What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-12 compared with 2021-11-15 · 188 added, 240 removed, 406 unchanged (51% of the section changed)

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is a clinical stage pharmaceutical company seeking to develop innovative solutions for severe pain relief while reducing

the fear of and the potential for addiction, opioid misuse, abuse and overdose.

We have also incorporated a 79.2%-owned subsidiary, Covistat,

a clinical stage pharmaceutical company that is developing a compound utilized in Ensysce’s overdose protection program for the

treatment of COVID-19.

the fear of addiction and the potential for opioid misuse, abuse and overdose.

We have also incorporated a 79.2%-owned

subsidiary, Covistat, a clinical stage pharmaceutical company that is developing a compound utilized in Ensysce’s overdose protection

program for the treatment of respiratory diseases.

Our lead product candidate, PF614, is an extended release TAAP prodrug of oxycodone.

TAAP modification of prescription

drugs removes the ability to crush, chew or manipulate and inject to achieve the medication more quickly than by swallowing.

adds a layer of overdose protection to each TAAP product.

TAAP modification of prescription drugs removes the ability to crush, chew or manipulate and inject to achieve the medication more quickly

than by swallowing.

MPAR™ adds a layer of overdose protection to each TAAP product.

inception in 2003, we have devoted substantially all our efforts and financial resources to organizing and staffing our company, business

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have incurred significant operating losses since inception.

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

As of March 31, 2022, we had an accumulated deficit of $87.5 million.

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

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income (expense)

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 that were settled on June 30, 2021, in conjunction with the Business Combination.

in fair value of derivative 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

The notes were recognized at the value of proceeds received after allocating issuance proceeds to the bifurcated contingent

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.

Change in fair value of convertible notes

elected the fair value option to account for the 2021 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 discounted cash flow model and a Monte Carlo

analysis to estimate the fair value of the notes, both of which rely on unobservable Level 3 inputs.

Changes in the fair value of the

notes are recognized through earnings for each reporting period.

Change in fair value of liability classified

The warrants issued with the 2021 Notes were liability

classified due to certain cash settlement features.

We use a Black-Scholes option pricing model to estimate the fair value of the warrants.

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

Loss on debt conversions

When conversions on the 2021 Notes occur, we calculate

the difference between the conversion price and the average of the high and low stock price on the date of conversion.

The resulting

difference is either a loss if the conversion price was below the average of the high and low stock price on the date of conversion or

a gain if the conversion price was above the average of the high and low stock price on the date of conversion.

expense consists of interest accrued on our financed directors and officer insurance as well as imputed interest on the commitment fees

related to the share subscription facility.

for Income Taxes

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available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

As of December 31, 2020,

we continue to maintain a full valuation allowance against all of our deferred tax assets based on our evaluation of all available evidence.

As of March 31, 2022,

we continue to maintain a full valuation allowance against all of our deferred tax assets based on our evaluation of all available

file income tax returns in the United States federal tax jurisdiction and state jurisdictions and may become subject to income tax audit

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of Operations

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

Research and development expenses

General and administrative expenses

Other income (expense), net

grant funding

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.

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 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.

and administrative expenses

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

of the three months ended March 31, 2022 and 2021

following table summarizes our results of operations for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Federal grants

Operating expenses:

Research and development

General and administrative

Other income (expense), net

Total operating expenses

Loss from operations

Other income (expense):

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

Interest expense

Other income and expense, net

Total other income (expense), net

Net income (loss) attributable to noncontrolling interests

Deemed dividend related to warrants down round provision

Net loss attributable to common stockholders

$ (1,666,686 )

grant funding

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 $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

Funding from federal grants for the three months

ended March 31, 2022 and 2021 totaled $0.6 million and $0.3 million, respectively, representing an increase of $0.3 million.

increased by $0.4 million under the MPAR Grant, offset by a decrease of $0.1 million under the OUD Grant, due to the timing of research

activities eligible for funding.

We expect that funding from federal grants may generally 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 nine months ended September 30, 2021 and 2020 were $2.5 million and $3.1 million, respectively, representing

a decrease of $0.6 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.

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

and development expenses for the three months ended March 31, 2022 and 2021 were $3.1 million and $0.2 million, respectively,

representing an increase of $2.9 million.

