What changed in this filing

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Item 9A. Controls and Procedures

2023-03-30 compared with 2022-03-31 · 619 added, 714 removed, 808 unchanged (62% of the section changed)

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of our disclosure controls and procedures (as defined in Exchange Act Rule 13a–15(e) and 15d-15(e)) as of December 31, 2022.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure

controls and procedures were not effective as of December 31, 2021 due to the material weaknesses in our internal controls over financial

reporting described below.

Notwithstanding these material weaknesses, management has concluded that our consolidated financial statements

included in this Annual Report on Form 10-K are fairly stated in all material respects in accordance with GAAP for each of the periods

presented therein.

on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and

procedures were not effective as of December 31, 2022, due to the material weaknesses in our internal controls over financial reporting

described below.

Notwithstanding these material weaknesses, management has concluded that our consolidated financial statements included

in this Annual Report on Form 10-K are fairly stated in all material respects in accordance with GAAP for each of the periods presented

Annual Report on Internal Control over Financial Reporting

of December 31, 2021, our management assessed the effectiveness of our internal control over financial reporting using the criteria

set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013)

of December 31, 2022, our management assessed the effectiveness of our internal control over financial reporting using the criteria set

forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013)

(the “2013 Framework”) .

In adopting the 2013 Framework, management assessed the applicability of the principles within

each component of internal control and determined whether or not they have been adequately addressed within the current system of internal

control and adequately documented.

Based on this assessment, management, under the supervision and with the participation of our Chief

Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2021, our internal control over financial reporting

was ineffective due to material weaknesses.

A material weakness is a significant deficiency, or a combination of significant

deficiencies, in internal controls over financial reporting such that it is reasonably possible that a material misstatement of the annual

or interim financial statements will not be prevented or detected on a timely basis.

material weaknesses identified are insufficiently designed internal controls over period end financial reporting because

of inadequate accounting expertise and insufficient level of supervision and review of unusual and/or infrequent transactions

with complex or infrequently applied accounting topics due to the experience and limited number of accounting personnel in

the financial reporting function.

are taking steps to remediate the material weaknesses in our internal controls over financial reporting, including hiring a Chief Financial

Officer in February 2021.

Further, we plan to enhance our processes to identify and appropriately apply applicable accounting requirements

to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements.

this time include providing enhanced access to accounting literature, research materials and documents and increased communication among

our personnel and third-party professionals with whom we consult regarding complex accounting applications.

The elements of our remediation

plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

each component of internal control and determined whether they have been adequately addressed within the current system of internal control

and adequately documented.

Based on this assessment, management, under the supervision and with the participation of our Chief Executive

Officer and Chief Financial Officer, concluded that, as of December 31, 2022, our internal control over financial reporting was

ineffective due to material weaknesses.

A material weakness

is a significant deficiency, or a combination of significant deficiencies, in internal controls over financial reporting such that it

is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on

a timely basis.

The material weaknesses identified are insufficiently designed internal controls over period end financial reporting

because of inadequate accounting expertise and insufficient level of supervision and review of unusual and/or infrequent transactions

with complex or infrequently applied accounting topics due to the experience and limited number of accounting personnel in the financial

reporting function.

are continuing to take steps to remediate the material weaknesses in our internal controls over financial reporting, including hiring

a Chief Financial Officer in February 2021.

Further, we plan to enhance our processes to identify and appropriately apply applicable

accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial

Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased

communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications.

of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have

the intended effects.

conclusion of the Company’s principal executive officer and principal financial officer is based on the recognition that there

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in this report as Item 1 under the caption “ Identification of our Executive Officers ” and incorporated herein by reference.

Section 16(a) Reports

2022, Bob Gower, our chairman, filed one Form 4 late to report one transaction.

of Business Conduct

adopted a code of business conduct that applies to all of our directors, officers and employees, including our principal executive officer,

adopted a code of business conduct that applies to all our directors, officers and employees, including our principal executive officer,

principal financial officer and principal accounting officer, which is available on our website.

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or waivers of, provisions of our code of ethics on our website.

We will provide a copy of our code of business conduct to any person

without charge, upon written request sent to our chief financial officer at 7946 Ivanhoe Avenue, Suite 201, La Jolla, California 92037.

Executive & Director Compensation

required by this Item is incorporated by reference from the Company’s Proxy Statement.

Information required by this

Item is incorporated by reference from the Company’s Proxy Statement.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

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OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Board of Directors and Stockholders

BIOSCIENCES, INC.

the Board of Directors and Stockholders of Ensysce Biosciences, Inc.

on the Consolidated Financial Statements

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(“Company”) as of December 31, 2022

31, 2021 and 2020, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for

each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial

statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the

Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years

in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

and 2021, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the

two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December

31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022,

in conformity with accounting principles generally accepted in the United States of America.

Concern Uncertainty

The accompanying financial

statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the financial statements,

the Company does not have revenue generating activities and is dependent on additional financing to fund operations.

These conditions

raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans regarding those matters

are also described in Note 2 to the financial statements.

The financial statements do not include any adjustments to reflect the possible

future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from

the outcome of this uncertainty.

These financial statements

are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial

statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note

2 to the financial statements, the Company does not have revenue generating activities and is dependent on additional financing to fund

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

plans regarding those matters are also described in Note 2 to the financial statements.

The financial statements do not include any adjustments

to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities

that may result from the outcome of this uncertainty.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board

(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing

an opinion on the effectiveness of the Company’s internal control over financial reporting.

Those standards require that we plan and perform the audits to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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Lease liability

Notes payable and accrued interest ($ 12,358,886 and $ 0 at fair value at December

31, 2021 and 2020, respectively)

Embedded derivative on convertible notes

Notes payable and accrued interest ($ 4,063,431 and $ 12,358,886 at fair value at December 31, 2022 and 2021, respectively)

Total current liabilities

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Stockholders’ deficit

Preferred stock, $ 0.0001 par value, 1,500,000 shares authorized, no shares issued and outstanding

at December 31, 2021 and December 31, 2020

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

24,662,904 and 15,768,725

shares issued at December 31, 2021 and December 31, 2020, respectively;

24,643,149 and 15,768,725 shares outstanding at December

31, 2021 and December 31, 2020, respectively

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

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

6,415,062 and 1,233,148 shares issued at December 31, 2022 and December 31, 2021, respectively;

6,414,074 and 1,232,160 shares outstanding at December 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

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Change in fair value of derivative liabilities

Loss on issuance of convertible notes

( 3,609,944 )

Issuance costs for convertible notes

( 1,137,740 )

( 1,920,158 )

Change in fair value of convertible notes

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( 3,737,371 )

Change in fair

value of liability classified warrants

( 1,865,403 )

Interest expense

Change in fair value of liability classified warrants

( 1,438,186 )

Loss on debt conversions

( 3,964,633 )

Interest expense, net

( 1,295,307 )

Other income and expense, net

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Deemed dividend related to warrants down round provision

Net income (loss) attributable to common stockholders

Net loss attributable to common stockholders

$ ( 25,085,496 )

Net income (loss) per basic share:

Net income (loss) per share attributable to common stockholders, basic

Weighted average common shares outstanding, basic

Net income (loss) per diluted share:

Net income (loss) per share attributable to common stockholders, diluted

Weighted average common shares outstanding, diluted

$ ( 29,886,851 )

Net loss per basic and diluted share:

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

Weighted average common shares outstanding, basic and diluted

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

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Statements of Changes in Stockholders’ Deficit

Paid-In Capital

Noncontrolling

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Equity (Deficit)

Paid-In Capital

Noncontrolling

on December 31, 2019 (as previously reported)

$ ( 56,015,486 )

on December 31, 2020

( 55,958,716 )

application of recapitalization

( 6,658,427 )

on December 31, 2019, effect of reverse recapitalization (Note 2)

of stock options

of convertible notes in business combination

of convertible notes

of common stock for business combination, net of transaction costs

dividend related to warrants down round provision

( 29,083,711 )

