF614.

In addition, the Company is developing its MPAR TM (Multi-Pill Abuse Resistant)

technology for overdose protection which will be applied to the PF614 program.

In 2019, the Company commenced discovery work applying

its TAAP and MPAR TM technology to a methadone prodrug for use in the treatment of Opioid Use Disorder (OUD).

January 31, 2021, Leisure Acquisition Corp., a Delaware corporation (“LACQ”), entered into an Agreement and Plan of Merger

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Former Ensysce became a wholly owned subsidiary of LACQ and the stockholders of Former Ensysce, as of immediately prior to the effective

time of the Merger, received shares of LACQ and hold a portion of the shares of Common Stock, par value $ 0.0001

per share (the “Common Stock”), of

time of the Merger, received shares of LACQ and hold a portion of the shares of Common Stock, par value $ 0.0001 per share (the “Common

Stock”), of LACQ.

the Closing Date, at the effective time of the Merger, LACQ changed its name from “Leisure Acquisition Corp.” to “Ensysce

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ratio of 0.06585 .

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

of the outstanding common stock of the combined company.

In addition, Former Ensysce’s existing options and warrants were exchanged

for equivalent securities in Ensysce on their existing terms (with standard adjustments to exercise price and underlying shares, consistent

with the foregoing exchange ratio).

As of July 2, 2021, Ensysce’s shares of common stock are traded on the Nasdaq Capital Market

(“Nasdaq”) under the new ticker symbol “ENSC”.

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

common stock of the combined company.

In addition, Former Ensysce’s existing options and warrants were exchanged for equivalent

securities in Ensysce on their existing terms (with standard adjustments to exercise price and underlying shares, consistent with the

foregoing exchange ratio).

As of July 2, 2021, Ensysce’s shares of common stock are traded on the Nasdaq Capital Market (“Nasdaq”)

under the new ticker symbol “ENSC”.

June 2020, the Company commenced an initiative to develop a therapeutic for the treatment of certain coronavirus infections through the

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Pursuant to the articles of incorporation, Covistat was authorized

to issue 1,000,000

shares of common stock, $ 0.001

par value per share, and 100,000

shares of preferred stock, $ 0.001

par value per share.

Ensysce is a 79.2 %

stockholder in Covistat, with 19.8 %

of the shares held by certain key personnel of the Company and an unrelated party, respectively.

to issue 1,000,000 shares of common stock, $ 0.001 par value per share, and 100,000 shares of preferred stock, $ 0.001 par value per share.

Ensysce is a 79.2 % stockholder in Covistat, with 19.8 % and 1.0 % of the shares held by certain key personnel of the Company and an unrelated

party, respectively.

March 2020, the World Health Organization declared the outbreak of a respiratory disease caused by a new coronavirus as a “pandemic”.

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countries have implemented measures to combat the outbreak which have impacted global business operations.

As of the date of issuance

of the consolidated financial statements, the Company’s operations have not been significantly impacted;

however, the Company continues

to monitor the situation.

No impairments were recorded as of the balance sheet date as no triggering events or changes in circumstances

had occurred as of year-end;

however, due to significant uncertainty surrounding the situation, management’s judgment regarding

this could change in the future.

In addition, while the Company’s results of operations, cash flows and financial condition could

be negatively impacted, the extent of the impact cannot be reasonably estimated at this time.

The Company’s operations

have not been significantly impacted;

however, the Company continues to monitor the situation.

No impairments were recorded as of the

balance sheet date as no triggering events or changes in circumstances had occurred as of year-end;

however, due to significant uncertainty

surrounding the situation, management’s judgment regarding this could change in the future.

In addition, while the Company’s

results of operations, cash flows and financial condition could be negatively impacted, the extent of the impact cannot be reasonably

estimated at this time.

Company currently operates in one business segment, which is pharmaceuticals.

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the opinion of management, all adjustments considered necessary for a fair presentation have been included in the consolidated financial

Operating results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results that

may be expected for the year ending December 31, 2021.

The interim unaudited consolidated financial statements have been prepared under

the presumption that users of the interim financial information have either read or have access to the audited consolidated financial

statements for the fiscal year ended December 31, 2020, which may be found in the Company’s Form S-1 registration statement filed

with the SEC on August 9, 2021.

Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected

for the year ending December 31, 2022.

The interim unaudited consolidated financial statements have been prepared under the presumption

that users of the interim financial information have either read or have access to the audited consolidated financial statements for

the fiscal year ended December 31, 2021, which may be found in the Company’s Form 10-K filed with the SEC on March 31, 2022.

Business Combination was accounted for as a reverse recapitalization in accordance with U.S.

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by a recapitalization.

The net assets of LACQ, primarily consisting of cash of $ 7.8

million and prepaid expenses of $ 1.1

million, were recorded at historical cost with

goodwill or other intangible assets recorded.

The shares and net loss per share prior to the reverse recapitalization have been retroactively restated to reflect the exchange ratio

The financial statements reflect the historical operations of Ensysce.

Business Combination triggered the conversion of the 2015 convertible notes, the 2018 convertible notes and the 2021 convertible note

of Former Ensysce into common stock.

In connection with the Closing, the 2020 convertible notes were amended to provide for automatic

conversion of the outstanding principal and interest into shares common stock of Ensysce.

The Company had recorded $ 1.2

million of deferred transaction costs, consisting

of legal and accounting fees directly related to the Business Combination, which were offset against the proceeds of the Business Combination

within additional paid-in capital.

The net assets of LACQ, primarily consisting of cash of $ 7.8 million and prepaid expenses of $ 1.1 million, were

recorded at historical cost with no goodwill or other intangible assets recorded.

The shares and net loss per share prior to the reverse

recapitalization have been retroactively restated to reflect the exchange ratio of 0.06585 .

The financial statements reflect the historical

operations of Ensysce.

accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates,

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Company has not generated any product revenue and had an accumulated deficit of $ 87.5

million at September 30, 2021.

assurance that profitable operations will ever be achieved, and, if achieved, could be sustained on a continuing basis.

Product development

activities, clinical and pre-clinical testing, and commercialization of the Company’s product candidates are necessary to develop

the Company’s products and will require significant additional financing.

There can be no assurance the Company will be able to

obtain such funds.

million at March 31, 2022.

There is no assurance

that profitable operations will ever be achieved, and, if achieved, could be sustained on a continuing basis.

Product development activities,

clinical and pre-clinical testing, and commercialization of the Company’s product candidates are necessary to develop the Company’s

products and will require significant additional financing.

There can be no assurance the Company will be able to obtain such funds.

These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

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Under the agreement, the investor agreed

to provide the Company with a share subscription facility of up to $ 60.0

million for a 36-month term following the public

listing of the Company’s common stock.

The Company will control the timing and maximum amount of drawdown under this facility and

has no minimum drawdown obligation.

The investor will pay, in cash, a per-share amount equal to 90% of the average daily closing price

of the Company’s stock during the 30 consecutive trading days prior to the issuance of a draw notice, which shall not exceed 400%

of the average trading volume for the 30 trading days immediately preceding the draw down date.