The increase was primarily the result of increased external research and development

costs related to preclinical and clinical programs for PF614 and PF614-MPAR™.

We do 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

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and administrative expenses

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 administrative expenses for the three months ended March 31, 2022 and 2021 were $2.3 million and $0.5 million, respectively,

representing an increase of $1.8 million.

The increase was primarily a result of increased expenses related to operating as a

public company, including legal and accounting fees and director and officer insurance expenses.

We expect general and administrative

expenses in the future to approximate current levels.

income and expense

in fair value of convertible notes and liability classified warrants for the 2022 period relate to the 2021 Notes.

Loss on debt conversions

is driven by the difference between the conversion price of the 2021 Notes and the average of the high and low stock price on the

date of conversion.

There was no corresponding activity in the 2021 period.

expense decreased $0.3 million in the 2022 period due to the conversion of outstanding convertible notes on June 30, 2021 and because

interest expense associated with the 2021 Notes is reflected in the fair value adjustments instead of separately presented as interest

and capital resources

of liquidity and capital

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.

of March 31, 2022, we had $8.4 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 September 30, 2021, we had an accumulated deficit of $75.0

As of March 31, 2022, we had an accumulated deficit of $87.5

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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remaining funding under two approved federal research grants totals $4.1 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.

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.

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.

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benefit of public health.

an agreement established in December 2020, an investor agreed to provide us with a share subscription facility of up to $60.0 million

for a 36-month term following the public listing of our common stock.

We control the timing and maximum amount of drawdown under this

facility and have no minimum drawdown obligation.

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

closing price of our stock during the 30 consecutive trading days following delivery of a draw notice, which shall not exceed 400% of

the average trading volume for the 30 trading days immediately preceding delivery of the draw notice.

We 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 our freely tradable

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.

to the GEM Agreement, we are entitled to draw down up to $60.0 million of gross proceeds (“ Aggregate Limit ”) from

GEM Global in exchange for shares of our common stock, subject to meeting the terms and conditions of the GEM Agreement.

This share subscription

facility is available for a period of 36 months from the closing date of the Business Combination.

A draw down is subject to limitations

on the amount that is drawn under the facility and must comply with certain conditions precedent including the listing of our shares

on a principal market (which includes Nasdaq), having the necessary number of shares that are issuable pursuant to the draw down registered

under an effective registration statement, and other notice and timing requirements.

Upon our valid exercise of a draw down, pursuant

to delivery of a notice and in accordance with other conditions, GEM Global is required to pay, in cash, a per-share amount equal to

90% of the average closing bid price of the shares of our common stock recorded by Nasdaq during the 30 consecutive trading days commencing

on the first trading day that is designated on the draw down notice.

In no event may our draw down requests exceed 400% of the average

daily trading volume for the 30 trading days immediately preceding the date we deliver the draw down notice.

Our ability to utilize this

share subscription facility is restricted while the 2021 Notes are outstanding.

the closing of the Business Combination, GEM Global became entitled to a commitment fee in the form of cash or freely tradeable shares

of our common stock in an amount equal to 2% of the Aggregate Limit or $1.2 million to be paid in two tranches.

The commitment fee for

the first tranche, which is equal to 67% of the commitment fee, or $800,000, becomes payable on the first anniversary of the closing

of the Business Combination and the commitment fee for the second tranche, which is equal to the remaining 33% of the commitment fee,

or $400,000, becomes payable on the eighteen-month anniversary of the closing of the Business Combination.

Additionally,

we issued a warrant with a 36-month term at the closing of the Business Combination granting GEM Global the right to purchase 1,106,108

shares of our common stock (an amount equal to 4% of the total number of our common stock outstanding as of the closing date of the Business

Combination (subject to adjustments described below), calculated on a fully diluted basis), at a strike price per share equal to $10.01,

which was the closing bid price for such common stock on the first day of trading on Nasdaq.

The strike price was reduced to $4.50 per

share at December 31, 2021 because of a pricing adjustment per the GEM Agreement.

The warrant can be exercised on a cashless basis in

part or in whole at any time during the term.

Any failure by us to timely transfer the shares under the warrant pursuant to GEM Global’s

exercise will entitle GEM Global to compensation in addition to other remedies.

The number of shares 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 issuances of additional common shares at a price per share less than the exercise price.