( 29,145,901 )

on December 31, 2021

$ ( 85,845,567 )

$ ( 279,815 )

Stock-based compensation

Contribution from noncontrolling interest

Balance on December 31, 2020

$ ( 8,158,058 )

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$ ( 8,158,058 )

of restricted stock units

of convertible notes

of payable to related parties

contribution from related parties

offering, net

costs associated with public offering

split fractional shares

dividend related to warrants down round provision

( 24,172,292 )

( 24,207,685 )

Exercise of stock options

Settlement of convertible notes in business combination

Conversion of convertible notes

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

Stock-based compensation

Issuance of warrants

Warrants modification

Deemed dividend related to warrants down round provision

on December 31, 2022

$ 107,215,977

$ ( 110,931,063 )

Balance on December 31, 2021

$ ( 315,208 )

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

Gain on sale of asset

Accrued interest

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Change in fair value of derivative liability

Change in fair value of convertible notes

( 5,756,787 )

Change in fair value of convertible debt

Loss on issuance of convertible notes

Loss on extinguishment of debt

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Change in fair value of liability classified warrants

( 6,730,613 )

Issuance of warrants for share subscription facility

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Issuance costs for convertible notes

Debt conversion expense

Loss on debt conversions

Changes in operating assets and liabilities:

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Accrued expenses and other liabilities

( 1,146,868 )

Net cash used in operating activities

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( 8,242,177 )

Cash flows from investing activities:

Proceeds from sale of assets

Net cash provided by investing activities

Cash flows from financing activities:

Proceeds from issuance of convertible notes

Proceeds from public offering, net

Proceeds from issuance of convertible notes, net

Proceeds from issuance of promissory notes to related parties

Repayment of convertible notes

( 1,408,364 )

Repayment of promissory notes

Transaction costs from public offering

Proceeds from exercise of stock options

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

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

Repayment of financed insurance premiums

Contribution from noncontrolling interests

Net cash provided by financing activities

Increase (Decrease) in cash and cash equivalents

Decrease (increase) in cash and cash equivalents

( 9,117,034 )

Cash and cash equivalents beginning of period

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Supplemental disclosure of non-cash investing and financing activities:

Stock-based compensation

Fair value of derivative liability at issuance

Settlement of convertible notes into common stock

Conversion of 2021 Notes

Payable to related parties settled in shares

Capital contribution from related parties

Net assets acquired in business combination

Financed insurance premiums, net

Financed insurance premiums

Share subscription facility transaction costs

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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 known as Covistat, Inc.)

and its wholly owned subsidiaries EBI Operating, Inc.

and EBI OpCo.

(collectively, the “Company”), is engaged in the development of drug delivery platforms

targeting pain and cancer markets.

The primary focus of the Company is its program developing abuse and overdose resistant pain technology

with a clinical stage program being the abuse resistant, TAAP (Trypsin Activated Abuse Protection) opioid product candidate, PF614.

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

be applied to the PF614 program.

The Company is also applying its TAAP and MPAR TM technology to a methadone prodrug for use

in the treatment of Opioid Use Disorder.

(collectively, the “Company”) is engaged in the

development of drug delivery platforms targeting pain and cancer markets.

The primary focus of the Company is its program developing

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

opioid product candidate, PF614.

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

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

The Company is also applying its TAAP and MPAR TM technology

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

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

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

formation of a separate entity, Covistat, Inc., a Delaware corporation.

Pursuant to the articles of incorporation, Covistat was authorized

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

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

party, respectively.

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

First identified in late 2019 and known now as COVID-19, the outbreak has impacted millions of individuals worldwide.

In response, many

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

As of the date of issuance

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

however, the Company continues

to monitor the situation.

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

had occurred as of year-end;

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

this could change in the future.

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

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

formation of a separate entity, EBIR, a Delaware corporation.

Pursuant to the articles of incorporation, EBIR was authorized to issue

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

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.

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

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and transactions have been eliminated in the consolidation.

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.

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

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by a recapitalization.

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

million and prepaid expenses of $ 1.1

million, were recorded at historical cost with

goodwill or other intangible assets recorded.

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

The consolidated financial statements reflect the historical operations of Ensysce.

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

of Former Ensysce into common stock.

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

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

The Company had recorded $ 1.2 million of

deferred transaction costs, consisting of legal and accounting fees directly related to the Business Combination, which were offset against

the proceeds of the Business Combination within additional paid-in capital.

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

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

The shares and net loss per share prior to the reverse

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

The consolidated financial statements reflect

the historical operations of Ensysce.

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

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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.

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 warrants with a five-year term to purchase common stock of

Ensysce at an exercise price of $ 10.01 per share (Notes 3 and 8), subject to a down round feature that would adjust the exercise price

if other shares are issued below $ 10.01 per share.

The Company must pay a commitment fee to the investor of $ 1.2 million with $ 800,000

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

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

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 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,

subsequently reduced to $ 1.40 at December 31, 2022 (Note 8).

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

million with $ 0.8 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 freely tradable common stock of the Company

(Note 10) and the remaining $ 0.4 million due in January 2023 was paid in freely tradable common stock of the Company.

Biosciences, Inc.

to the Consolidated Financial Statements

September 2021, the Company entered into a $ 15.9

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

million convertible note financing agreement

with institutional investors (the “2021 Notes”).

The financing provided for two closings, the first closed in September

million and the second closed in November for

(See Note 7 for additional information.)

The agreement limits the Company’s ability to execute certain debt and equity financings, including its existing $ 60.0

million share subscription facility, while the

convertible notes are outstanding.

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.

with the same institutional investors (the “2022 Notes”) (See Note 7 for additional information).

The agreement limits 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.

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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of Estimates and Assumptions

of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the

amounts reported in the consolidated financial statements and disclosed in the accompanying notes.

Actual results may differ from those

estimates and such differences may be material to the consolidated financial statements.

The more significant estimates and assumptions

by management include, but are not limited to, the expense recognition for certain research and development services, the valuation allowance

of deferred tax assets resulting from net operating losses, the estimated fair values of common stock, warrants and

of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect

the amounts reported in the consolidated financial statements and disclosed in the accompanying notes.

Actual results may differ

from those estimates and such differences may be material to the consolidated financial statements.

The more significant estimates

and assumptions by management include, but are not limited to, the expense recognition for certain accrued research and development

services, the valuation allowance of deferred tax assets resulting from net operating losses, and the fair value of warrants and

options to purchase the Company’s common stock and convertible notes payable.

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and cash equivalents are financial instruments that are potentially subject to concentrations of credit risk.

The Company’s cash

and cash equivalents are deposited in accounts at large financial institutions, and amounts may exceed federally insured limits.

Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the

cash and cash equivalents are held.

The Company’s

cash and cash equivalents are deposited in accounts at large financial institutions, and amounts currently exceed federally insured

The Company has no financial instruments with off-balance sheet risk of loss.

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

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

in the form of a contingent put option.

The notes 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 (see Note 7).

The notes and the contingent put option are classified as

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

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

to Note 7 for details of the conversion.

Value Measurement

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

September 24 and November 5, 2021, the Company issued convertible notes with a face value of $ 5.3

million and $ 10.6

million, respectively.

The Company elected the

fair value option to account for the convertible notes as it believes the fair value option provides users of the financial statements

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

in the fair value of the common stock underlying the conversion option and redemption feature.

The fair value estimate of the 2021

Notes was based on a discounted cash flow model and a Monte Carlo model, which represent Level 3 measurements.

Significant assumptions include the discount rate used in the discounted cash flow model and the expected premium for conversion used

in the Monte Carlo model.

in the fair value of the notes are recognized in other income (expense) for each reporting period.

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

The Company elected the fair value option to account for

the convertible notes as it believes the fair value option provides users of the financial statements with greater ability to estimate

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

stock underlying the conversion option and redemption feature.