On June 30, 2021, the Company consummated

the Business Combination with LACQ, resulting in the Company’s shares becoming publicly listed on Nasdaq on July 2, 2021.

with the public listing of the Company’s shares, the Company issued to the investor 1,106,108

warrants with a five-year term to purchase common

stock of Ensysce at an exercise price of $ 10.01

per share (Notes 3 and 8).

must pay a commitment fee to the investor of $ 1.2

million with $ 800,000

due on the first anniversary of the public listing

date and $ 400,000

due on the 18-month anniversary of the public

listing date.

The commitment fee can be paid from the proceeds of a draw against the facility or in freely tradable common stock of the

September 2021, the Company entered into a $ 15.9

million convertible note financing agreement

with institutional investors, of which, as of September 30, 2021, the Company had drawn $ 5.0

(See Notes 7 and 11 for additional information.)

The agreement limits the Company’s ability to execute certain

debt and equity financings, including its existing $ 60.0

million share subscription facility, while the

convertible notes are outstanding.

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

are not sufficient to fund current planned operations.

While the Company believes in the viability of its strategy to ultimately realize

revenues and in its ability to raise additional funds, management cannot be certain that additional funding will be available on acceptable

terms, or at all.

The Company’s ability to continue as a going concern is dependent upon its ability to obtain adequate financing

and achieve profitable operations.

As a result, these plans do not alleviate substantial doubt about the Company’s ability to continue

as a going concern for a period of 12 months following the date these consolidated financial statements were issued.

to provide the Company with a share subscription facility of up to $ 60.0 million for a 36-month term following the public listing of

the Company’s common stock.

The Company will control the timing and maximum amount of drawdown under this facility and has no minimum

drawdown obligation.

The investor will pay, in cash, a per-share amount equal to 90% of the average daily closing price of the Company’s

stock during the 30 consecutive trading days prior to the issuance of a draw notice, which shall not exceed 400% of the average trading

volume for the 30 trading days immediately preceding the draw down date.

On June 30, 2021, the Company consummated the Business Combination

with LACQ, resulting in the Company’s shares becoming publicly listed on Nasdaq on July 2, 2021.

Concurrent with the public listing

of the Company’s shares, the Company issued to the investor 1,106,108 warrants with a five-year term to purchase common stock of

Ensysce at an exercise price of $ 10.01 per share (Note 8).

The Company must pay a commitment fee to the investor of $ 1.2 million with

$ 800,000 due on the first anniversary of the public listing date and $ 400,000 due on the 18-month anniversary of the public listing date.

The commitment fee can be paid from the proceeds of a draw against the facility or in freely tradable common stock of the Company.

September 2021, the Company entered into a $ 15.9 million convertible note financing agreement with institutional investors (the “2021

Notes”) (See Note 7 for additional information).

The agreement limits the Company’s ability to execute certain debt and equity

financings, including its existing $60.0 million share subscription facility, while the convertible notes are outstanding.

availability of proceeds through the share subscription facility, existing cash resources are not sufficient to fund current planned

While the Company believes in the viability of its strategy to ultimately realize revenues and in its ability to raise additional

funds, management cannot be certain that additional funding will be available on acceptable terms, or at all.

The Company’s ability

to continue as a going concern is dependent upon its ability to obtain adequate financing and achieve profitable operations.

these plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months

following the date these consolidated financial statements were issued.

consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as

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estimated useful lives of five to six years.

Depreciation expense of $ 50

was recognized for the three and nine months

ended September 30, 2021, respectively.

Depreciation expense of $ 50

was recognized for the three and nine months

ended September 30, 2020, respectively.

Depreciation expense is classified in general and administrative expense in the accompanying

consolidated statements of operations.

No depreciation expense was recognized for the three months ended March 31, 2022.

expense of $ 51 was recognized for the three months ended March 31, 2021.

Depreciation expense is classified in general and administrative

expense in the accompanying consolidated statements of operations.

and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets

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There were no such losses for

the three and nine months ended September 30, 2021 and 2020.

the three months ended March 31, 2022 and 2021.

Financial Instruments

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related host contract in the Company’s consolidated balance sheet.

January 2018 and January 2021, the Company entered into a series of notes that were determined to have embedded derivative instruments

in the form of a contingent put option.

The notes are recognized at the value of proceeds received after allocating issuance proceeds

to the bifurcated contingent put option.

The notes are 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 is 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 (see Note 7).

The notes and the contingent put option are classified as

either long-term or short-term liabilities based on the maturity date of the related loan.

outstanding derivative liabilities were settled in connection with the conversion of outstanding notes payable on June 30, 2021.

to Note 7 for details of the conversion.

Value Measurement

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This determination requires significant judgments to be made by the Company.

820 requires all entities to disclose the fair value of financial instruments, both assets and liabilities, for which it is practicable

to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in

a current transaction between willing parties.

As of September 30, 2021 and December 31, 2020, the recorded values of cash and cash equivalents,

prepaid expenses, accounts payable, and accrued expenses and other liabilities approximate their fair values due to the short-term nature

of these items.

September 24, 2021, the Company issued convertible notes with a face value of $ 5.3 million.

The Company elected the fair value option

to account for the convertible notes as it believes 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 and redemption feature.

The Company uses a Monte Carlo model 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.

Refer to Note 7 for details of the terms and conditions of the convertible notes.

carrying value of outstanding notes payable at December 31, 2020 approximates the estimated aggregate fair value as the embedded contingent

put option is recognized at fair value and classified with the debt host.

The put option allows certain notes payable to be converted

into common stock, contingent upon completion of an equity financing transaction with gross proceeds above certain thresholds.

value estimate of the embedded put option is based on the probability-weighted discounted value of the put feature and represents a Level

3 measurement.

Significant assumptions used to determine the fair value of the put feature include the estimated probability of exercise

of the put option and the discount rate used to calculate fair value.

The estimated probability of exercise is based on management’s

expectation for future equity financing transactions.

The discount rate is based on the weighted average effective yield of notes payable

previously issued by the Company, adjusted for changes in market yields of healthcare sector CCC-rated debt.

As of December 31, 2020,

assumptions included a probability of exercise of the put option of 10 %

and a discount rate of 42.9 %.

As noted above, all outstanding derivative liabilities were settled upon the conversion of outstanding notes payable upon the consummation

of the Business Combination.

Refer to Note 7 for details of the conversion.

September 24, 2021, the Company issued liability classified warrants in connection with the issuance of convertible notes.

uses a Black Scholes model to estimate the fair value of the warrants, which relies on unobservable Level 3 inputs.

Changes in the fair

value of the warrants are recognized through earnings for each reporting period.

of March 31, 2022 and December 31, 2021, the recorded values of cash and cash equivalents, prepaid expenses, accounts payable, and accrued

expenses and other liabilities approximate their fair values due to the short-term nature of these items.

2021, the Company issued convertible notes with a face value of $ 15.9 million.

The Company elected the fair value option to account for

the convertible notes as it believes 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 and redemption feature.

The fair value estimate of the 2021 Notes was based on a discounted cash

flow model and a Monte Carlo model, which represent Level 3 measurements.

Significant assumptions include the discount rate used in the

discounted cash flow model and the expected premium for conversion used in the Monte Carlo model.

Changes in the fair value of the notes

are recognized in other income (expense) for each reporting period.