GEM Agreement contains certain negative covenants restricting us from securing a share subscription line similar to the financing provided

under the GEM Agreement and requiring prompt notice of events constituting an alternate transaction.

An “alternate transaction”

includes an issuance of common stock at a price less than the then current market price, an “at-the-market” offering of securities,

and an issuance of options, warrants, or similar rights of subscription or the issuance of convertible equity or debt securities.

pursuant to the terms of the GEM Agreement, we are required to indemnify GEM Global for any losses it incurs as a result of a breach

by us or of our representations and warranties and covenants under the GEM Agreement or for any misstatement or omission of a material

fact in a registration statement registering those shares pursuant to the GEM Agreement.

Also, GEM Global is entitled to be reimbursed

for legal or other costs or expenses reasonably incurred in investigating, preparing, or defending against any such loss.

September 24, 2021, we entered the SPA for an aggregate financing of $15.0 million with institutional investors.

The Company issued to

the investors (i) 2021 Notes in the aggregate principal amount of $15.9 million for an aggregate purchase price of $15.0 million and

(ii) warrants to purchase 1,083,475 shares of the Company’s common stock in the aggregate at an exercise price of $7.63 per share.

The SPA limits our ability to execute certain debt and equity financings, including our existing $60.0 million share subscription facility,

while the 2021 Notes remain outstanding.

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

Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities

$ (3,437,014 )

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.

Net cash provided by investing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

$ (3,823,784 )

the three months ended March 31, 2022 and 2021, we used cash in operating activities of $3.4 million and $0.5 million, respectively.

The increase primarily resulted from the clinical advancement of our product candidates and increased costs related to operating as a public company.

the three months ended March 31, 2022, net cash provided by investing activities was $4,500 from the sale of certain property and equipment.

There were no comparable activities for the three months ended March 31, 2021.

the three months ended March 31, 2022, net cash used in financing activities was $0.4 million, primarily consisting of repayment

of financed insurance premiums.

During the three months ended March 31, 2021, net cash provided by financing activities was $0.6 million,

primarily consisting of proceeds from the issuance of promissory notes to related parties and from the exercise of stock options.

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.

The timing and amount of our operating expenditures

will depend largely on our ability to:

In addition, since the completion of the Business Combination, we incur 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 will depend largely on our ability to:

preclinical development of our early-stage programs and clinical trials of our product candidates;

10 unchanged sentences

the costs of operating as a public company.

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.

have generated limited revenues and have incurred significant operating losses since our inception and, as of March 31, 2022, had an

accumulated deficit of $87.5 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.

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 2021 Notes limit our ability to execute certain debt and equity financings,

including its existing $60.0 million share subscription facility, while the 2021 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.

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

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

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

clinical trials on our behalf.

The financial terms of these agreements are subject to negotiation, vary from contract to contract and

may result in uneven payment flows.

There may be instances in which payments made to our vendors will exceed the level of services provided

and result in a prepayment of the expense.

Payments under some of these contracts depend on factors such as the successful enrollment

of patients and the completion of clinical trial milestones.

In accruing service fees, we estimate the time period over which services

will be performed and the level of effort to be expended in each period.

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 clinical

trials on our behalf.

The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result

in uneven payment flows.

There may be instances in which payments made to our vendors will exceed the level of services provided and

result in a prepayment of the expense.

Payments under some of these contracts depend on factors such as the successful enrollment of

patients and the completion of clinical trial milestones.

In accruing service fees, we estimate the time period over which services will

be performed and the level of effort to be expended in each period.

If the actual timing of the performance of services or the level

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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

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

factors to determine the fair value of our common stock as of each grant date, including:

progress of our research and development programs, including the status and results of preclinical studies and clinical trials for

our product candidates;

stage of development and commercialization and our business strategy;

market conditions affecting the biopharmaceutical industry and trends within the biopharmaceutical industry;

financial position, including cash on hand, and our historical and forecasted performance and results of operations;

lack of an active public market for our common stock and our preferred stock;

likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or our sale in light of prevailing market

analysis of initial public offerings and the market performance of similar companies in the specialty biopharmaceutical industry.

assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application

of management’s judgment.

As a result, if we had used significantly different assumptions or estimates, the fair value of our common

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.

sheet arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis