What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-11 · 575 added, 429 removed, 588 unchanged (63% of the section changed)

2 unchanged sentences

Balance Sheets

June 30, 2022

September 30, 2022

December 31, 2021

Current assets:

5 unchanged sentences

Property and equipment, net

Deferred financing costs

Liabilities and stockholders’ equity (deficit)

2 unchanged sentences

Accrued expenses and other liabilities

Payable to related parties

Lease liability

Notes payable and accrued interest ($ 2,519,539 and $ 12,358,886 at fair value at June 30, 2022 and December 31, 2021, respectively)

Notes payable and accrued interest ($ 7,199,135 and $ 12,358,886 at fair value at September 30, 2022 and December 31, 2021, respectively)

Total current liabilities

Long-term liabilities:

Notes payable, net of current portion

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

Other long-term liabilities

Total long-term liabilities

Total liabilities

1 unchanged sentence

Stockholders’ deficit

Preferred stock, $ 0.0001 par value, 1,500,000 shares authorized, no shares issued and outstanding at June 30, 2022 (unaudited) and December 31, 2021

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

35,550,034 and 24,662,904 shares issued at June 30, 2022 (unaudited) and December 31, 2021, respectively;

35,530,279 and 24,643,149 shares outstanding at June 30, 2022 (unaudited) and December 31, 2021, respectively

Preferred stock, $ 0.0001 par value, 1,500,000 shares authorized, no shares issued and outstanding at September 30, 2022 (unaudited) and December 31, 2021

Common stock, $ 0.0001 par value, 250,000,000 and 150,000,000 shares authorized at September 30, 2022 and December 31, 2021;

2,208,446 and 1,233,148 shares issued at September 30, 2022 (unaudited) and December 31, 2021, respectively;

2,207,458 and 1,232,160 shares outstanding at September 30, 2022 (unaudited) and December 31, 2021, respectively

Additional paid-in capital

5 unchanged sentences

( 6,094,498 )

( 7,878,243 )

Noncontrolling interests in stockholders’ deficit

1 unchanged sentence

( 6,421,932 )

( 8,158,058 )

Total liabilities and stockholders’ deficit

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

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

Biosciences, Inc.

Statements of Operations

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Federal grants

6 unchanged sentences

( 16,886,795 )

( 18,021,309 )

( 17,863,686 )

Other income (expense):

Issuance costs for convertible notes

( 1,118,721 )

Change in fair value of derivative liabilities

Loss on issuance of convertible notes

Change in fair value of convertible notes

Issuance of liability classified warrants

( 3,737,371 )

( 1,325,804 )

( 3,737,371 )

( 1,325,804 )

Change in fair value of liability classified warrants

1 unchanged sentence

( 1,404,877 )

( 4,000,155 )

Interest expense

( 1,282,820 )

Loss on extinguishment of debt

Other income and expense, net

4 unchanged sentences

$ ( 17,199,474 )

$ ( 18,729,609 )

$ ( 19,108,777 )

Net loss attributable to noncontrolling interests

8 unchanged sentences

Weighted average common shares outstanding, basic and diluted

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

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

Biosciences, Inc.

2 unchanged sentences

Noncontrolling

Balance on March 31, 2021

$ ( 56,906,447 )

Balance on June 30, 2021

$ ( 57,841,991 )

1 unchanged sentence

Stock-based compensation

Settlement of convertible notes

Issuance of common stock for business combinations, net of transaction costs

Balance on June 30, 2021

Issuance of warrants

Warrants modification

( 17,163,526 )

( 17,199,474 )

Balance on March 31, 2022

Balance on September 30, 2021

$ ( 75,005,517 )

$ ( 279,601 )

$ ( 385,287 )

Balance on June 30, 2022

$ ( 95,511,543 )

$ ( 305,942 )

$ ( 797,578 )

Conversion of convertible notes

4 unchanged sentences

( 9,855,565 )

Balance on June 30, 2022

Balance on September 30, 2022

$ ( 105,409,155 )

1 unchanged sentence

$ ( 6,421,932 )

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

The accompanying notes are an

integral part of these consolidated financial statements.

Biosciences, Inc.

Statements of Changes in Stockholders’ EQUITY (Deficit)

Stockholders’ Equity (Deficit)

Stockholders’

Equity (Deficit)

Noncontrolling

12 unchanged sentences

Stock-based compensation

Issuance of warrants

Warrants modification

( 19,046,801 )

( 19,108,777 )

Balance on June 30, 2021

Balance on September 30, 2021

$ ( 75,005,517 )

$ ( 279,601 )

$ ( 385,287 )

Balance on December 31, 2021

2 unchanged sentences

$ ( 8,158,058 )

Beginning balance

Beginning balance, value

$ ( 85,845,567 )

8 unchanged sentences

( 18,729,609 )

Balance on June 30, 2022

Balance on September 30, 2022

$ ( 105,409,155 )

1 unchanged sentence

$ ( 6,421,932 )

Ending balance

Ending balance, value

$ ( 105,409,155 )

5 unchanged sentences

(U naudited )

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

5 unchanged sentences

Accretion of discounts on promissory notes

Change in fair value of embedded derivative

Change in fair value of derivative liabilities

Change in fair value of liability classified warrants

( 5,626,130 )

Loss on issuance of convertible notes

Change in fair value of convertible notes

( 6,169,929 )

( 1,071,099 )

Loss on extinguishment of debt

Stock-based compensation

Issuance of warrants for share subscription facility

Issuance of liability classified warrants

Issuance costs for convertible notes

Commitment fee for share subscription facility

Warrant modification

Loss on debt conversions

3 unchanged sentences

Accounts payable

( 1,252,740 )

Accrued expenses and other liabilities

1 unchanged sentence

( 14,591,819 )

( 4,474,364 )

Cash flows from investing activities:

2 unchanged sentences

Cash flows from financing activities:

Proceeds from issuance of promissory notes

Proceeds from issuance of convertible notes, net

Proceeds from issuance of promissory notes to related parties

Proceeds from exercise of stock options

Repayment of promissory notes

Repayments of convertible notes

Proceeds from issuance of common stock for business combination

Proceeds from issuance of common stock for business combination, net of transaction costs

Repayment of financed insurance premiums

Net cash (used in) provided by financing activities

Increase (decrease) in cash and cash equivalents

Increase in cash and cash equivalents

( 7,761,655 )

4 unchanged sentences

Supplemental disclosure of non-cash investing and financing activities:

Transaction costs for business combination included in accounts payable offset

against additional paid-in capital

Deferred transaction costs for convertible notes

Stock-based compensation

Conversions of convertible notes into common stock

Conversions of convertible notes and accrued interest into common stock

Payable to related parties

Net assets acquired in business combination

Financed insurance premiums

Share subscription facility transaction costs

Deemed dividend related to warrants down round provision

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

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

BIOSCIENCES, INC.

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Biosciences, Inc.

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

(“Covistat”) and its wholly-owned subsidiaries

EBI Operating, Inc.

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

(“EBIR”, formerly Covistat, Inc.) and its

wholly-owned subsidiaries EBI Operating, Inc.

and EBI OpCo, Inc.

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

proprietary technology platforms to develop 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 Resistance) technology for overdose

protection which will be applied to the PF614 program.

The Company has also commenced development 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

(as amended, the “Merger Agreement”) with Ensysce Biosciences, Inc., a Delaware corporation (“Former Ensysce”),

and EB Merger Sub, Inc., a Delaware corporation and wholly-owned, direct subsidiary of LACQ (“Merger Sub”).

(collectively, the “Company”), is a clinical-stage biotech

company using its two novel proprietary technology platforms to develop 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 Resistance)

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

The Company has also commenced development 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, LACQ entered into the Merger Agreement with Former Ensysce

and Merger Sub.

Pursuant to the

Merger Agreement, on June 30, 2021 (the “Closing Date”), Merger Sub was merged with and into Former Ensysce, with Former

Ensysce surviving the merger (“Merger” and, together with the other transactions contemplated by the Merger Agreement, the

“Business Combination”).

Ensysce surviving the merger (“Merger”).

In connection with the closing of the Business Combination on the Closing Date (the “Closing”),

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foregoing exchange ratio).

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

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

under the new ticker symbol “ENSC”.

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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.

Covistat’s emphasis is now on developing one or more compounds utilized in Ensysce’s overdose protection

program for the treatment of respiratory diseases.

To date, the Company’s financial condition and

operations have not been significantly impacted by the ongoing COVID-19 pandemic.

However, the Company cannot at this time predict the

specific extent, duration, or full impact that the ongoing COVID-19 pandemic will have on our financial condition and operations, including

ongoing and planned clinical trials and other operations required to support those clinical trials and research and development activities

to advance our pipeline.

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

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.

In August 2022, Covistat was renamed EBIR, Inc.

Ensysce is a 79.2 % stockholder in EBIR, with 19.8 % and 1.0 % of the shares held by certain

key personnel of the Company and an unrelated party, respectively.

EBIR’s emphasis is now on developing one or more compounds utilized

in Ensysce’s overdose protection program for the treatment of respiratory diseases.

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

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2 - BASIS OF PRESENTATION

consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States

of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities Exchange Commission (“SEC”).

consolidated financial statements have been prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC.

The consolidated financial statements include the accounts of Ensysce Biosciences, Inc.

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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 six months ended June 30, 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.

Operating results for the three and nine months ended September 30, 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

Reverse Stock Split

In October 2022, the Company completed a 1-for-20

reverse split of its outstanding common stock.

All references in these consolidated financial statements to shares and per share amounts

in all periods have been retroactively restated to reflect the split (see Note 11).

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

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among other things, the realization of assets and satisfaction of liabilities in the normal course of business.

Company has not generated any product revenue and had an accumulated deficit of $ 95.5 million at June 30, 2022.

Company has not generated any product revenue and had an accumulated deficit of $ 105.4 million at September 30, 2022.

There is no assurance

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

December 2020, the Company executed a share subscription facility with an investment group (the “GEM agreement”).

Under the agreement, the investor

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

December 2020, the Company executed the GEM Agreement.

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.

Concurrent with the public listing of the

Company’s shares, the Company issued to the investor 1,106,108

The Company controls 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, 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 55,306

warrants with a five-year term to purchase common stock of Ensysce at an exercise price of $ 200.20

per share (Note 8).

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

The Company is required to pay a commitment fee to the investor of $ 1.2

million with $ 0.8

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 (Note 11).

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).

In July and August 2022, the Company received funding under a $ 8.48 million

convertible note financing agreement with the same institutional investors (the “2022 Notes”) (See Note 11 for

additional information).

The agreements limit 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.

million due on the first anniversary of the public listing date and $ 0.4

million due on the 18-month anniversary of the public listing date.

The first $ 0.8

million of the commitment fee was paid in July 2022 in common stock of the Company (Note 10) and the remaining $ 0.4

million due in January 2023 may 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).

In July and August 2022, the Company received funding under a $ 8.48 million convertible

note financing agreement with the same institutional investors (the “2022 Notes”) (Note 7).

The agreements limit the Company’s ability to execute certain debt and equity financings, including under the GEM Agreement, while the convertible notes are outstanding.

Without the availability of proceeds through the GEM Agreement, 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.

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.

No depreciation expense was recognized for the three and six months ended June 30, 2022.

Depreciation expense of $ 50 and $ 101 was recognized for the three and six months ended June 30, 2021.

Depreciation expense is classified

in general and administrative expense in the accompanying consolidated statements of operations.

No depreciation expense was recognized for the three and nine months ended September 30,

Depreciation expense of $ 50 and $ 151 was recognized for the three and nine months ended September 30, 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 six months ended June 30, 2022 and 2021.

the three and nine months ended September 30, 2022 and 2021.

Financial Instruments

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820, Fair Value Measurements , (“ASC 820”) provides guidance on the development and disclosure of fair value measurements.

Pursuant to ASC 820, fair value is defined as an exit price, representing the amount that would be received to sell an asset

or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As such, fair value is

a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a

Pursuant to ASC 820, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid

to transfer a liability in an orderly transaction between market participants at the measurement date.

As such, fair value is a market-based

measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:

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

of June 30, 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.

of September 30, 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.

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

July 2022 the Company issued convertible notes with a face value of $ 8.5

The 2022 Notes are accounted for under ASC 480 – Distinguishing Liabilities from Equity, due to share

settlement features contained within the notes.

As a result, the 2022 Notes are recorded as liabilities at fair value at the balance

sheet date with changes in the fair value of the notes recognized in other income (expense) for each reporting period.

value estimate of the 2022 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.

Refer to Note 7 for details of the terms and conditions of the 2022 Notes.

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.

In 2022 the Company issued liability

classified warrants in connection with the issuance of the 2022 Notes.

The warrants were liability classified due to certain cash settlement

features and included in “Other long-term liabilities” on the consolidated balance sheets.

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 for details of the warrants.

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

as of June 30, 2022 and December 31, 2021.

as of September 30, 2022 and December 31, 2021.

OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

June 30, 2022

Fair value of convertible note

September 30, 2022

Fair value of convertible notes

Liability classified warrants

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OF CHANGE IN FAIR VALUE OF COMPANY’S LEVEL 3

Convertible note

Liability classified

Convertible notes

Liability classified warrants

Fair value, December 31, 2021

Additions, net

( 14,133,750 )

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( 5,626,130 )

Fair value, June 30, 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 Grant”).

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

Fair value, September 30, 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.

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).

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.

In June 2022, the Company received a Notice of Award for

an additional $ 2.8

million of funding in year 4 under the MPAR Grant from July 1, 2022 through June 30, 2023.

This brings total funding under this

grant to approximately $ 10.7

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.

In June 2022, the Company received a Notice of Award for an additional $ 2.8 million

of funding in year 4 under the MPAR Grant from July 1, 2022 through June 30, 2023.

This brings total funding under this grant to approximately

$ 10.8 million.

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

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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.

The Company believes the recognition of revenue as costs are incurred and reimbursable 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

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Three Months Ended

Six months ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

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

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allowances are recorded.

Correction of an Error

Immaterial Correction

of an Error Adjusted in Prior Quarter

In August 2022, the

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of the unbilled receivable of $ 214,308

and a corresponding increase in general and administrative expense presented in the consolidated statement of operations.

Company, in consultation with the Audit Committee of the Board of Directors, evaluated the effect of these adjustments on the Company’s

consolidated financial statements under ASC 250, Accounting Changes and Error Corrections and Staff Accounting Bulletin No.

108, Considering

the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements and determined it was not

necessary to recall its previously issued consolidated financial statements as the errors did not materially misstate any previously

issued consolidated financial statements and the correction of the error in the current fiscal year is also not material.

looked at both quantitative and qualitative characteristics of the required corrections in making the determination.

as of June 30, 2022 and a corresponding increase in general and administrative expense presented in the consolidated statement of

operations for the three months ended June 30, 2022.

The Company, in consultation

with the Audit Committee of the Board of Directors, evaluated the effect of these adjustments on the Company’s consolidated financial

statements under ASC 250, Accounting Changes and Error Corrections and Staff Accounting Bulletin No.

108, Considering the Effects of

Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements and determined it was not necessary to recall

its previously issued consolidated financial statements as the errors did not materially misstate any previously issued consolidated

financial statements and the correction of the error in the current fiscal year is also not material.

The Company looked at both quantitative

and qualitative characteristics of the required corrections in making the determination.

and Development Costs

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of management’s judgment.

For the three and six months ended June 30, 2022 and 2021, stock-based compensation costs are recorded

For the three and nine months ended September 30, 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.

From time to time equity classified awards may be

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

over the same remaining amortization schedule as the unvested underlying equity awards.