Refer to Note 7 for details of the terms and conditions of the 2021

2021, the Company issued liability classified warrants in connection with the issuance of the 2021 Notes.

The warrants were liability

classified due to certain cash settlement features and included in “Other long-term liabilities” on the consolidated balance

The Company uses a Black Scholes model to estimate the fair value of the warrants.

Changes in the fair value of the warrants

are recognized in other income (expense) for each reporting period.

Refer to Note 8.

following tables present assets and liabilities measured and recorded at fair value on the Company’s consolidated balance sheet

as of September 30, 2021 and December 31, 2020.

As of September 30, 2021, all contingent put options were settled upon conversion of

the notes at the closing of the Business Combination.

as of March 31, 2022 and December 31, 2021.

OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

Convertible note

Fair value of convertible note

Liability classified warrants

Fair value of convertible note

Liability classified warrants

following table summarizes the change in fair value of the Company’s Level 3 assets and liabilities:

OF CHANGE IN FAIR VALUE OF COMPANY’S LEVEL 3

For the nine months ended September 30, 2021

Contingent put option

Convertible notes

Liability classified warrants

classified warrants

Fair value, December 31, 2021

( 6,372,701 )

Change in fair value

1 unchanged sentence

( 2,767,178 )

Fair value, September 30, 2021

( 2,794,398 )

Fair value, March 31, 2022

September 2018, the National Institutes of Health (“NIH”) through the National Institute on Drug Abuse awarded the Company

a research and development grant related to the development of its MPAR TM overdose prevention technology (the “MPAR

The total approved budget for the initial two-year period was approximately $ 5.4

million ($ 3.2

million and $ 2.2

million in years 1 and 2 respectively) of which

the Company must contribute $ 1.1

million in the first year of the grant.

2019, the grant was amended such that the approved budget for the two-year period decreased to approximately $ 5.1

million ($ 2.1

million and $ 3.0

The total approved budget for the initial two-year period was approximately $ 5.4 million ($ 3.2 million and $ 2.2 million

in years 1 and 2 respectively) of which the Company must contribute $ 1.1 million in the first year of the grant.

In August 2019, the

grant was amended such that the approved budget for the two-year period decreased to approximately $ 5.1 million ($ 2.1 million and $ 3.0

million in years 1 and 2, respectively).

2021, the Company received a Notice of Award for an additional $ 2.8

million of funding in year 3 under the MPAR Grant

beginning July 1, 2021.

In June 2021, the Company received a Notice of Award for an additional $ 2.8 million of funding

in year 3 under the MPAR Grant beginning July 1, 2021.

September 2019, the NIH/National Institute on Drug Abuse awarded the Company a second research and development grant related to the development

of its TAAP/MPAR TM abuse deterrent technology for Opioid Use Disorder (“OUD”) (the “OUD Grant”).

total approved budget for the two-year period was approximately $ 5.4

Company concluded the government grants are not within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts

with Customers (“ASC 606”), as government entities do not meet the definition of a “customer” as defined

by ASC 606, as there is not considered to be a transfer of control of goods or services to the government entity funding the grant.

Additionally,

the Company has concluded the government grants do not meet the definition of a contribution and is a non-reciprocal transaction, therefore,

ASC 958-605, Not-for-Profit-Entities-Revenue Recognition does not apply, as the Company is a business entity, and the grant is

with a governmental agency.

Revenues from the grants are based upon internal costs incurred that are specifically covered by the grants,

plus an additional rate that provides funding for overhead expenses.

Revenue is recognized when the Company incurs costs related to the

The Company believes this policy is consistent with the overarching premise in ASC 606, applied by analogy, to ensure that it

recognizes revenues to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to

which it expects to be entitled in exchange for those goods or services, even though there is no “exchange” as defined in

The Company believes the recognition of revenue as costs are incurred and amounts become due is analogous to the concept of

transfer of control of a service over time under ASC 606.

total approved budget for the two-year period was approximately $ 5.4 million.

Company recognizes revenue when costs related to the grants are incurred.

The Company believes this policy is consistent with the overarching

premise in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), applied

by analogy, to ensure that it recognizes revenues to reflect the transfer of promised goods or services to customers in an amount that

reflects the consideration to which it expects to be entitled in exchange for those goods or services, even though there is no “exchange”

as defined in ASC 606.

The Company believes the recognition of revenue as costs are incurred and amounts become due is analogous to the

concept of transfer of control of a service over time under ASC 606.

revenue recognized under the MPAR Grant and OUD Grant was as follows:

OF REVENUE RECOGNIZATION UNDER GRANTS

Months Ended September 30,

Months Ended March 31,

requested or eligible to be requested through the NIH payment management system, but for which cash has not been received, are presented

20 unchanged sentences

of management’s judgment.

For the three and nine months ended September 30, 2021 and 2020, stock-based compensation costs are recorded

in general and administrative expenses in the consolidated statements of operations.

For the three months ended March 31, 2022 and 2021, stock-based compensation costs are recorded in general

and administrative expenses and research and development expenses in the consolidated statements of operations.

time-to-time equity classified awards may be modified.

On the modification date, the Company estimates the fair value of the awards

immediately before and immediately after modification.

The incremental increase in fair value is recognized as expense immediately

to the extent the underlying equity awards are vested and on a straight-line basis over the same remaining amortization schedule as

the unvested underlying equity awards.

On the modification date, the Company estimates the fair value of the awards immediately

before and immediately after modification.

The incremental increase in fair value is recognized as expense immediately to the extent

the underlying equity awards are vested and on a straight-line basis over the same remaining amortization schedule as the unvested underlying

equity awards.

taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an

23 unchanged sentences

SCHEDULE OF EARNINGS PER SHARE RECONCILIATION

(loss) attributable to common stockholders

Months Ended March 31,

Net income (loss) attributable to common stockholders

$ ( 1,666,686 )

$ ( 907,731 )

Weighted average shares outstanding, basic

Weighted average

dilutive stock options

Weighted average

shares outstanding, diluted

Net income (loss) per share attributable

to common stockholders, basic

Net income (loss) per share attributable

to common stockholders, diluted

Weighted average dilutive stock options

Weighted average shares outstanding, diluted

Net income (loss) per share attributable to common

stockholders, basic and diluted

following weighted average shares have been excluded from the calculations of diluted weighted average common shares outstanding because

they would have been anti-dilutive:

OF WEIGHTED AVERAGE SHARES OF ANTI-DILUTIVE SECURITIES

Months Ended September 30,

SCHEDULE OF WEIGHTED AVERAGE SHARES OF ANTI-DILUTIVE SECURITIES

Months Ended March 31,

Stock options

8 unchanged sentences

after December 31, 2021 and interim periods within that year.

Early adoption is permitted.

The Company is evaluating the impact of ASU

2019-12 on the consolidated financial statements.

On January 1, 2022, the Company adopted ASU 2019-12 and did not have a

significant impact on the consolidated financial statements.

August 2020, the FASB issued ASU No.

25 unchanged sentences

expenses and other current assets consisted of the following:

OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid insurance

1 unchanged sentence

Other prepaid expenses

Total prepaid expenses

and other current assets

Total prepaid expenses and other current assets

5 – ACCRUED EXPENSES AND OTHER LIABILITIES

expenses and other liabilities consisted of the following:

OF ACCRUED EXPENSES AND OTHER LIABILITIES

Consultant stock compensation expenses

SCHEDULE OF ACCRUED EXPENSES AND OTHER LIABILITIES

Share subscription facility commitment fees

Professional fees

Accrued research and development

Professional fees

Bonus accrual

Accrued scientific advisory board fees

Deferred grant revenue

Consultant stock compensation expenses

Other accrued liabilities

Total accrued expenses

and other liabilities

Total accrued expenses and other liabilities

long-term liabilities consisted of the following:

OF OTHER LONG-TERM LIABILITIES

Share subscription facility commitment

SCHEDULE OF OTHER LONG-TERM LIABILITIES

Share subscription facility commitment fees

Liability classified warrants

Total other long-term

Total other long-term liabilities

6 - COMMITMENTS AND CONTINGENCIES

of September 30, 2021 and December 31, 2020, there were no pending legal proceedings against the Company that are expected to have a

material adverse effect on cash flows, financial condition or results of operations.

From time to time, the Company 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, the Company reviews 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, the Company accrues a liability for the estimated loss.

of March 31, 2022, the Company’s commitments included an estimated $ 15.8

million related to the Company’s open

purchase orders and contractual obligations that occurred in the ordinary course of business, including commitments with contract research

organizations for multi-year pre-clinical and clinical research studies.

Although open purchase orders are considered enforceable and

legally binding, the terms generally allow the Company the option to cancel, reschedule, and adjust its requirements based on its business

needs prior to the delivery of goods or the performance of services.

of March 31, 2022 and December 31, 2021, there were no pending legal proceedings against the Company that are expected to have a material

adverse effect on cash flows, financial condition or results of operations.

From time to time, the Company 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, the Company reviews 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, the Company accrues a liability for the estimated loss.

Legal proceedings are subject to uncertainties,

2 unchanged sentences

As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation.

July 12, 2021, following the Business Combination with LACQ, the Company’s former financial advisor filed an action against the

Company and its Chief Executive Officer alleging that the common stock and warrants issued to the former advisor in satisfaction of its

advisory fee should have been registered and immediately tradeable.

On August 3, 2021, the parties entered into a settlement agreement

whereby the former advisor would have their common stock and the common stock underlying their warrants registered on the Company’s

resale Registration Statement on Form S-1 that it filed on August 9, 2021 (the “Resale Registration Statement”).

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

former advisor 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.

See Note 11 for additional information.

the three and nine months ended September 30, 2020, the Company leased office space on a month-to-month basis.

August 2020, the Company entered into an agreement to lease office space.

The lease commencement date was October 1, 2020 and the lease

will terminate October 31, 2021 with no option to renew.

August 2021, the Company entered into an amendment of the aforementioned lease, whereby the term of the lease was extended through October

31, 2022 with no option to renew.

The amendment resulted in a modification of the lease under ASC 842 and the Company remeasured the

lease liability as of the amendment date.

of September 30, 2021, the future lease payments totalled $ 34,068 .

Company recognized total rent expense of $ 11,781

in the three and nine months ended September

30, 2021, respectively.

The Company recognized total rent expense of $ 10,807

in the three and nine months ended September

30, 2020, respectively.

compensation subject to shareholder approval

The lease commencement date was October 1, 2020 and was subsequently

amended to extend the term of the lease through October 31, 2022 with no option to renew.

The amendment resulted in a modification of

the lease under ASC 842 and the Company remeasured the lease liability as of the amendment date.

of March 31, 2022, the future lease payments totaled $ 17,716 .

Company recognized total rent expense of $ 7,834 and $ 12,379 in the three months ended March 31, 2022, and 2021, respectively.

Subject to Shareholder Approval

July 2021, the Company engaged two consultants to perform certain public and investor relations services in consideration for warrants

to purchase 500,000

shares of common stock

with a five -year

term and an exercise price of $ 6.28

shares of common stock with a five-year term

and an exercise price of $ 6.28

shares of common stock each, and 200,000

1 unchanged sentence

The restricted stock

units vest over one

year with 50 %

of the vesting contingent upon certain market conditions.

These equity awards are contingent upon shareholder approval of an amended

and restated 2021 Omnibus Plan at a special shareholder meeting scheduled to occur in December 2021, whereby the warrants would

be replaced by non-qualified stock options with similar terms.

As the Company did not identify a grant date for the equity awards

as of September 30, 2021, it did not record these instruments in equity and instead recorded a liability and an expense for the

estimated value of services received during the period.

year , with 50 % based on continued service and

contingent upon certain market

These equity awards were contingent upon shareholder approval of an amended and restated 2021 Omnibus Plan at a special shareholder

meeting in January 2022, whereby the warrants were replaced by non-qualified stock options with similar terms.

As the original terms

of the awards did not satisfy the grant date criteria for an equity award, as of December 31, 2021, the Company recorded a liability

to reflect the estimated value of services received

during the period.

On February 14, 2022, the equity awards were granted, and the Company reclassified the outstanding liability to stockholders’

During the three months ended March 31, 2022 the Company reclassified the existing balance of the liability to equity and

recorded an additional $ 87,208

of consultant compensation to general

and administrative expense as a result of the vesting schedule of the restricted stock units.

7 - NOTES PAYABLE

following table provides a summary of the Company’s outstanding debt as of September 30, 2021:

following table provides a summary of the Company’s outstanding debt as of March 31, 2022:

SCHEDULE OF DEBT

value adjustment

2021 convertible notes

$ ( 1,071,099 )

Financed insurance

$ ( 1,071,099 )

following table provides a summary of the Company’s outstanding debt as of December 31, 2021:

debt discount

2015 convertible notes

2018 convertible notes

2020 promissory notes

2020 convertible notes

$ ( 942,914 )

interest expense recognized for notes payable was as follows:

OF INTEREST EXPENSE DEBT

Months Ended September 30,

value Adjustment

Finance Insurance

interest expense recognized for notes payable (excluding the 2021 Notes) was as follows:

SCHEDULE OF INTEREST EXPENSE DEBT

Stated interest accrual

Debt discount amortization

Convertible Notes Payable

2015, the Company issued certain convertible promissory notes in the aggregate principal amount of $ 873,000 .

During 2017 and 2018, all

but $ 100,000 were converted into common shares of Ensysce.

The remaining convertible promissory note bears interest at 5 % per annum,

is due on demand (principal and interest) and is mandatorily convertible at a variable price per share equal to 80 % of the price received

in certain future equity transactions.

Convertible Notes Payable

January 2018 and December 2020, the Company received financing totaling $ 3,500,000 under a series of unsecured promissory notes with

a stockholder and board member ($ 2,500,000 ) and an unrelated party ($ 1,000,000 ).

The promissory notes mature 24 months from the date

of issuance and bear interest at the rate of 10 % per annum.

The promissory notes, together with all interest as accrued, can be converted

into shares of Ensysce’s common stock at the option of the noteholder, at 50 % of the price paid per share for equity securities

by the investors in a subsequent equity financing of no less than $ 5,000,000 gross proceeds (the “contingent put option”).

The contingent put option is required to be bifurcated from the debt host and measured at fair value with changes in fair value recorded

in earnings (see Note 3).

Additionally,

if there is an initial public offering or reverse merger that results in Ensysce becoming publicly listed, the promissory notes automatically

convert to equity at the lower of $ 0.25 per share or the then-current Enterprise Value per share (the “automatic conversion option”).

Enterprise Value per Share is defined as market capitalization, debt and preferred stock less cash and cash equivalents divided by the

common stock of Ensysce on the measurement date, not to exceed $ 55 million.

The Company assessed whether the automatic conversion option

should be accounted for separately from the debt host and concluded that as the common shares of Ensysce are currently not publicly traded

and thus are not considered readily convertible to cash, the automatic conversion option cannot be net settled.

Further, the conversion

price of the promissory notes exceeded the per share fair value of Ensysce’s common stock on each issuance date and, consequently,

no beneficial conversion feature exists.

2018 convertible notes also include a change in control call option whereby, upon the close of a sale of Ensysce, other than an initial

public offering, Ensysce has the right to prepay the promissory notes at 200% of the principal outstanding plus all accrued and unpaid

This call option is required to be bifurcated because it is considered to not be clearly and closely related to the debt host.

However, the Company has concluded that as of each balance sheet date presented, the exercise of this call option is not probable and

thus the call option has a de minimis value.

June 2020, the board resolved to extend the maturity of all 2018 convertible notes payable issued in 2018 by one year.

The Company did

not incur legal fees or other additional costs to effect the modification.

The modification met the criteria to be classified as a troubled

debt restructuring under ASC 470-50.

The effective interest rate was recalculated to reflect the modified expected term of the notes

and no gain or loss was recognized.

Convertible Notes Payable

the year ended December 31, 2020, Covistat received financing totaling $ 700,000 under a series of unsecured promissory notes with unrelated

The notes mature in July 2022 and bear interest at a rate of 10 % per annum.

The notes cannot be prepaid without the prior consent

of the holder.

The notes, together with all accrued and unpaid interest, are automatically convertible upon an initial public offering

of Covistat shares or a private sale of a single class of Covistat’s equity securities with gross proceeds of at least $ 2.0 million

within a 12-month period.

The notes are convertible at the option of the holder at maturity.

With respect to an automatic conversion,

the conversion price will be the lesser of (a) 80 % of the per-share price of the equity securities sold or (b) the price equal to $ 10.0

million divided by the aggregate number of shares of Covistat’s common stock immediately prior to the initial closing of such financing.

With respect to an optional conversion, the conversion price will be the price equal to $ 10.0 million divided by the aggregate number

of shares of Covistat’s common stock immediately prior to the initial closing of such financing.

The conversion feature is required

to be bifurcated from the debt host and measured at fair value with changes in fair value recorded in earnings (see Note 3).

Promissory Notes Payable

the year ended December 31, 2020, the Company received financing totaling $ 100,000

under a series of unsecured promissory notes

with the Chief Executive Officer and a board member.

The promissory notes bear interest at a rate of 10 %

per annum and mature December 31, 2021 or upon certain financing transactions, whichever is earlier.

The notes were repaid in full in

Convertible Note Payable

January 2021, the Company received financing totaling $ 50,000 under an unsecured convertible note.

The convertible note bears interest

at a rate of 10 % per annum and matures January 28, 2023 .

The promissory note, together with accrued interest, would be automatically

converted into shares of Ensysce’s common stock at 80 % of the price paid per share for equity securities by investors in an IPO

or equity financing of no less than $ 10.0 million gross proceeds.

The conversion feature is required to be bifurcated from the debt host

and measured at fair value with changes in fair value recorded in earnings (see Note 3).

Promissory Notes

March and May 2021, the Company received financing totaling $ 350,000

under unsecured promissory notes issued to related

parties including the Chief Executive Officer and members of the board of directors.

The notes mature on the earlier of June 30, 2022

or the Company’s receipt of gross proceeds of at least $ 2.0

million from the sale of common or preferred

stock and bear interest at a rate of 10 %

The notes were repaid in full in July 2021.

of Convertible Notes Payable

June 30, 2021, the Company consummated the Business Combination with LACQ, which triggered the automatic conversion into common stock

of the 2015 convertible notes payable, the 2018 convertible notes payable, and the 2021 convertible notes payable.

In connection with

certain closing conditions, the 2020 convertible notes were amended to provide for automatic conversion of the outstanding principal

and interest into common stock.

The modification resulted in a loss on extinguishment of debt of $ 347,566 based on the share price on

the date of conversion.

Company applied ASC 470-20-40-1 to the accounting of the conversion, which requires the accelerated recognition of unamortized debt discounts

as interest expense upon conversion.

Accordingly, $ 554,911 of unamortized debt discount as of the June 30, 2021 conversion has been recognized

as interest expense within the consolidated statement of operations.

table below summarizes the conversion of each class of notes payable:

SCHEDULE OF CONVERTIBLE DEBT

prior to Business Combination

value of debt converted

of common stock issued

Convertible Note

Convertible Notes

Convertible Note

2021 Convertible Notes Payable

September 24, 2021, the Company entered into an agreement with institutional investors to issue $ 15.9

million of convertible notes (“Convertible

The agreement provides for two closings:

the first closing for $ 5.3

million (resulting in net proceeds of $ 4.7

million) and closed on

September 24, 2021.

The second closing for $ 10.6

million was completed in the fourth quarter

of 2021 (See Note 11 for additional information).

proceeds of the sale of the securities shall be used for working capital purposes subject to certain customary restrictions and secured

by the Company’s rights to its patents and licenses.

The Company may not issue any additional debt or equity without the

prior written consent of the holders.

notes mature on June 23, 2023 and bear interest at a rate of 5 % per annum, in addition to an original issue discount of 6 % .

September 24, 2021, the Company entered into an agreement with institutional investors to issue the 2021 Notes.

The agreement provides

for two closings:

the first closing for $ 5.3 million (resulting in net proceeds of $ 4.6 million) which closed on September 24, 2021 (the

“First Closing”).

The second closing for $ 10.6 million (resulting in net proceeds of $ 9.4 million) which closed on November

5, 2021 (the “Second Closing”).

proceeds of the 2021 Notes shall be used for working capital purposes subject to certain customary restrictions and secured by the Company’s

rights to its patents and licenses.

The Company may not issue any additional debt or equity without the prior written consent of the

2021 Notes mature on June 23, 2023 for the first closing, and August 4, 2023 for the second closing.

The 2021 Notes bear interest at

a rate of 5 % per annum, in addition to an original issue discount of 6 % .

The interest may be settled in cash or shares at the option

of the Company and is payable together with monthly redemptions of the outstanding principal amount of the debt.

The Company recorded

$ 4,417 of interest expense in the third quarter of 2021 related to the notes.

Company elected to apply the fair value option to the measurement of the Convertible Notes and accordingly recorded a charge

to other income (expense), net for issuance costs of $ 500,158 .

The initial fair value of the debt at issuance was $ 5.3 million.

The Company remeasured the fair value of the debt as of September

30, 2021 and recognized a gain of $ 1.1 million as the fair value of the Convertible Notes had decreased to $ 4.2 million due to a

decrease in the value of the conversion option resulting from a decrease in the price of the Company's common stock.

convertible notes may be converted into the Company’s common stock at the option of the holder in whole or in part at the

conversion price of $ 5.87 ,

subject to a beneficial

ownership limitation of 4.99% (subject to adjustment).

The Company must reserve sufficient shares of authorized common stock to effect the conversion of the convertible notes and payment of

The shares were registered for public resale under a registration statement.

the Company’s option, the Company may redeem some or all of the then-outstanding principal amount of the convertible notes for

cash in an amount equal to 100% of the outstanding principal amount of the principal to be redeemed, plus accrued but unpaid interest,

plus all other amounts due with respect to the convertible notes.

January 1, 2022, and the first of each subsequent month, terminating upon the full redemption of the Convertible Notes (each a “Monthly

Redemption Date”), the Company shall redeem the Monthly Redemption Amount (defined below), payable in cash or shares.

number of shares to be settled shall be based on a conversion price equal to the lesser of (a) $5.87 and (b) 92 %

of the average of the three lowest volume-weighted average prices (“VWAP”) during the 10 consecutive trading days

prior to the applicable Monthly Redemption Date.

The Company may not pay the Monthly Redemption Amount in shares unless the applicable

conversion price is greater than or equal to $0.78 and

the Company has been in compliance with customary requirements under the agreement, unless waived in writing by the holder.

Company elected to apply the fair value option to the measurement of the 2021 Notes.

The total initial fair value of the debt at issuance

The Company recorded total issuance

costs of $ 1.9

million representing investment banking and legal

fees of $ 1.0

million and original issue discounts of $ 0.9

After multiple conversions since issuance,

the Company remeasured the fair value as of March 31, 2022 and recognized a gain of $ 2.8

million as the fair value of the 2021 Notes had

decreased to $ 7.7

million due to a decrease in the value of the

conversion option resulting from a decrease in the price of the Company’s common stock.

The March 31, 2022 fair value measurement

includes the assumption of accrued interest and interest expense (at the stated rate plus an 8 %

cash settlement premium) and thus a separate

amount is not reflected on the consolidated statements of operations.

If presented separately, the total amount of interest expense (after

consideration of the conversions) at March 31, 2022 would be $ 123,220 .

2021 Notes may be converted into the Company’s common stock at the option of the holder in whole or in part at the conversion price

of $ 5.87 , subject to a beneficial ownership limitation of 4.99% (subject to adjustment).

The Company must reserve sufficient shares of

authorized common stock to effect the conversion of the 2021 Notes and payment of interest.

The shares were registered for public resale

under a registration statement.

the Company’s option, the Company may redeem some or all of the then-outstanding principal amount of the 2021 Notes for cash in

an amount equal to 100% of the principal to be redeemed, plus accrued but unpaid interest, plus all other amounts due with respect to

the 2021 Notes.

January 1, 2022 for the First Closing, and February 1, 2022 for the Second Closing, and the first of each subsequent month, terminating

upon the full redemption of the 2021 Notes (each a “Monthly Redemption Date”), the Company shall redeem the Monthly Redemption

Amount (defined below), payable in cash or shares.

The number of shares to be settled shall be based on a conversion price equal to the

lesser of (a) $5.87 and (b) 92 % of the average of the three lowest volume-weighted average prices (“VWAP”) during the 10

consecutive trading days prior to the applicable Monthly Redemption Date.

The Company may not pay the Monthly Redemption Amount in shares

unless the applicable conversion price is greater than or equal to $ 0.78 and the Company has been in compliance with customary requirements

under the agreement, unless waived in writing by the holder .

Monthly Redemption Amount is defined as 1/18 th of the original principal amount, plus accrued but unpaid interest, plus any

other amounts due to the holder with respect to the Convertible Notes.

If the Company elects to settle such redemptions in shares (with

a total maximum of 4,855,108 shares issuable), the Monthly Redemption Amount is calculated based on 92% of the average of the lowest

three VWAPs in the ten trading days prior to the Monthly Redemption Date.

If the Company elects to settle redemptions in cash, the Monthly

Redemption Amount shall include an 8% premium of the Monthly Redemption Amount.

at any time while the Convertible Notes are outstanding, the Company carries out one or more capital raises in excess of $ 5.0

million, the holder has the right to require

the Company to use up to 20 %

of the gross proceeds of such transaction to redeem all or a portion of the convertible notes for an amount in cash equal to the cash

Mandatory Redemption Amount (i.e., 108% of outstanding principal and unpaid interest).

other amounts due to the holder with respect to the 2021 Notes.

If the Company elects to settle such redemptions in shares, the Monthly

Redemption Amount is calculated based on 92% of the average of the lowest three VWAPs in the ten trading days prior to the Monthly Redemption

If the Company elects to settle redemptions in cash, the Monthly Redemption Amount shall include an 8% premium of the Monthly Redemption

at any time while the 2021 Notes are outstanding, the Company carries out one or more capital raises in excess of $ 5.0 million, the holder

has the right to require the Company to use up to 20 % of the gross proceeds of such transaction to redeem all or a portion of the convertible

notes for an amount in cash equal to the cash Mandatory Redemption Amount (i.e., 108% of outstanding principal and unpaid interest).

following table provides a summary of the Company’s 2021 Notes conversions during the three months period ending March 31,

SCHEDULE OF CONVERSIONS DEBT

January 3, 2022

February 3, 2022

March 1, 2022

the three months ending March 31, 2022, the company recognized $ 1.7

million of loss on debt conversions related

to the monthly conversions, resulting from the difference between the conversion price and the average of the high and low stock price

on the date of conversion.

Such expense is reported under other income (expense), net in the consolidated statements of operations.

insurance premiums

the nine months ended September 30, 2021, the Company financed its directors and officers liability insurance in the amount of $ 867,300 .

The Company will pay

a total of $ 12,078 in interest from inception through March 2022 when the note will be paid in full.

the year ended December 31, 2021, the Company financed its director and officer liability insurance in the amount of $ 867,300 ,

of which the note was paid in full as of March 31, 2022.

The Company expensed $ 2,004 of interest for the three months ended March 31,

8 - STOCKHOLDERS’ EQUITY

June 2021, in connection with the Business Combination, the Company amended and restated its Certificate of Incorporation to authorize

150,000,000 shares

of common stock and 1,500,000 shares

of preferred stock, both with par value equal to $ 0.0001 .

As of September 30, 2021 and December 31, 2020, there were no

shares of preferred stock issued and outstanding.

150,000,000 shares of common stock and 1,500,000 shares of preferred stock, both with par value equal to $ 0.0001 .

As of March 31, 2022

and December 31, 2021, there were no shares of preferred stock issued and outstanding.

June 30, 2021, in connection with the Closing, the following common stock activity occurred:

shares of common stock were issued to holders of

Former Ensysce common stock.

shares of common stock outstanding were assumed

by the Company.

shares of common stock were issued in settlement

million of convertible debt.

shares of restricted common stock were issued in

exchange for previously outstanding warrants to purchase Former Ensysce common stock.

shares of common stock were issued in settlement

of a termination agreement with a strategic advisor dated January 2021.

shares of common stock were issued in settlement

of deferred underwriting costs.

February 2013, the Company issued 13,170

warrants to purchase common stock, with a ten -year

life and an exercise price of $ 6.23

In August 2019, in connection with

the issuance of convertible debt, the Company issued 6,585

warrants to purchase common stock, with a ten -year

life and an exercise price of $ 3.04 .

As of December 31, 2020, the warrants remained outstanding.

On June 30, 2021, the Company issued 19,755

shares of common stock in settlement of the warrants,

with such shares subject to restriction until certain conditions are met.

30, 2021, outstanding warrants to purchase shares of common stock are as follows:

OF OUTSTANDING WARRANT

shares of common stock were issued to holders of Former Ensysce common stock.

shares of common stock outstanding were assumed by the Company.

shares of common stock were issued in settlement of $ 5.8 million of convertible debt.

shares of restricted common stock were issued in exchange for previously outstanding warrants to purchase Former Ensysce common stock.

shares of common stock were issued in settlement of a termination agreement with a strategic advisor dated January 2021.

shares of common stock were issued in settlement of deferred underwriting costs.

March 31, 2022, outstanding warrants to purchase shares of common stock are as follows:

SCHEDULE OF OUTSTANDING WARRANT

Underlying Outstanding Warrants

Classification

$ 10.00 - 11.50

LACQ warrants

1 unchanged sentence

Convertible note

June 30, 2021, as a result of the Closing, the Company assumed a total of 18,901,290 warrants previously issued by LACQ.

The warrants provide

holders the right to purchase common stock at a strike price of between $ 10.00 and $ 11.50 per share and expire June

30, 2026 , five years following the completion of the Business Combination.

A total of 10,000,000 of the outstanding warrants are public warrants

which trade on the OTC Pink Open Market under the ticker symbol ENSCW.

The remaining 8,901,290 warrants are private warrants with restrictions

on transfer and which have the right to a cashless exercise at the option of the holder.

On August 3, 2021, the Company

entered into an agreement with an existing warrant holder to reduce the exercise price of 500,000

warrants issued on June 30, 2021 from $ 11.50

resulting in an incremental increase in their fair value of $ 56,591 ,

recognized in general and administrative expense.

On June 30, 2021, as a result of the Closing, the Company assumed a total of 18,901,290

warrants previously issued by LACQ.

The warrants provide holders the right to purchase common stock at a strike price of between

share and expire June 30, 2026 ,

five years following the completion

of the Business Combination.

A total of 10,000,000

of the outstanding warrants are public warrants which trade on the OTC Pink Open Market under the ticker symbol ENSCW.

The remaining

warrants are private warrants with restrictions on transfer and which have the right to a cashless exercise at the option of

On August 3, 2021, the Company entered into an agreement with an existing warrant holder to reduce the exercise price of

Convertible note

June 30, 2021, as a result of the closing of the Business Combination, the Company assumed a total of 18,901,290 warrants previously

issued by LACQ.

The warrants provide holders the right to purchase common stock at a strike price of between $ 10.00 and $ 11.50 per

share and expire June 30, 2026 , five years following the completion of the Business Combination.

A total of 10,000,000 of the outstanding

warrants are public warrants which trade on the OTC Pink Open Market under the ticker symbol ENSCW.

The remaining 8,901,290 warrants

are private warrants with restrictions on transfer and which have the right to a cashless exercise at the option of the holder.

August 3, 2021, the Company entered into an agreement with an existing warrant holder to reduce the exercise price of 500,000

warrants issued on June 30, 2021 from $ 11.50

resulting in an incremental increase in their fair value of $ 56,591 ,

recognized in general and administrative expense.

On July 2, 2021,

upon public listing of the Company’s shares, the Company issued 1,106,108

warrants to purchase common stock pursuant to the share subscription

The warrants have a three -year

life and an exercise price of $ 10.01

The grant date fair value of the warrants, based

on the $ 14.49

stock price on the date of issuance, was $ 11.6

million, and was recognized in general and administrative

expense due to the uncertainty of future issuance of shares under the share subscription facility.

On September 24, 2021, the

Company issued 361,158

warrants in connection with the issuance of

the convertible notes.

The warrants were immediately exercisable with an exercise price of $ 7.63

and expire on September 23, 2026 .

July 2, 2021, upon public listing of the Company’s shares, the Company issued 1,106,108 warrants to purchase common stock pursuant

to the share subscription facility.

The warrants have a three -year life and an exercise price of $ 10.01 per share.

The grant date

fair value of the warrants, based on the $ 14.49 stock price on the date of issuance, was $ 11.6 million, and was recognized in general

and administrative expense due to the uncertainty of future issuance of shares under the share subscription facility.

December 28, 2021, January 3, 2022, February 1, 2022 and March 1, 2022 the exercise price of the warrants adjusted to $ 4.50 per share,

$ 2.83 per share, $ 1.58 per share, and $ 0.96 per share, respectively, as required by a down round adjustment feature of the warrant,

due to common stock issued at a price below the then current exercise price.

The difference in fair value of the existing warrant

prior to the adjustment and the value of the warrant after (utilizing a “Black-Scholes model”) is reflected on the consolidated

statement of operations as a “deemed dividend.”

September 24, 2021, the Company issued 361,158 warrants in connection with the issuance of the convertible notes.

The warrants were

immediately exercisable with an exercise price of $ 7.63 (subject to downward revision protection in the event the Company makes certain

issuances of common stock at prices below the conversion price) and expire on September 23, 2026 .

November 5, 2021, the Company issued 722,317 warrants in connection with the issuance of the 2021 Notes.

The warrants were immediately

exercisable with an exercise price of $ 7.63 (subject to downward revision protection in the event the Company makes certain issuances

of common stock at prices below the conversion price) and expire on November 4, 2026 .

fair value of each warrant issued has been determined using the Black-Scholes option-pricing model.

The material assumptions used in the Black-Scholes model in estimating the fair value of the warrants issued for the periods presented were as

The material assumptions used in

the Black-Scholes model in estimating the fair value of the warrants issued for the periods presented were as follows:

SCHEDULE OF WARRANTS FAIR VALUE ESTIMATION ASSUMPTIONS

Liability classified warrants (grant date 9/24/2021)

Liability classified warrants (remeasured at 9/30/2021)

warrants (grant date varies)

subscription facility (grant date 7/2/2021)

subscription facility (remeasurement date varies)

Exercise price

1 unchanged sentence

Risk free rate

classified warrants (grant date 9/24/2021)

classified warrants (remeasured at 3/31/22)

(d) Liability

classified warrants (grant date 11/5/2021)

(d) Liability

classified warrants (remeasured at 3/31/22)

Exercise price

Expected term (years)

Risk free rate

9 - STOCK-BASED COMPENSATION

12 unchanged sentences

which was approved by LACQ’s board and subsequently LACQ’s stockholders at a special stockholder meeting on June 28, 2021.