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

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

Significant assumptions include the discount rate used

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

Changes in the fair value of the notes are recognized in other income (expense) for each reporting period.

Refer to Note 7 for details

of the terms and conditions of the 2021 Notes.

Notes Pre Business Combination (Contingent Put Option)

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

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

The put option allowed for certain notes payable to be converted

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

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

Level 3 measurement.

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

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

The estimated probability of exercise is based on management’s

expectation for future equity financing transactions.

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

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

As of December 31, 2020,

assumptions included a probability of exercise of the put option of 10 % and a discount rate of 42.9 %.

As noted above, all outstanding

derivative liabilities were settled upon the conversion of outstanding notes payable upon the consummation of the Business Combination.

Refer to Note 7 for details of the conversion.

On September 24 and November 5, 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 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.

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

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.

The fair value estimate of the 2022 Notes was based on a discounted cash flow model and a Monte

Carlo simulation, which represent Level 3 measurements.

Significant assumptions include the discount rate used in the discounted cash

flow model and the expected premium for conversion and expected volatility used in the Monte Carlo simulation.

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.

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

6 unchanged sentences

Liability classified warrants

Contingent put option

Biosciences, Inc.

1 unchanged sentence

December 31, 2021

Contingent put option

Fair value of convertible note

Liability classified warrants

following table summarizes the change in fair value of the Company’s Level 3 assets and liabilities for the year ended December

SCHEDULE OF CHANGE IN FAIR VALUE OF COMPANY’S LEVEL 3

December 31, 2021

Contingent put option

OF CHANGE IN FAIR VALUE OF COMPANY’S LEVEL 3

For the year ended December 31, 2022

Convertible note

1 unchanged sentence

Fair value, December 31, 2021

Additions, net

Conversions/payments

( 18,929,415 )

Loss on issuance of convertible notes

Change in fair value

( 12,487,400 )

( 5,756,787 )

( 6,730,613 )

Fair value, December 31, 2022

8 unchanged sentences

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 million.

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

12 unchanged sentences

SCHEDULE OF REVENUE RECOGNIZATION UNDER GRANTS

Year Ended December 31,

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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to the Consolidated Financial Statements

Correction of an Error

In August 2022, the Company concluded that there was an error in the measurement of the unbilled receivable as of

December 31, 2021.

The error was corrected in the second quarter of 2022.

The change resulted in a decrease in the balance of the unbilled

receivable of $ 214,308 and a corresponding increase in general and administrative expense presented in the consolidated statement of operations

for the year ended December 31, 2022.

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.

and Development Costs

13 unchanged sentences

Company estimates the fair value of stock option grants using the Black-Scholes option pricing model.

The assumptions used in calculating

the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application

of management’s judgment.

For the year ended December 31, 2021 and 2020, stock-based compensation costs are recorded in general

and administrative expenses in the consolidated statements of operations.

The assumptions used in

calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and

the application of management’s judgment.

For the year ended December 31, 2022 and 2021, stock-based compensation costs are

recorded in research and development and general and administrative expenses in the consolidated statements of

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

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SCHEDULE OF EARNINGS PER SHARE RECONCILIATION

Year Ended December 31,

Net income (loss) attributable to common stockholders

$ ( 25,085,496 )

Weighted average shares outstanding, basic

Weighted average dilutive stock options

Weighted average shares outstanding, diluted

Net income (loss) per share attributable to common stockholders, basic

Net income (loss) per share attributable to common stockholders, diluted

$ ( 29,886,851 )

Weighted average shares outstanding, basic and diluted

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

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

they would have been anti-dilutive:

they would have been anti-dilutive (the Company has utilized the principal balance outstanding and the end of period conversion price for the Convertible

Notes for the purposes of the weighted average share calculation below):

SCHEDULE OF WEIGHTED AVERAGE SHARES OF ANTI-DILUTIVE SECURITIES

Year Ended December 31,

Stock options

Convertible Notes

Anti-dilutive weighted average shares

Issued Accounting Pronouncements

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Early adoption is permitted.

The Company is evaluating the impact of ASU

2019-12 on the consolidated financial statements.

The Company adopted the guidance in 2022 and

it did not have a material impact on the financial statements due to their current tax position.

August 2020, the FASB issued ASU No.

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and early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

Entities must adopt the guidance

as of the beginning of its annual fiscal year and a modified retrospective or fully retrospective transition approach is permitted.

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

The Company will adopt the standard

with an effective date of January 1, 2023 and it is not expected to have a material impact on currently recorded transactions.

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.

Reclassification of prior year presentation

Certain prior year amounts have been reclassified

for consistency with the current year presentation.

These reclassifications had no effect on the reported results of operations.

An adjustment

has been made to the consolidated statement of operations for the year ended December 31, 2021, to reclassify the loss on debt conversions.

Biosciences, Inc.

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SCHEDULE OF ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued research and development

Share subscription facility commitment fees

Professional fees

Accrued research and development

Other accrued liabilities

Accrued scientific advisory board fees

Consultant compensation expenses

Consultant fees

Bonus Accrual

Deferred grant revenue

Other accrued liabilities

Total accrued expenses and other liabilities

4 unchanged sentences

Total other long-term liabilities

long-term liabilities

Biosciences, Inc.

21 unchanged sentences

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

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

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

advisory fee should have been registered and immediately tradeable.

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

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

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

the warrants would be modified to allow for cashless exercise and to reduce the exercise price from $ 11.50 /share to $ 10.00 /share.

consideration for this, both parties agreed to release the other from any past, present, or future claims.

In addition, the former advisor

agreed to immediately stay the proceedings and inform the Superior Court of a conditional settlement and to dismiss the lawsuit with

prejudice five days following the effectiveness of the Resale Registration Statement.

On October 6, 2021, the Superior Court dismissed

with prejudice the case filed on July 12, 2021 by the Company’s former financial advisor, following effectiveness of the Resale

Registration Statement filed on August 9, 2021 and amended on September 22, 2021.

part of the year ended December 31, 2020, the Company leased office space on a month-to-month basis.

In August 2020, the Company entered

into an agreement to lease office space.

The lease commencement date was October 1, 2020 and the lease was scheduled to terminate October

31, 2021 with no option to renew.

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

31, 2022 with no option to renew.

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

lease liability as of the amendment date.

of December 31, 2021, the future lease payments totaled $ 24,874 .

Company recognized total rent expense of $ 41,418

in the years ended December 31, 2021,

and 2020, respectively.

Company’s current lease agreement (as amended) has a term that extends through October 31, 2023 with no option to renew.

December 31, 2022, the future lease payments totaled $ 27,316 .

The Company recognized total rent expense of $ 31,756 and

the years ended December 31, 2022, and 2021, respectively.

Compensation Commitments

In assessing performance for 2022 annual bonuses, the Board of Directors

established achievement of 2022 goals at 75 % of target but specified that payment of the resulting $ 0.4 million in annual bonuses is dependent

upon future achievement of specified financing activities.

As such future achievement is uncertain, no accrual has been recorded as of

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 are contingent upon shareholder approval of an amended

and restated 2021 Omnibus Plan at a special shareholder meeting in January 2022, whereby the warrants would be replaced by

non-qualified stock options with similar terms.

As the 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 and an expense of $ 1,342,479 (to

general and administrative expense on the consolidated statement of operations)

to reflect the estimated value of services received during the period.

See Note 12 for discussion of the special shareholder meeting

in January 2022.

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.

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).

Biosciences, Inc.

13 unchanged sentences

Net debt balance

2015 convertible notes

2018 convertible notes

2020 promissory notes

2020 convertible notes

$ ( 942,914 )

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

Financed insurance

interest expense recognized for notes payable (excluding the 2022 and 2021 Notes) was as follows:

SCHEDULE OF INTEREST EXPENSE DEBT

Year Ended December 31,

Stated interest accrual

Debt discount accretion

Convertible Notes Payable

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

During 2017 and 2018, all

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

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

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

in certain future equity transactions.