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 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

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OF EARNINGS PER SHARE RECONCILIATION

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net loss attributable to common stockholders

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OF WEIGHTED AVERAGE SHARES OF ANTI-DILUTIVE SECURITIES

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Stock options

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Company is evaluating the impact of ASU 2020-06 on the consolidated financial statements.

In May 2021, the FASB issued

2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options

(A Consensus of the FASB Emerging Issues Task Force (the “EITF”)) – to clarify and reduce diversity in an issuer’s

accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity

classified after modification or exchange.

The guidance in the ASU requires the issuer to treat a modification of an equity-classified

warrant that does not cause the warrant to become liability-classified as an exchange of the original warrant for a new warrant.

guidance applies whether the modification is structured as an amendment to the terms and conditions of the warrant or as termination of

the original warrant and issuance of a new warrant.

Under the amendments, an issuer should measure the effect of a modification as the

difference between the fair value of the modified warrant and the fair value of that warrant immediately before modification.

concluded that the recognition of the modification depends on the nature of the transaction in which a warrant is modified.

more than one element in a transaction (for example, if the modification involves both a debt modification and an equity issuance), then

the guidance requires the issuer to allocate the effect of the option modification to each element.

On January 1, 2022, the Company adopted ASU 2021-04 and the adoption did not have a significant impact on the consolidated

financial statements.

May 2021, the FASB issued ASU No.

2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified

Written Call Options (A Consensus of the FASB Emerging Issues Task Force (the “EITF”)) – to clarify and reduce diversity

in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants)

that remain equity classified after modification or exchange.

The guidance in the ASU requires the issuer to treat a modification of

an equity-classified warrant that does not cause the warrant to become liability-classified as an exchange of the original warrant for

a new warrant.

This guidance applies whether the modification is structured as an amendment to the terms and conditions of the warrant

or as termination of the original warrant and issuance of a new warrant.

Under the amendments, an issuer should measure the effect of

a modification as the difference between the fair value of the modified warrant and the fair value of that warrant immediately before

modification.

The EITF concluded that the recognition of the modification depends on the nature of the transaction in which a warrant

If there is more than one element in a transaction (for example, if the modification involves both a debt modification and

an equity issuance), then the guidance requires the issuer to allocate the effect of the option modification to each element.

1, 2022, the Company adopted ASU 2021-04 and the adoption did not have a significant impact on the consolidated financial statements.

4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

1 unchanged sentence

OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

September 30,

Prepaid research and development

5 unchanged sentences

SCHEDULE OF ACCRUED EXPENSES AND OTHER LIABILITIES

September 30,

Share subscription facility commitment fees

8 unchanged sentences

SCHEDULE OF OTHER LONG-TERM LIABILITIES

September 30,

Share subscription facility commitment fees

2 unchanged sentences

6 – COMMITMENTS AND CONTINGENCIES

of June 30, 2022, the Company’s commitments included an estimated $ 18.6 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

of September 30, 2022, the Company’s commitments included an estimated $ 25.7 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.

2 unchanged sentences

to the delivery of goods or the performance of services.

of June 30, 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.

of September 30, 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,

3 unchanged sentences

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

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 June 30, 2022, the future lease payments totaled $ 10,506 .

Company recognized total rent expense of $ 7,834 and $ 15,667 in the three and six months ended June 30, 2022, and $ 7,062 and $ 14,123 in

the three and six months ended June 30, 2021.

The original lease commencement date was October 1, 2020 and

was subsequently amended to extend the term of the lease through October 31, 2023 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, 2022, the future lease payments totaled $ 35,403 .

Company recognized total rent expense of $ 7,939 and $ 23,606 in the three and nine months ended September 30, 2022, and $ 11,781 and $ 36,058

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

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 each, 50,000 shares of

common stock each, and 200,000 restricted stock units each.

The restricted stock units vest over one year with 50 % of the vesting

contingent upon certain market conditions.

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 $ 1,342,479 to reflect the estimated value of services received during the

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

stockholders’ equity.

During the six months ended June 30, 2022, the Company recorded an additional $ 125,222 ($ 38,014 related to the three-month period ended June 30, 2022) of

consultant compensation to general and administrative expense as a result of the vesting schedule of the restricted stock

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

to purchase 25,000 shares of common stock with a five-year term and an exercise price of $ 125.60 each, 2,500 shares of common stock each,

and 10,000 restricted stock units each.

The restricted stock units vested over one year with 50 % of the vesting contingent upon certain

market conditions.

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

shareholder meeting in January 2022, at which time 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

$ 1,342,479 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’ equity (See Note 9 for additional details of the Company’s stock-based compensation).

7 – NOTES PAYABLE

following table provides a summary of the Company’s outstanding debt as of June 30, 2022:

following table provides a summary of the Company’s outstanding debt as of September 30, 2022:

SCHEDULE OF DEBT

2021 convertible notes

$ ( 29,202 ) -

Principal balance

Accrued interest

Fair Value Adjustment

Net debt balance

Financed Insurance

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

debt discount

Finance Insurance

Principal balance

Accrued interest

value adjustment

Net debt balance

Financed Insurance

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

SCHEDULE OF INTEREST EXPENSE DEBT

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Three months ended

Six months ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Stated interest accrual

1 unchanged sentence

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

The agreement provides

The agreement provided

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

the first closing for $ 5.3 million (resulting in net proceeds of $ 4.6 million) occurred 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

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

5, 2021 (the “Second Closing”).

9 unchanged sentences

The total initial fair value of the debt at

issuance was $ 15.9

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 June 30, 2022 and recognized a loss

due to changes in effective interest rates for the three-month period then ended and a gain of $ 2,678,415

for the six-month period ended June 30, 2022 primarily to reductions in the Company’s stock price.

The June 30, 2022 fair

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

issuance was $ 15.9 million.

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 million.

After multiple conversions (at original contract terms and at amended reduced conversion prices) since issuance, the Company

reflected the remaining balance due as of September 30, 2022 and recognized a change in fair value of convertible notes of $ 45,329

(loss) for the three-month period then ended

and a change in fair value of convertible notes of $ 2.7

million (gain) for the nine-month period

ended September 30, 2022 primarily due to reductions in the Company’s stock price.

The September 30, 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.

separately, the amount of interest expense after consideration of the conversions would be $ 71,637

and $ 194,856

for the three- and six-month periods ended June 30, 2022, respectively.

separately, the amount of interest expense after consideration of the conversions would be $ 39,847 and

million for the three- and nine-month periods ended September 30, 2022, respectively.

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 $ 117.40 , 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 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

1 unchanged sentence

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.

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

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

If the applicable conversion price is less than $ 0.78 at

the time of the Monthly Redemption Date the Company will be required to fund the difference in cash.

During the period ended June

30, 2022, the Company paid $ 265,812

to fund such differences in cash (reducing the outstanding principal balance of 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) $ 117.40 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 $ 15.60 and the Company has been in compliance with customary requirements

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

If the applicable conversion price is less than $ 15.60 at the time of the

Monthly Redemption Date the Company will be required to fund the difference in cash.

During the period ended September 30, 2022, the

Company paid $ 265,812 to fund such differences in cash (reducing the outstanding principal balance of the 2021 Notes).

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

6 unchanged sentences

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 note conversions during the six-month period ending June 30, 2022:

following table provides a summary of the Company’s 2021 note conversions during the nine-month period ending September 30, 2022:

OF CONVERSION DEBT

January 3, 2022

February 1, 2022

Three Months Ended

Weighted Average

Conversion Price

Conversion Value

March 31, 2022

April 1, 2022

the three and six months ended June 30, 2022, the company recognized $ 0.9 million and $ 2.6 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 loss is reported under other income (expense), net in the consolidated statements of operations.

June 30, 2022

September 30, 2022

On August 8, 2022, the parties

agreed to modify the conversion price of the remaining 2021 Notes from $ 15.60

until October 1, 2022, with any remaining balance payable in cash on October 10, 2022.

On September 20, 2022, the parties agreed to

modify the conversion price of the remaining 2021 notes from $ 7.00

for the period from September 20, 2022 until September 30, 2022.

The Company recorded an inducement expense equal to the excess fair

value of the consideration transferred (utilizing the number of shares transferred multiplied by the average of the high/low price

on the conversion date) above the securities that would have been issued under the original conversion terms.

The total loss on debt

conversions was $ 1.4 million and $ 4.0 million ,

for the three- and nine-month periods ended September 30, 2022 and is reflected in other income (expense), net.

Included in the loss on debt conversions was $ 1.0 million related to the inducement expense for the three- and nine-month

periods ended September 30, 2022, The remaining 2021

Notes became due and payable on October 10, 2022, at which time they were satisfied with cash (refer to Note 11).

June 30, 2022, the Company entered into an $ 8.0 million convertible financing agreement with institutional investors.

The agreement provided

for two closings, each for notes payable of $ 4.24 million (resulting in gross cash proceeds of $ 4.0 million).

Funds were received for

the first closing on July 1, 2022 and for the second closing on August 9, 2022.

the issuance date, the Company assessed the probability of the potential settlement scenarios under the terms of the 2022 Notes and determined

that the predominant settlement feature of the 2022 Notes was the redemption feature into shares of the Company’s common stock

issuable at the lower of the conversion price or 92% of the average of the three lowest VWAPs in the 10 trading days immediately

preceding the redemption date.

As the predominant settlement feature of the 2022 Notes is to settle a fixed monetary amount into a variable

number of shares, the 2022 Notes fell within the scope of ASC 480.

Accordingly, the Company determined that the 2022 Notes

should be recorded at estimated fair value on its issuance date and adjusted to its estimated fair value as of each reporting date with

the change in estimated fair value recorded as a component other income (expense) in the Company’s consolidated statements of operations.

Company recorded the 2022 Notes at an initial fair value of $ 12.06

million which included a loss upon issuance of $ 3.6

The loss upon issuance was due to the current share price at issuance exceeding the conversion price.

Additionally, the

Company recorded issuance costs of $ 1.1

million representing a 6 %

original issue discount of $ 0.5

million, $ 0.6

million of legal and investment banking fees, which are included in other income (expense) on the consolidated statement of

After an initial conversion since issuance, the Company reflected the remaining balance due as of September 30, 2022 at

fair value and recognized a change in fair value of convertible notes of $ 3.5

million (gain) for the three and nine-month period then ended September 30, 2022 primarily due to reductions in the Company’s

The September 30, 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 amount of interest expense after consideration of the conversions

would be $ 0.1 million for the three- and nine-month periods ended September 30, 2022.

2022 Notes are convertible into common stock, at a per share conversion price equal to $ 10.90 , a 10 % premium to the average price of

the common stock for the three trading days prior to the first closing.

Under the Notes, commencing on September 29, 2022 and continuing

monthly on the first day of each month beginning November 2, 2022, the Company is obligated to redeem one fifteenth (1/15 th )

of the original principal amount under the applicable Note, plus accrued but unpaid interest.

The Company may elect to pay all or part

of the redemption amount in cash with a premium of eight percent or in conversion shares of common stock based on a conversion price

equal to the lesser of (i) the conversion price and (ii) 92% of the average of the three lowest VWAPs (as defined) during the ten consecutive

trading days ending on the trading day that is immediately prior to the applicable redemption date, but in no event may the Company pay

the redemption amount in conversion shares of common stock unless the conversion price is at least equal to $2.006 and the Company has

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

connection with each of the first and second closings of the 2022 Notes the Company also issued warrants to purchase 233,395 shares of

the Company’s common stock.

The warrants have an exercise price of $ 14.17 , a 30 % premium to the conversion price, and are exercisable

for five years following issuance of the 2022 Notes.

The issuance of these warrants required the Company to reduce the conversion price

of the 2021 Notes and the exercise price of the outstanding warrants associated with the 2021 Notes to $ 15.60 .

proceeds of the 2022 Notes will be used for working capital purposes subject to certain customary restrictions are secured by the Company’s

rights to its patents and licenses.

The Company is restricted from issuing certain additional debt or equity without the prior written

consent of the holders for certain specified periods set forth in the 2022 Notes.

If, at any time while the 2022 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).

2022 Notes mature on December 29, 2023 and February 7, 2024 , for the first and second closings, respectively.

The notes bear interest

at a rate of 6 % 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.

following table provides a summary of the Company’s 2022 Notes conversions during the nine-month period ending September 30, 2022:

OF CONVERSION DEBT

Three Months Ended

Weighted Average Conversion Price

Conversion Value

September 30, 2022

insurance premiums

year ended December 31, 2021, the Company financed its directors’ and officers’ liability insurance in the amount of $ 0.9

of which the note was paid in full as of June 30, 2022.

The Company expensed $ 0 and $ 2,004 of interest for the three and six months ended

June 30, 2022, respectively.

million, of which the note was paid in full as of September 30, 2022.

During the quarter ended September 30, 2022, the Company financed

its directors’ and officers’ liability insurance in the amount of $ 0.4 million.

The Company expensed $ 4,589 and $ 6,684 of

interest for the three and nine months ended September 30, 2022, respectively.

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 June 30, 2022

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

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 .

In September 2022, the Company amended and restated its Certificate of Incorporation to authorize shares up to a total of 250,000,000

shares of common stock.

As of September 30, 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:

3 unchanged sentences

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.

June 30, 2022, outstanding warrants to purchase shares of common stock are as follows:

25,000 shares of common

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

6,250 shares of common

stock were issued in settlement of deferred underwriting costs.

September 30, 2022, outstanding warrants to purchase shares of common stock are as follows:

SCHEDULE OF OUTSTANDING WARRANT

5 unchanged sentences

Share subscription facility

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 to $ 10.00 , 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 of the Business Combination, the Company assumed a total of 945,063 warrants previously issued by LACQ.

warrants provide holders the right to purchase common stock at a strike price of between $ 200.00 and $ 230.00 per share and expire

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

A total of 500,000 of the outstanding warrants are

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

The remaining 445,063 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 25,000 warrants issued on June

30, 2021 from $ 230.00 to $ 200.00 , resulting in an incremental increase in their fair value of $ 56,590 , recognized in general and

administrative expense.

July 2, 2021, upon public listing of the Company’s shares, the Company issued 55,306 warrants to purchase common stock pursuant

4 unchanged sentences

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, March 1, 2022, May 1, 2022, and June 1, 2022 the exercise price of the warrants

adjusted to $ 4.50 per share, $ 2.83 per share, $ 1.58 per share, $ 0.96 per share, $ 0.94 per share, and $ 0.46 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

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 .

December 28, 2021, January 3, 2022, February 1, 2022, March 1, 2022, May 2, 2022,June 1, 2022, July 1, 2022, August 10, 2022, September

20, 2022 and September 29, 2022 the exercise price of the warrants adjusted to $ 90.00 per share, $ 56.60 per share, $ 31.60 per share,

$ 19.20 per share, $ 18.80 per share, $ 9.20 per share, $ 8.00 per share, $ 7.00 per share, $ 4.60 per share and $ 4.00 for those conversion

dates, 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

September 24, 2021, the Company issued 18,058

warrants in connection with the issuance of the 2021 Notes.

The warrants were immediately exercisable with an exercise price of

(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

As a result of the issuance of the 2022 Notes in July of 2022, the exercise price of these warrants was adjusted

down to $ 15.60 .

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

in other income (expense).

November 5, 2021, the Company issued 36,116

warrants in connection with the issuance of the 2021 Notes.

The warrants were immediately exercisable with an exercise price of

(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

As a result of the issuance of the 2022 Notes in July of 2022, the exercise price of these warrants was adjusted down

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

in other income (expense).

On July 1, 2022, the Company

issued 233,394 warrants in connection with the issuance of the 2022 Notes.

The warrants were immediately exercisable with an exercise

price of $ 14.17 (subject to downward revision protection in the event the Company makes certain issuance of common stock at prices

below the conversion price) and expire on June 29, 2027 .

On August 9, 2022, the

Company issued 233,394 warrants in connection with the issuance of the 2022 Notes.

The warrants were immediately exercisable with

an exercise price of $ 14.17 (subject to downward revision protection in the event the Company makes certain issuance of common stock

at prices below the conversion price) and expire on August 8, 2027 .

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

2 unchanged sentences

SCHEDULE OF WARRANTS FAIR VALUE ESTIMATION ASSUMPTIONS

(a) LACQ warrants (grant date varies)

(b) Share subscription facility (grant date 7/2/21)

(b) Share subscription facility (remeasurement date varies)

(grant date varies)

subscription facility

(grant date 7/2/21)

subscription facility

(remeasurement

$ 4.80 - 85.80

5 unchanged sentences

Risk free rate

1.04 %- 2.93 %

(d) Liability classified warrants (grant date 11/5/2021)

(d) Liability classified warrants (remeasured at 6/30/22)

classified warrants

(d) Liability

classified warrants

(d) Liability

classified warrants

(remeasured at

Exercise price

1 unchanged sentence

Risk free rate

(e) Liability

classified warrants

(e) Liability

classified warrants

(f) Liability

classified warrants

(f) Liability

classified warrants

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 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 and to provide for future annual increases.

The 2021 Omnibus Plan provides for the conversion with existing terms of the 221,191 options outstanding under Former Ensysce stock plans

and reserves for issuance an additional 50,000 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 150,000 shares available for future grant and to provide for future annual increases.

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

Company recognized within general and administrative expense stock-based compensation expense of $ 128,357 and $ 731,126 for the three

and six months ended June 30, 2022, and $ 36,373 and $ 80,193 for the three and six months ended June 30, 2021.

During the three and six

months ended June 30, 2022, the Company recognized stock-based compensation expense of $ 66,756 and $ 95,246 within research and development.

During the three and six months ended June 30, 2021, there was no stock-based compensation allocated to research and development.

the six months ended June 30, 2022, the Company granted stock options to purchase an aggregate of 2,291,000 shares of common stock to

employees, consultants and members of the board of directors.

The options vest over periods between 0 and 4 years and have an exercise

and nine months ended September 30, 2022, and $ 24,833 and $ 105,026 for the three and nine months ended September 30, 2021.

three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $ 28,791 and $ 124,034 within

research and development.

During the three and nine months ended September 30, 2021, there was no stock-based compensation allocated

to research and development.

the nine months ended September 30, 2022, the Company granted stock options to purchase an aggregate of 114,550 shares of common stock

to employees, consultants and members of the board of directors.

The options vest over periods between zero and 4 years and have an exercise

price of between $ 8.50 and $ 125.60 per share.

There were no stock option grants in 2021.

following table summarizes the Company’s stock option activity during the six months ended June 30, 2022:

following table summarizes the Company’s stock option activity during the nine months ended September 30, 2022:

SCHEDULE OF STOCK OPTION ACTIVITY

1 unchanged sentence

Exercise price

Remaining contractual life

contractual life

Intrinsic value

1 unchanged sentence

Expired / Forfeited

Outstanding at June 30, 2022

Exercisable at June 30, 2022

Outstanding at September 30, 2022

Exercisable at September 30, 2022

Vested and expected to vest

4 unchanged sentences

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

Six Months Ended

June 30, 2022

Nine Months Ended

September 30, 2022

$ 8.60 - 34.00

2 unchanged sentences

Expected stock price volatility

76.61 - 95.87 %

Expected term (years)

2 unchanged sentences

Expected dividend yield

stock-price volatility.

The expected volatility is derived from the historical volatilities of publicly traded companies within

the Company’s industry that the Company considers to be comparable to the Company’s business over a period approximately

equal to the expected term.

The expected term represents the period that the stock-based awards are expected to be outstanding.

The Company’s

historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term due to a

lack of sufficient data.

Therefore, the Company estimates the expected term for employees by using the simplified method provided

by the Securities and Exchange Commission.

The simplified method calculates the expected term as the average of the time-to-vesting

and the contractual life of the options.

interest rate.

Expected stock-price

The expected volatility is derived from the historical volatilities of publicly traded companies within the Company’s

industry that the Company considers to be comparable to the Company’s business over a period approximately equal to the expected

Expected term.

expected term represents the period that the stock-based awards are expected to be outstanding.

The Company’s historical share

option exercise experience does not provide a reasonable basis upon which to estimate an expected term due to a lack of sufficient

Therefore, the Company estimates the expected term for employees by using the simplified method provided by the Securities

and Exchange Commission.

The simplified method calculates the expected term as the average of the time-to-vesting and the contractual

life of the options.

Risk-free interest rate.

The risk-free interest rate is based on the U.S.

Treasury yield in effect at the time of grant for zero coupon

Treasury notes with maturities approximately equal to the expected term.

dividend yield.

The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans

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

weighted-average grant date fair value of options granted during the six months ended June 30, 2022 was $ 0.96 .

Treasury yield in effect at the time of grant for zero coupon U.S.

notes with maturities approximately equal to the expected term.

Expected dividend yield.

The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans 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, 2022 was $ 19.24 .

There were no options

granted during the six months ended June 30, 2021.

of June 30, 2022, the Company had an aggregate of $ 819,956 of unrecognized share-based compensation cost, which is expected to be recognized

over the weighted average period of 1.7 years.

the six months ended June 30, 2022, the Company granted 927,358

restricted stock unit (“RSU”) awards (weighted average fair value of $1.04), issued 647,358

shares of common stock for vested RSU awards (weighted average fair value of $ 1.29 )

and cancelled 150,000

The remaining 130,000

awards (weighted average fair value of $ 0.99 )

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 was determined on the date of grant based on the closing price of the Company’s common

stock on the previous trading date.

granted during the nine months ended September 30, 2021.

of September 30, 2022, the Company had an aggregate of $ 605,868 of unrecognized share-based compensation cost, which is expected to be

recognized over the weighted average period of 1.42 years.

following table summarizes the Company’s restricted stock units activity during the nine months ended September 30, 2022:

SCHEDULE OF RESTRICTED STOCK UNITS

Restricted Stock Units

Weight average fair value

Outstanding at December 31, 2021

Outstanding at September 30, 2022

remaining awards outstanding are subject to time-based vesting conditions and are scheduled to vest by December 2023.

estimated fair value of each of the Company’s 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

1 unchanged sentence

SCHEDULE OF COMMON STOCK FUTURE ISSUANCE

June 30, 2022

September 30, 2022

Awards outstanding under the 2021 Omnibus Incentive Plan

Awards available for future grant under 2021 Omnibus Incentive Plan

2022 Notes outstanding

Warrants outstanding

1 unchanged sentence

10 - RELATED PARTIES

Company paid cash compensation during the three and six months ended June 30, 2021 of $ 10,752 and $ 40,314 , respectively, 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 and six months ended June 30, 2022.

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

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

There were no such payments in the three and nine months ended September 30, 2022.

In July 2022, the Chief Executive

Officer and a Board member transferred 46,062 shares

of registered common stock to GYBL to settle $ 0.8 million

of Company obligations related to the GEM Agreement (Note 2).

In October 2022, 46,062 shares

of unregistered and restricted common stock were subsequently issued by the Company to the related parties as

reimbursement.

11 - SUBSEQUENT EVENTS

the third quarter of 2022, the Company issued 2,797,621

October 11, 2022, the Company paid $ 390,701

in cash to fulfill the remaining amounts outstanding under the 2021 Notes.

October 28, 2022, the Company completed a 1-for-20 reverse split of its outstanding common stock.

All references in these consolidated

financial statements to shares and per share amounts in all periods have been retroactively restated to reflect the split.

the fourth quarter of 2022, the Company issued 573,944

shares of common stock as a result of conversions of $ 2.1

million of the 2021 Notes.

July 2022, the Company settled $ 0.8 million

of the share subscription facility commitment fees (described in Note 2) through payment of 921,935 shares of common stock in

accordance with the GEM agreement.

July 2022, the Company financed its directors’ and officers’ liability insurance in the amount of $ 0.4 million to satisfy

the outstanding liability recorded in accounts payable as of June 30, 2022.

June 30, 2022, the Company entered into an $ 8.0

million convertible financing agreement with institutional investors.

The agreement provides for two closings, each for notes

payable of $ 4.24 million

(resulting in gross cash proceeds of $ 4.0

Funds were received for the first closing on July 1, 2022 and for the second closing on August 9,

2022 Notes are convertible into Common Stock, at a per share conversion price equal to $ 0.5450 , a 10 % premium to the average price of

the Common Stock for the three trading days prior to the first closing.

Under the Notes, commencing on September 29, 2022 and continuing

monthly on the first day of each month beginning November 2, 2022, the Company is obligated to redeem one fifteenth (1/15 th )

of the original principal amount under the applicable Note, plus accrued but unpaid interest.

The Company may elect to pay all or part

of the redemption amount in cash with a premium of eight percent or in conversion shares of Common Stock based on a conversion price

equal to the lesser of (i) the conversion price and (ii) 92% of the average of the three lowest VWAPs (as defined) during the ten consecutive

trading days ending on the trading day that is immediately prior to the applicable redemption date, but in no event may the Company pay

the redemption amount in conversion shares of Common Stock unless the conversion price is at least equal to $0.1003 and certain equity

conditions are satisfied .

connection with each of the first and second closings of the 2022 Notes the Company also issued warrants to purchase 4,667,890 shares

of the Company’s common stock.

The warrants have an exercise price of $ 0.7085 , a 30 % premium to the conversion price and are exercisable

for five years following issuance of the 2022 Notes.

The issuance of these warrants will require the Company to reduce the conversion

price of the 2021 Notes and the exercise price of the outstanding warrants associated with the 2021 Notes to $ 0.78 .

The proceeds of the 2022 Notes will be used for working

capital purposes subject to certain customary restrictions are secured by the Company’s rights to its patents and licenses.

Company is restricted from issuing certain additional debt or equity without the prior written consent of the holders for certain specified

periods set forth in the 2022 Notes.

2022 Notes mature on December 29, 2023 and February 7, 2024 , for the first and second closings, respectively.

The notes bear interest

at a rate of 6 % 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 second closing of the 2022 Notes, the parties agreed to modify the conversion price of the remaining 2021 Notes from $ 0.78 to $ 0.35

until October 1, 2022, with any remaining balance payable in cash on October 10, 2022.

million of principal and interest of the 2022 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