The 2021 Omnibus Plan provides for the conversion with existing terms of the 4,444,068

options outstanding under Former Ensysce stock

plans and reserves for issuance an additional 1,000,000

shares for future awards under the 2021 Omnibus

No further awards may be made under the Former Ensysce stock plans.

of September 30, 2021 and December 31, 2020, the options outstanding under each plan were as follows:

OF STOCK OPTION OUTSTANDING

2019 Directors Plan

2021 Omnibus Plan

Total options outstanding

the three and nine months ended September 30, 2020, the Company granted stock options to purchase an aggregate of 65,850

shares of common stock to members of the board

of directors.

The options vest over three

years and have an exercise price of $ 3.35

Company recognized within general and administrative expense stock-based compensation expense of $ 24,833

and $ 105,026

for the three and nine months ended September

30, 2021, respectively.

The Company recognized within general and administrative expense stock-based compensation expense of $ 51,510

and $ 120,061

for the three and nine months ended September

30, 2020, respectively.

During the three and nine months ended September 30, 2021 and 2020, there was no

stock-based compensation allocated to research

and development expense.

following table summarizes the Company’s stock option activity during the nine months ended September 30, 2021:

OF STOCK OPTION ACTIVITY

contractual life

The 2021 Omnibus Plan provides for the conversion with existing terms of the 4,444,068 options outstanding under Former Ensysce stock

plans and reserves for issuance an additional 1,000,000 shares for future awards under the 2021 Omnibus Plan.

On January 26 2022, the

2021 Omnibus Plan was amended and restated to include an additional 3,000,000 shares available for future grant.

No further awards may

be made under the Former Ensysce stock plans.

The Company recognized within general and administrative

expense stock-based compensation expense of $ 373,944 and $ 43,820 for the three months ended March 31, 2022 and 2021, respectively.

the three months ended March 31, 2022 and 2021, the Company recognized stock-based compensation expense of $ 28,490 and $ 0 , respectively,

within research and development expense.

The stock-based compensation expense consisted of expense associated with stock options, restricted

stock units and other compensation shares issued to non-employee consultants.

the three months ended March 31, 2022, the Company granted stock options to purchase an aggregate of 1,986,000

shares of common stock to employees, consultants

and members of the Board.

The options vest over periods between 0

years and have an exercise price of between $ 1.08

There were no stock option grants

following table summarizes the Company’s stock option activity during the three months ended March 31, 2022:

SCHEDULE OF STOCK OPTION ACTIVITY

Weighted average

Exercise price

Remaining contractual

Intrinsic value

Outstanding at December 31, 2021

Expired / Forfeited

Outstanding at September 30, 2021

Exercisable at September 30, 2021

Outstanding at March 31, 2022

Exercisable at March 31, 2022

Vested and expected to vest

fair value of each stock option granted has been determined using the Black-Scholes option-pricing model.

The material assumptions

used in the Black-Scholes model in estimating the fair value of the options granted for the periods presented were as follows:

OF SHARE-BASED PAYMENT AWARD, STOCK OPTIONS, VALUATION ASSUMPTIONS

The material assumptions used

in the Black-Scholes model in estimating the fair value of the options granted for the periods presented were as follows (there were

no grants issued in 2021):

SCHEDULE OF SHARE-BASED PAYMENT AWARD, STOCK OPTIONS, VALUATION ASSUMPTIONS

Three Months Ended

March 31, 2022

Exercise price

$ 1.08 - $ 6.28

Expected stock price volatility

21 unchanged sentences

to pay any dividends on the Company’s common stock.

weighted-average grant date fair value of options granted during the nine months ended September 30, 2020 was $ 2.20 .

There were no

options granted during the nine months ended

September 30, 2021.

of September 30, 2021, the Company had an aggregate of $ 54,427

of unrecognized share-based compensation cost,

which is expected to be recognized over the weighted average period of 1.68

weighted-average grant date fair value of options granted during the three months ended March 31, 2022 was $ 1.01 .

There were no options

granted during the three months ended March 31, 2021.

of March 31, 2022, the Company had an aggregate of $ 924,175

of unrecognized share-based compensation

cost, which is expected to be recognized over the weighted average period of 1.6

the three months ended March 31, 2022, the Company granted 927,358

restricted stock unit (“RSU”) awards

(weighted-average fair value per share of $ 1.04 ), issued 547,358

shares of common stock for vested RSU awards

(weighted average fair value per share of $ 1.23 ) and cancelled 50,000

The remaining 330,000

awards (weighted average fair value per share of $ 0.88 ) outstanding are subject to time-based and market vesting conditions and

are scheduled to vest by December 2023.

The estimated fair value of each of the Company’s RSU awards was determined on the

date of grant based on the closing price of the Company’s common stock on the previous trading date.

Reserved for Future Issuance

following shares of common stock are reserved for future issuance:

OF COMMON STOCK FUTURE ISSUANCE

Stock options outstanding

Stock options available for future grant under

2021 Omnibus Incentive Plan

Convertible notes outstanding

SCHEDULE OF COMMON STOCK FUTURE ISSUANCE

March 31, 2022

Awards outstanding under the 2021 Omnibus Incentive Plan

Awards available for future grant under 2021 Omnibus Incentive Plan

Warrants outstanding

Total shares of common

stock reserved for future issuance

Total shares of common stock reserved for future issuance

10 - RELATED PARTIES

Company paid cash compensation during the three and nine months ended September 30, 2021 of $ 3,584

and $ 43,898 ,

respectively, to the Chief Executive Officer through a separate operating company with which the Chief Executive Officer is affiliated.

Such cash compensation totalled $ 38,967

for the three and nine months ended September

As of September 30, 2021 and December 31, 2020, the Company owed $ 0

and $ 12,989 ,

respectively, in accounts payable to the separate operating company.

Company issued a series of convertible notes to the Chairman of the Board as described in Note 7, which totalled $ 2.5

million as of December 31, 2020.

All outstanding

notes converted into common stock upon the closing of the Business Combination on June 30, 2021.

of September 30, 2021 and December 31, 2020, the Company had promissory notes outstanding which totalled $ 0

and $ 100,000 ,

respectively, to three members of the board of directors, including the Chief Executive Officer and Chairman of the Board, as described

Company paid cash compensation during the three months ended March 31, 2021 of $ 33,146 to the Chief Executive Officer through a separate

operating company with which the Chief Executive Officer is affiliated.

There were no such payments in the three months ended March 31,

11 - SUBSEQUENT EVENTS

October 6, 2021, the Superior Court dismissed with prejudice the case filed on July 12, 2021 by the Company’s former financial

advisor, as discussed in Note 6, following effectiveness of the Resale Registration Statement filed on August 9, 2021 and amended

on September 22, 2021.

November 5, 2021, the Company completed the second closing of the agreement with institutional investors for convertible notes payable

discussed in Note 7.

The Company issued $ 10.6

million in convertible notes and 722,317

warrants with a five -year term to purchase common

stock at an exercise price of $ 7.63

per share, in exchange for $ 10.0

million of cash proceeds before fees and offering

The convertible notes from the second closing have similar terms to those discussed in Note 7, except that the monthly redemption

period begins February 1, 2022 and the maturity date is August 4, 2023.

the second quarter of 2022, in connection with the monthly redemption schedule (described in Note 7), the Company issued 4,511,920

shares of common stock as a result of monthly

conversions of $ 4.3

million of the 2021 Notes.

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 1. Financial Statements