The notes were converted into common stock in June 2021.

Convertible Notes Payable

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

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

The promissory notes mature 24 months from the date

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

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

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

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

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

in earnings (see Note 3).

Biosciences, Inc.

to the Consolidated Financial Statements

Additionally,

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

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

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

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

The Company assessed whether the automatic conversion option

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

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

Further, the conversion

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

no beneficial conversion feature exists.

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

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

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

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

thus the call option has a de minimis value.

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

The Company did

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

The modification met the criteria to be classified as a troubled

debt restructuring under ASC 470-50.

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

and no gain or loss was recognized.

notes were converted into common stock in June 2021.

Convertible Notes Payable

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

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

The notes cannot be prepaid without the prior consent

of the holder.

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

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

within a 12-month period.

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

With respect to an automatic conversion,

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

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

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

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

The conversion feature is required

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

were converted into common stock in June 2021.

Promissory Notes Payable

the year ended December 31, 2020, the Company received financing totaling $ 100,000 under a series of unsecured promissory notes with

the Chief Executive Officer and a board member.

The promissory notes bear interest at a rate of 10 % per annum and mature December 31,

2021 or upon certain financing transactions, whichever is earlier.

The notes were repaid in full in July 2021.

Convertible Note Payable

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

The convertible note bears interest

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

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

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

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

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

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

The note was converted into common stock in

Biosciences, Inc.

to the Consolidated Financial Statements

Promissory Notes

March and May 2021, the Company received financing totaling $ 350,000 under unsecured promissory notes issued to related parties including

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

The notes mature on the earlier of June 30, 2022 or the Company’s

receipt of gross proceeds of at least $ 2.0 million from the sale of common or preferred stock and bear interest at a rate of 10 % per

The notes were repaid in full in July 2021.

of Convertible Notes Payable

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

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

In connection with

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

and interest into common stock.

The modification resulted in a loss on extinguishment of debt of $ 347,566

based on the share price on the date of conversion

and is recorded in other income (expense), net.

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

as interest expense upon conversion.

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

as interest expense within the consolidated statement of operations.

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

SCHEDULE OF CONVERTIBLE DEBT

Immediately prior to merger

Net carrying value of debt converted

Shares of common stock issued

Outstanding debt, June 30, 2021

2015 Convertible Note

2018 Convertible Notes

2020 Convertible Notes

2021 Convertible Note

2021 Convertible Notes Payable

Debt discount amortization

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

The agreement

provides for two closings:

the first closing for $ 5.3

million (resulting in net proceeds of $ 4.6

million) which closed on September 24, 2021

(the “First Closing”).

The second closing for $ 10.6

million (resulting in net proceeds of $ 9.4

million) which closed on November 5, 2021

The agreement provides

for two closings:

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

“First Closing”).

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

5, 2021 (the “Second Closing”).

3 unchanged sentences

written consent of the holders.

2021 Notes mature on June

23, 2023 for the first closing, and August

4, 2023 for the second closing.

The notes bear

interest at a rate of 5 %

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

The interest may be settled in cash or shares at the option of the Company and is payable together with monthly redemptions of the outstanding

principal amount of the debt.

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

The notes bear interest at a rate

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

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

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

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

The total initial fair value of the

debt at issuance was $ 15.9

The Company recorded total issuance

costs of $ 1,920,158 ,

representing investment banking and legal fees of $ 1,020,158

and original issue discounts of $ 900,000 .

After several conversions occurring prior to year-end

(discussed below), the Company remeasured the fair value as of December 31, 2021 and recognized an expense of $ 3.0

million as the fair value of the 2021

Notes had increased to $ 16.8

million due to an increase in the value of

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

The December 31, 2021 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 total amount of interest expense (after consideration of the conversions) at December 31, 2021 would be

The total initial fair value of the debt at 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.

The 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

If presented separately, the total amount of interest expense (after consideration of the conversions) for the year-ended

December 31, 2022 would be $ 0.2 million.

multiple conversions (at original contract terms and at amended reduced conversion prices) since issuance the Company recognized a change in

fair value of convertible notes of $ 2.7

million (gain) for the period ended December

31, 2022 primarily due to reductions in the Company’s stock price.

Biosciences, Inc.

to the Consolidated Financial Statements

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

price of $ 5.87 ,

subject to a beneficial

ownership limitation of 4.99% (subject to adjustment).

The Company must reserve sufficient shares of authorized common stock to effect the conversion of the 2021 Notes and payment of

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

December 23, 2021 the Company issued 255,537

shares of common stock in repayment of $ 1.5

million, the shares issued at the stated conversion

price of $ 5.87 .

On December 27, 2021, the Company issued a Letter of Agreement amending the Securities Purchase Agreement to allow for conversion of

the outstanding notes at an exercise price of $ 4.50

per share of the Company’s common stock

for fourteen trading days, commencing December 28, 2021 and ending January 14, 2022.

Following this period, the initial

conversion price of $ 5.87

was restored.

On December 28, 2021 holders delivered separate notices of conversion for a total of $ 593,224

of principal in exchange for shares based on

the amended conversion price of $ 4.50 .

The Company recorded an inducement expense equal to the excess fair value (utilizing the Company policy for conversions of

average of the high and low share prices of the day) of the consideration transferred above the securities that would have been issued

under the original conversion terms.

The total debt conversion expense was $ 154,391

and is reflected in other income (expense),

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

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

respect to the 2021 Notes.

January 1, 2022 for the First Closing, and

February 1, 2022 for the Second Closing, and the first of each subsequent month, terminating upon the full redemption of the 2021

Notes (each a “Monthly Redemption Date”), the Company shall redeem the Monthly Redemption Amount (defined below), payable

in cash or shares.

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

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

the applicable Monthly Redemption Date.

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

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

waived in writing by the holder.

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

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

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

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

Redemption Date.

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

Monthly Redemption Amount.

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

million, the holder has the right to require

the Company to use up to 20 %

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

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

following table provides a summary of the Company’s 2021 Note conversions during the year ended December 31, 2022:

SCHEDULE OF CONVERSION DEBT

the year ended December

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 $ 4.0

million, for the period ended December 31, 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 period ended December 31, 2022.

The remaining 2021 Notes became due and payable on

October 10, 2022, at which time they were satisfied with cash ($ 0.4

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 $ 12.09 million which included a loss upon issuance of $ 3.6 million 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 operations.

After several conversions since issuance, the Company

reflected the remaining balance due as of December 31, 2022 at fair value and recognized a change in fair value of convertible notes

of $ 3.1 million (gain) for the period ended December 31, 2022 primarily due to reductions in the Company’s stock price since issuance.

December 31, 2022 fair value measurement includes the assumption of accrued interest and interest expense (at the stated rate plus an

8 % cash settlement premium) and thus a separate amount is not reflected on the consolidated statements of operations.

If presented separately,

the amount of interest expense after consideration of the conversions would be $ 0.2 million for the year ended December 31, 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 1, 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 8% 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).

The Company triggered this provision

in connection with the public offering of securities in December of 2022, the resulting principal payments and interest were reflected

as a reduction to the outstanding balance of the 2022 Notes.

The 8 % premium was paid in cash and is reflected as interest expense within

the consolidated statement of operations.

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 year ended December 31, 2022:

SCHEDULE OF CONVERSION DEBT

the year ended December

Insurance Premiums

year ended December 31, 2021, the Company financed its directors and officers’ liability insurance in the amount of $ 867,300 ,

the year ended December 31, 2022, the Company financed its directors’ and officers’ liability insurance in the amount of $ 399,949 ,

of which $ 203,179

remains outstanding at December 31, 2022.

Company will pay a total of $ 12,078

in interest from inception through April 2022 when the

note will be paid in full.

The Company will pay a total of $ 9,402

in interest from inception through March 2023 when the note will be paid in full.

The Company expensed $ 7,905

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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 December 31,

2021 and 2020, there were no shares of preferred stock issued and outstanding.

In September 2022,

the Company amended and restated its Certificate of Incorporation to authorize up to a total of 250,000,000 shares of common stock.

of December 31, 2022 and 2021, there were no shares of preferred stock issued and outstanding.

Biosciences, Inc.

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

February 2013, the Company issued 13,170 warrants to purchase common stock, with a ten-year life and an exercise price of $ 6.23 per share.

In August 2019, in connection with the issuance of convertible debt, the Company issued 6,585 warrants to purchase common stock, with

a ten-year life and an exercise price of $ 3.04 .

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

On June 30, 2021, the Company

issued 19,755 shares of common stock in settlement of the warrants, with such shares subject to restriction until certain conditions

December 9, 2022, the Company completed a public offering for the sale of 2.9

million shares of common stock at $ 1.40

per share for gross proceeds of $ 4.1

million, net of $ 0.3 million in underwriting fees.

In addition, the Company issued 6.6

million warrants with an exercise price of $ 1.40

per share that expire five

years following the date of issuance.

In connection with the public offering, the Company incurred approximately $ 0.5 million in transaction costs that

are recognized in the consolidated statement of changes in stockholders’ deficit.

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

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Share subscription facility

Convertible note

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

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.

Public offering

June 30, 2021, as a result of the Closing, the Company assumed a total of 945,063 warrants previously issued by LACQ (subsequently

in December 2022, 93,400 warrants were cancelled).

The 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

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.

August 3, 2021, the Company entered into an agreement with an existing warrant holder to reduce the price of 25,000 warrants issued

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to the Consolidated Financial Statements

December 28, 2021, the exercise price of the warrants adjusted to $ 4.50

per share, as required by a down round adjustment

feature of the warrant, due to common stock issued at a price below the then current exercise price.

The difference in fair value

of the existing warrant prior to the adjustment and the value of the warrant after (utilizing a “Black-Scholes model”)

is reflected on the consolidated statement of operations as a “deemed dividend”.

September 24, 2021, the Company issued 361,158

warrants in connection

with the issuance of the 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 September

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

warrants have been subject to multiple exercise price reductions 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 (primarily the result of the conversions of the 2021 Notes

and the 2022 Notes).

The adjustments have progressed from the original exercise price of $ 200.20 per share to the current exercise

price at December 31, 2022 of $ 1.40 per share.

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 and November 5, 2021, the Company issued 18,058 and 36,116 warrants in connection with the issuance of the 2021

The warrants were immediately exercisable with an exercise price of $ 152.60 (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 .

As a result of the issuance of the 2022 Notes in July 2022, the exercise price of these warrants was adjusted down to $ 15.60 .

July 1, 2022 and August 9, 2022, the Company issued 233,394 warrants each 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

and August 8, 2027 , respectively.

December 9, 2022, the Company issued 6,600,000 equity classified warrants in connection with the public offering.

The warrants were

immediately exercisable with an exercise price of $ 1.40 (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 December 9, 2027 .

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

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SCHEDULE OF WARRANTS FAIR VALUE ESTIMATION ASSUMPTIONS

(a) LACQ warrants

(grant date varies)

(b) Share subscription facility

date 7/2/2021)

Exercise price

Expected term (years)

Risk free rate

(a) LACQ warrants (grant date varies)

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

(b) Share subscription facility (remeasurement date varies)

108.2 % - 125.3 %

1.0 % - 4.5 %

140.9 % - 141.1 %

(d) Liability classified warrants (grant date 7/1/22)

(d) Liability classified warrants (grant date 8/9/22)

(d) Liability classified warrants (remeasured at 12/31/22)

Exercise price

138.0 % - 139.4 %

Expected term (years)

Risk free rate

9 - STOCK-BASED COMPENSATION

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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.

No further awards may be

made under the Former Ensysce stock plans.

Biosciences, Inc.

to the Consolidated Financial Statements

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

SCHEDULE OF STOCK OPTION OUTSTANDING

2019 Directors Plan

2021 Omnibus Plan

Total options outstanding

were no stock option grants in 2021.

year ended December 31, 2020, the Company granted stock options to purchase an aggregate of 131,700

shares of common stock to members of the board

of directors under the 2019 Directors Plan.

The options vest over three

years and have an exercise price of $ 3.35

The options were converted with

their existing terms into the 2021 Omnibus Plan in connection with the Business Combination.

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 $ 919,056 and $ 121,764 for the year ended

December 31, 2022 and 2021, respectively.

During the year ended December 31, 2021 and 2020, there was no stock-based compensation allocated

to research and development expense.

During the year ended December 31, 2022 and 2021, the company recognized within research and

development expense stock-based compensation expense of $ 152,787 and $ 0 , respectively.

Biosciences, Inc.

to the Consolidated Financial Statements

the year ended December 31, 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 four 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 year ended December 31, 2022:

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Weighted average

Exercise price

Remaining contractual life

Intrinsic value

Outstanding at December 31, 2021

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Exercise price

$ 8.5 - 125.60

Expected stock price volatility

76.61 % - 95.87 %

Expected term (years)

Risk-free interest rate

1.52 % - 3.14 %

Expected dividend yield

Biosciences, Inc.

to the Consolidated Financial Statements

Prior to the Business Combination,

the stock price was determined by third party valuations of the Company’s common stock.

stock-price volatility.

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

companies within the Company’s industry over a period approximately equal to the expected term.

The comparable companies

were utilized as the Company’s stock does not have sufficient historical trading activity.

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

within the Company’s industry over a period approximately equal to the expected term.

The comparable companies were utilized

as the Company’s stock does not have sufficient historical trading activity.

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

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

Biosciences, Inc.

to the Consolidated Financial Statements

weighted-average grant date fair value of options granted during the year ended December 31, 2022 was $ 19.24 .

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recognized over the weighted average period of 1.61 years.

following table summarizes the Company’s restricted stock units activity during the year ended December 31, 2022:

SCHEDULE OF RESTRICTED STOCK UNITS

Outstanding at December 31, 2021

Outstanding at December 31, 2022

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

The estimated

fair value of each of the Company’s restricted stock unit awards was determined on the date of grant based on the closing

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

Reserved for Future Issuance

2 unchanged sentences

December 31, 2022

Stock options outstanding

Stock options available for future grant under 2021 Omnibus Incentive Plan

Awards outstanding under the 2021 Omnibus Incentive Plan

Awards available for future grant under 2021 Omnibus Incentive Plan

2022 Notes outstanding

Warrants outstanding

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10 - INCOME TAXES

before provision for income taxes consisted of the

before provision for income taxes consisted of the following:

SCHEDULE OF INCOME TAXES BENEFIT

Year ending December 31,

United States

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SCHEDULE OF FEDERAL AND STATE INCOME TAX PROVISION (BENEFIT)

Year ending December 31,

Current state provision

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to the Consolidated Financial Statements

effective tax rate of the Company’s provision (benefit) for income taxes differs from the federal statutory rate for the years

ended December 31, 2021 and 2020 as follows:

effective tax rate of the Company’s provision (benefit) for income taxes differs from the federal statutory rate as follows:

SCHEDULE OF FEDERAL INCOME TAX RATE RECONCILIATION

Year ending December 31,

Income (benefit) taxes at statutory rates

( 5,083,614 )

( 6,120,640 )

State income tax, net of federal benefit

4 unchanged sentences

Research and development tax credits

( 1,028,988 )

Change in tax rates

2 unchanged sentences

reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

Company’s deferred tax assets were comprised of the following as of December 31, 2021 and 2020:

Company’s deferred tax assets were comprised of the following:

SCHEDULE OF DEFERRED TAX ASSETS

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Net operating loss tax carryforwards

Capitalized research costs

Stock-based compensation

9 unchanged sentences

Net deferred tax assets

of December 31, 2021, the Company had federal, California and other state net operating loss (NOL) carryforwards of $ 95.9

million, $ 69.7

of December 31, 2022, the Company had federal and California net operating loss (NOL) carryforwards of $ 102.9

million and $ 73.2

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indefinitely and be available to offset up to 80% of future taxable income each year.

subject to certain modifications made by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted

The federal net operating losses generated prior to 2018 of $ 82.4

federal net operating losses generated prior to 2018 of $ 82.4

million will begin to expire in 2026 unless previously

The California and other state NOL carryforwards will begin to expire in 2028 and 2041, respectively, unless previously utilized.

The California NOL carryforwards will begin to expire in 2028, unless previously utilized.

Biosciences, Inc.

4 unchanged sentences

The California research tax credits do not expire.

to the IRC Sections 382 and 383, annual use of the Company’s NOL and R&D credit carryforwards may be limited in the event that

to IRC Sections 382 and 383, annual use of the Company’s NOL and R&D credit carryforwards may be limited in the event that

a cumulative change in ownership of more than 50% occurs within a three-year period.

Although the Company has not completed a recent

IRC Section 382/383 analysis, regarding the limitation of NOL and R&D credit carryforwards, the Company estimates

that approximately $ 1.5

million of tax benefits related to NOL and R&D

carryforwards acquired in 2015 will expire unused.

Accordingly, the related NOL and R&D credit carryforwards have been removed

from deferred tax assets accompanied by a corresponding reduction of the valuation allowance.

Due to the existence of the valuation allowance,

limitations created by current and future ownership changes, if any, related to the Company’s operations in the United States will

not impact its effective tax rate.

Any additional ownership changes may further limit the ability to use the NOL and R&D credit carryforwards.

March 27, 2020, the CARES Act was enacted

in response to the COVID-19 pandemic.

The CARES Act, among other things, permits federal NOL carryforwards and carrybacks to offset 100%

of taxable income for taxable years beginning before 2021.

In addition, the CARES Act allows federal NOLs incurred in 2019, 2020 and

2021 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.

Due to the Company’s history of net operating losses,

the CARES Act is not expected to have a material impact on the Company’s financial statements.

Although the Company has not completed an IRC

Section 382/383 analysis regarding the limitation of NOL and R&D credit carryforwards as of December 31, 2022, the Company estimates that approximately

million of tax benefits related to NOL and R&D carryforwards acquired in 2015 will expire unused.

Accordingly, the related NOL

and R&D credit carryforwards have been removed from deferred tax assets accompanied by a corresponding reduction of the

valuation allowance.

Due to the existence of the valuation allowance, limitations created by current and future ownership changes,

if any, related to the Company’s operations in the United States will not impact its effective tax rate.

Any additional

ownership changes may further limit the ability to use the NOL and R&D credit carryforwards.

following table summarizes the activity related to the Company’s unrecognized tax benefits:

OF INCOME TAX CONTINGENCIES

SUMMARY OF INCOME TAX CONTINGENCIES

Year ending December 31,

Balance at beginning of year

Increases (decreases) related to current year tax positions

Increases (decreases) related to prior year tax positions

Expiration of the statute of limitations for the assessment of taxes

Increases related to current year tax positions

Decreases related to prior year tax positions

Balance at end of year

of December 31, 2021 and 2020, the Company had unrecognized tax benefits of $ 1.1

million and $ 1.0

million, respectively.

Due to the existence of

the valuation allowance, none of the unrecognized tax benefits would affect the effective tax rate.

The Company’s policy is to

recognize interest and penalties from uncertain tax positions in income tax expense.

of December 31, 2022 and 2021, the Company had unrecognized tax benefits of $ 1.4 million and $ 1.1 million, respectively.

Due to the existence

of the valuation allowance, none of the unrecognized tax benefits would affect the effective tax rate.

The Company’s policy is

to recognize interest and penalties from uncertain tax positions in income tax expense.

The Company did not record any interest or penalties

for the years ended December 31, 2021 or 2020 and had no

accrued interest on the consolidated balance

sheets as of December 31, 2021 or 2020.

The Company does not anticipate that the total amount of unrecognized tax benefits will significantly

increase or decrease within twelve months of the reporting date.

for the years ended December 31, 2022 or 2021 and had no accrued interest on the consolidated balance sheets as of December 31, 2022

The Company does not anticipate that the total amount of unrecognized tax benefits will significantly increase or decrease within

twelve months of the reporting date.

Company and its subsidiaries are subject to U.S.

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However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where

net operating losses were generated and carried forward, and make adjustments up to the amount of the NOL carryforward.

The Company is

not currently under examination by the Internal Revenue Service or any state or local tax authority.

net operating losses were generated and carried forward, and make adjustments up to the amount of the NOL carryforward amount.

is not currently under examination by the Internal Revenue Service or any state or local tax authority.

Biosciences, Inc.

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

of December 31, 2021 and 2020, the Company had promissory notes outstanding which totaled $ 0 and $ 100,000 , respectively, to three members

of the board of directors, including the Chief Executive Officer and Chairman of the Board, as described in Note 7.

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 and recognized under the consolidated statement

of changes in stockholders’ deficit.

On December 9, 2022, the Company completed a public offering for the sale of 2.9 million shares of common stock at

$ 1.40 per share and issued 6.6 million warrants with an exercise price of $ 1.40 per share that expire five years following the date of

A Board member purchased 357,143 shares of common stock and was issued 714,286 warrants in the public offering.

12 - SUBSEQUENT EVENTS

January 26, 2022, two proposals were approved at a special meeting of stockholders.

The first proposal approved the issuance of shares

of common stock upon the conversion of the 2021 Notes, as discussed in Note 7, and the exercise of the related warrants, in order

to comply with certain Nasdaq rules.

The second proposal approved an Amended and Restated 2021 Omnibus Incentive Plan, including an additional

shares available for future grant.

this approval, the Company has granted a total of 1,986,000

stock options and 927,358

restricted stock units under the Plan to employees

and consultants in 2022.

the first quarter of 2022, the Company has issued 4,708,525

shares of common stock in repayment of $ 6.4

million in monthly redemptions of the 2021

Notes, as discussed in Note 7.

January 3, 2023, the Company issued 522,094 shares to satisfy the remaining $ 400,000 commitment fee payable to GYBL.

January 12, 2023, the Company entered into a Letter Agreement to reduce the conversion price for the remaining balance of the Company’s

outstanding 2022 Notes from $ 2.006 to $ 0.7512 for the period from January 12, 2023 until May 12, 2023.

In the first quarter of 2023,

the Company issued 4.9 million shares of common stock in repayment of $ 3.1 million of the 2022 Notes, as discussed in Note 7.

also paid cash of $ 0.4 million in repayment of the 2022 Notes.

As of the date of issuance of these financial statements, cash true-up

payments totaling $ 0.6 million for conversions below the adjusted price are due to be paid within 120 days from January 12, 2023 in accordance

with the Letter Agreement.

January 31, 2023, the Board of Directors declared a dividend of 0.001 of a share of Series A Preferred Stock, par value $0.0001 per share,

for each outstanding share of the Company’s common stock to stockholders of record on February 13, 2023.

Each full share of the

Series A Preferred Stock entitles holders to 1,000,000 votes per share with respect to the reverse stock split proposal and the adjournment

proposal at the Company’s special meeting of stockholders on March 23, 2023.

The Series A Preferred Stock has no dividend rights

and is subject to full redemption following the effectiveness of a reverse stock split.

The Series A Preferred Stock was registered through

a Certificate of Designation filed with the State of Delaware on February 1, 2023.

February 2, 2023, the Company agreed to issue and sell in a registered direct offering an aggregate of 3,571,431 shares of common stock

of the Company at an offering price of $ 0.84 per share, for gross proceeds of approximately $ 3.0 million before the deduction of placement

agent fees and offering expenses.

The closing of the offering occurred on February 6, 2023 .

Concurrent with the offering, the Company

issued to the purchasers, for each share of common stock purchased in the offering, a common warrant to purchase a share of common stock.

The common warrants are exercisable immediately upon issuance and terminate five and one-half years following issuance.

The common warrants

have an exercise price of $ 0.715 per share and are exercisable to purchase an aggregate of up to 3,571,431 shares of common stock.

Company also issued warrants to the placement agent to purchase up to 250,000 shares of common stock at an exercise price equal to $ 1.05

per share and are exercisable for five years from the commencement of sales in the offering.

March 23, 2023, at a special meeting of stockholders, the Company’s stockholders approved a proposal to authorize the Company’s

Board of Directors to complete a reverse stock split at a ratio of not less than one-for-five and not more than one-for-twelve.

Agreement and Plan of Merger, dated January 31, 2021, by and among Leisure Acquisition Corp., Ensysce Biosciences, Inc.

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(incorporated by reference to Exhibit 3.1 filed with the registrant’s Current Report on Form 8-K on July 7, 2021).

Certificate of amendment to Third Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1(b) filed with the registrant’s Registration Statement on Form S-1 (File No.

333-268038) on October 28, 2022)

Certificate of Second Amendment to Third Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 filed with the registrant’s Current Report on Form 8-K (File No.

001-38306) on October 27, 2022)

Certificate of Designation of the Series A Preferred Stock of Ensysce Biosciences, Inc., dated February 1, 2023 (incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form 8-A, filed on February 1, 2023, File No.

Certificate of Amendment to Certificate of Designation of the Series A Preferred Stock of Ensysce Biosciences, Inc., dated February 7, 2023 (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 8-A/A (Amendment No.

1), filed on February 7, 2023, File No.

Amended and Restated Bylaws of Ensysce Biosciences, Inc.

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and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 filed with the registrant’s Current Report on Form 8-K on December 5, 2017).

Common Stock Purchase Warrant in the amount of 100,000 shares of common stock of Ensysce Biosciences, Inc.

dated as of August 13, 2019 (incorporated by reference to Exhibit 4.5 filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Investor Rights Agreement between Ensysce Biosciences, Inc.

and the Investors listed on the signature pages thereto dated as of May 11, 2018 (incorporated by reference to Exhibit 4.6 filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Warrant Certificate issued to Gateway Casinos & Entertainment Limited (incorporated by reference to Exhibit 4.7 filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Form of Warrant Certificate issued to previous holders of Private Placement Warrants and other private warrants (incorporated by reference to Exhibit 4.8 filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

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Form of Common Stock Purchase Warrant to be issued by the Company pursuant to and in accordance with the Securities Purchase Agreement (incorporated by reference to Exhibit 4.7 filed with the registrant’s Current Report on Form 8-K initially filed on September 27, 2021).

Form of Senior Secured Convertible Promissory Note issued by Ensysce Biosciences, Inc.

pursuant to and in accordance with a 2022 Securities Purchase Agreement (incorporated by reference to Exhibit 4.6 filed with the registrant’s Current Report on Form 8-K on August 9, 2022).

Form of Common Stock Purchase Warrant issued by Ensysce Biosciences, Inc.

pursuant to and in accordance with a 2022 Securities Purchase Agreement (incorporated by reference to Exhibit 4.7 filed with the registrant’s Current Report on Form 8-K on August 9, 2022).

Form of warrant delivered by Ensysce Biosciences, Inc.

in December 2022 in connection with an underwritten offering (incorporated by reference to Exhibit 4.10 filed with the registrant’s Post-Effective Amendment No.

1 to the registrant’s Registration Statement on Form S-1 filed December 8, 2022).

Form of pre-funded warrant delivered by Ensysce Biosciences, Inc.

in December 2022 in connection with an underwritten offering (incorporated by reference to Exhibit 4.10 filed with the registrant’s Post-Effective Amendment No.

1 to the registrant’s Registration Statement on Form S-1 filed December 8, 2022).

Form of warrant issued in connection with a private placement conducted concurrently with a public offering (incorporated by reference to Exhibit 4.1 filed with the registrant’s Current Report on Form 8-K on February 7, 2023).

Form of warrant issued to a placement agent or its designees in connection with a private placement conducted concurrently with a public offering (incorporated by reference to Exhibit 4.2 filed with the registrant’s Current Report on Form 8-K on February 7, 2023).

Registration Rights Agreement, dated December 1, 2017, among Leisure Acquisition Corp.

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and certain security holders (incorporated by reference to Exhibit 10.3 filed with the registrant’s Current Report on Form 8-K on December 5, 2017).

Administrative Services Agreement, dated December 1, 2017, between Leisure Acquisition Corp.

and Hydra Management, LLC (incorporated by reference to Exhibit 10.4 filed with the registrant’s Current Report on Form 8-K on December 5, 2017).

Amendment to the Administrative Services Agreement, dated August 7, 2020, between Leisure Acquisition Corp.

and Hydra Management, LLC (incorporated by reference to Exhibit 10.1 filed with the registrant’s Quarterly Report on Form 10-Q on November 9, 2020).

Expense Advancement Agreement, dated December 1, 2017, between Leisure Acquisition Corp., HG Vora Special Opportunities Master Fund, Ltd., Hydra Management, LLC and Matthews Lane Capital Partners LLC (incorporated by reference to Exhibit 10.5 filed with the registrant’s Current Report on Form 8-K on December 5, 2017).

Amendment to Expense Advancement Agreement, dated June 29, 2020 (incorporated by reference to Exhibit 10.2 filed with the registrant’s Current Report on Form 8-K on June 30, 2020).

Amendment No.

2 to Expense Advancement Agreement, dated October 26, 2020 (incorporated by reference to Exhibit 10.1 filed with the registrant’s Current Report on Form 8-K on October 29, 2020).

Amendment No.

3 to Expense Advancement Agreement, dated November 30, 2020 (incorporated by reference to Exhibit 10.2 filed with the registrant’s Current Report on Form 8-K on November 30, 2020).

Amendment No.

4 to Expense Advancement Agreement, dated February 23, 2021 (incorporated by reference to Exhibit 10.2 filed with the registrant’s Current Report on Form 8-K on February 25, 2021).

Form of Amended and Restated Promissory Note relating to Expense Advancement Agreement (incorporated by reference to Exhibit 10.1 filed with the registrant’s Current Report on Form 8-K on February 25, 2021).

Letter Agreement, dated December 1, 2017, among the Leisure Acquisition Corp., its officers, directors and securityholders (incorporated by reference to Exhibit 10.6 filed with the registrant’s Current Report on Form 8-K on December 5, 2017).

Amendment to Letter Agreement, dated December 5, 2019 (incorporated by reference to Exhibit 10.6(b) filed with the registrant’s Annual Report on Form 10-K on March 10, 2020).

Contingent Forward Purchase Contract, dated December 1, 2017, between Leisure Acquisition Corp.

and HG Vora Special Opportunities Master Fund, Ltd (incorporated by reference to Exhibit 10.7 filed with the registrant’s Current Report on Form 8-K on December 5, 2017).

Form of Director and Officer Indemnity Agreement (incorporated by reference to Exhibit 10.8 filed with the registrant’s Registration Statement on Form S-1 (File No.333-221330) initially filed on November 3, 2017).

Form of Indemnification Agreement executed by each of the Ensysce directors and executive officers (incorporated by reference to Exhibit 10.6 filed with the registrant’s Form 10-Q initially filed on November 15, 2021).

Securities Subscription Agreement, dated September 11, 2017, between LACQ and HG Vora Special Opportunities Master Fund, Ltd (incorporated by reference to Exhibit 10.4 filed with the registrant’s Registration Statement on Form S-1 (File No.333-221330) initially filed on November 3, 2017).

Securities Subscription Agreement, dated September 11, 2017, between the Leisure Acquisition Corp.

and Hydra Management, LLC (incorporated by reference to Exhibit 10.5 filed with the registrant’s Registration Statement on Form S-1 (File No.333-221330) initially filed on November 3, 2017).

Securities Subscription Agreement, dated September 11, 2017, between the Leisure Acquisition Corp.

and Matthews Lane Capital Partners LLC (incorporated by reference to Exhibit 10.6 filed with the registrant’s Registration Statement on Form S-1 (File No.333-221330) initially filed on November 3, 2017).

Exchange Agreement, dated June 7, 2021, between Leisure Acquisition Corp.

and Gateway Casinos & Entertainment Limited (incorporated by reference to Exhibit 10.12(d) filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Fee Waiver Letter, dated November 23, 2020 (incorporated by reference to Exhibit 10.3 filed with the registrant’s Current Report on Form 8-K on November 30, 2020).

Fee Waiver Letter, dated January 31, 2021 (incorporated by reference to Exhibit 10.2 filed with the registrant’s Current Report on Form 8-K on February 2, 2021).

Warrant Surrender Agreement, among MLCP GLL Funding LLC, Hydra LAC, LLC, and Leisure Acquisition Corp., dated January 31, 2021 (incorporated by reference to Exhibit 10.1 filed with the registrant’s Current Report on Form 8-K on February 2, 2021).

Form of Lock-up Agreement executed by each of the Ensysce’s directors and executive officers (incorporated by reference to Exhibit 10.16 filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Executive Employment Agreement, by and between the Company and Dr.

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and the Company dated December 28, 2015 (incorporated by reference to Exhibit 10.21 filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Employment Offer Letter to Richard Wright dated July 31, 2017 (incorporated by reference to Exhibit 10.24 filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Executive Employment Agreement, by and between the Company and Geoffrey Birkett, dated August 21, 2021 (incorporated by reference to Exhibit 10.45 filed with the registrant’s Amendment Number 1 to its Registration Statement on Form S-1 (File No.333-260478) filed on October 29, 2021)

1 unchanged sentence

Amendment to Offer Letter between the Company and David Humphrey dated February 23, 2021 (incorporated by reference to Exhibit 10.27 filed with the the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Amended and Restated 2021 Omnibus Incentive Plan

Amended and Restated 2021 Omnibus Incentive Plan Form of Stock Option Grant Notice and Award Agreement

Amended and Restated 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.22 filed with the registrant’s Annual Report on Form 10-K filed on March 31, 2022).

Amended and Restated 2021 Omnibus Incentive Plan Form of Stock Option Grant Notice and Award Agreement (incorporated by reference to Exhibit 10.22(a) filed with the registrant’s Annual Report on Form 10-K filed on March 31, 2022).

Share Purchase Agreement between the Company, GEM Global Yield LLC SCS and GEM Yield Bahamas Limited dated as of December 29, 2020, including a Registration Rights Agreement between the same parties and dated as of the same date and form of Warrant to Purchase Common Shares of Ensysce Biosciences, Inc.

1 unchanged sentence

Technology Transfer Agreement by and among the Company, Covistat, Inc., Mucokinetica, Ltd., Roderick Hall and Peter Cole dated August 5, 2020 (incorporated by reference to Exhibit 10.30 filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Consulting Agreement between Roderick Hall and Covistat, Inc.

dated August 5, 2020 (incorporated by reference to Exhibit 10.31 filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Consulting Agreement between Peter Cole and Covistat, Inc.

dated August 5, 2020 (incorporated by reference to Exhibit 10.32 filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Manufacturing Agreement between Recro Gaineville LLC and the Company dated September 11, 2019 (incorporated by reference to Exhibit 10.35 filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

2 unchanged sentences

Form of Exchange Agreement to be entered into by the Company with each of the Sponsors and the Strategic Investor (incorporated by reference to Exhibit 10.36(b) filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

10.0% Convertible Promissory Note issued by the Company to Feliciano Global Enterprises Inc.

on January 28, 2021 (incorporated by reference to Exhibit 10.37 filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Email Agreement, dated January 31, 2021, between the Company and DelMorgan Group LLC (incorporated by reference to Exhibit 10.38(a) filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

First Amendment to the Email Agreement, dated June 7, 2021, between the Company and DelMorgan Group LLC (incorporated by reference to Exhibit 10.38(b) filed with the registrant’s Registration Statement on Form S-4 (File No.333-254279) initially filed on March 15, 2021).

Settlement Agreement and Mutual General Release among the Company, Dr.

Lynn Kirkpatrick, DelMorgan Group LLC and Globalist Capital LLC, dated August 3, 2021.

Engagement Agreement with David L.

Kovacs (a portion of Appendix B to the exhibit has been omitted)(incorporated by reference to Exhibit 10.37 filed with Ensysce Biosciences, Inc.’s Registration Statement on Form S-1 (File No.333-258609) initially filed on August 9, 2021.

Stock Option Grant Notice and Award Agreement granted February 14, 2022 to David L.

Engagement Agreement with Mercury FundingCo, LLC (a portion of Appendix B to the exhibit has been omitted) (incorporated by reference to Exhibit 10.38 filed with Ensysce Biosciences, Inc.’s Registration Statement on Form S-1 (File No.333-258609) initially filed on August 9, 2021).

Stock Option Grant Notice and Award Agreement granted February 14, 2022 to David Tanzer.

Securities Purchase Agreement, dated September 24, 2021 by and among the Company and the purchasers signatory thereto (incorporated by reference to Exhibit 10.1 filed with the registrant’s Current Report on Form 8-K initially filed on September 27, 2021).

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Second Letter Agreement, dated January 16, 2022, by and among the Company and the parties signatory thereto (incorporated by reference to Exhibit 10.7 filed with the registrant’s Current Report on Form 8-K initially filed on January 18, 2022).

List of Subsidiaries

Securities Purchase Agreement, dated June 30, 2022, by and among the Company and the purchasers signatory thereto (incorporated by reference to Exhibit 10.1 filed with the registrant’s Current Report on Form 8-K on July 6, 2022).

Registration Rights Agreement, dated June 30, 2022, by and among the Company and the parties signatory thereto (incorporated by reference to Exhibit 10.2 filed with the registrant’s Current Report on Form 8-K on July 6, 2022).

Subsidiary Guarantee, dated June 30, 2022, by and among the Company and the purchasers signatory thereto (incorporated by reference to Exhibit 10.3 filed with the registrant’s Current Report on Form 8-K on July 6, 2022).

Security Agreement, dated June 30, 2022, by and among the Company, EBI OpCo, Inc., Covistat, Inc.

and the other parties signatory thereto (incorporated by reference to Exhibit 10.4 filed with the registrant’s Current Report on Form 8-K on July 6, 2022).

Patent Security Agreement, dated June 30, 2022, by and among the Company, EBI OpCo, Inc., Covistat, Inc.

and the other parties signatory thereto (incorporated by reference to Exhibit 10.5 filed with the registrant’s Current Report on Form 8-K on July 6, 2022).

Letter Agreement, dated January 12, 2023, by and among the Company and the parties signatory thereto (incorporated by reference to Exhibit 10.6 filed with the registrant’s Current Report on Form 8-K on January 13, 2023).

Company’s Code of Business Conduct

List of Subsidiaries (incorporated by reference to Exhibit 21 filed with the Registration Statement on Form S-1 (333-268038) filed on October 28, 2022)

Consent of Mayer Hoffman McCann P.C.

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upon its request.

Denotes compensatory plans or arrangements or management

compensatory plans or arrangements or management contracts.

certificate accompanies this report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by Ensysce

7 unchanged sentences

Chief Executive Officer and Director

to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons

in the capacities indicated on March 31, 2022.

to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated

on March 30, 2023.

Lynn Kirkpatrick

10 unchanged sentences

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-K

Item 9A. Controls and Procedures