What changed in this filing

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Item 1. Financial Statements

2023-05-15 compared with 2022-11-14 · 382 added, 748 removed, 415 unchanged (73% of the section changed)

2 unchanged sentences

Balance Sheets

September 30, 2022

March 31, 2023

December 31, 2022

5 unchanged sentences

Total current assets

Property and equipment, net

Liabilities and stockholders’ equity (deficit)

Liabilities and stockholders’ deficit

Current liabilities:

1 unchanged sentence

Accrued expenses and other liabilities

Payable to related parties

Lease liability

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

Notes payable and accrued interest ($ 0 and $ 4,063,431 at fair value at March 31, 2023 and December 31, 2022, respectively)

Total current liabilities

1 unchanged sentence

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

Other long-term liabilities

Liability classified warrants

Total long-term liabilities

2 unchanged sentences

Stockholders’ deficit

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

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

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

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

Preferred stock, $ 0.0001 par value, 1,500,000 shares authorized, no shares issued and outstanding at March 31, 2023 (unaudited) and December 31, 2022

Common stock, $ 0.0001 par value, 250,000,000 shares authorized at March 31, 2023 (unaudited) and December 31, 2022;

1,284,664 and 534,571 shares issued at March 31, 2023 (unaudited) and December 31, 2022, respectively;

1,284,583 and 534,490 shares outstanding at March 31, 2023 (unaudited) and December 31, 2022, respectively

Additional paid-in capital

3 unchanged sentences

Total Ensysce Biosciences, Inc.

stockholders’ deficit

( 6,094,498 )

stockholders’ equity (deficit)

( 3,714,444 )

2 unchanged sentences

( 4,029,652 )

( 8,158,058 )

Total liabilities and stockholders’ deficit

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

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

Biosciences, Inc.

Statements of Operations

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Federal grants

6 unchanged sentences

( 4,802,804 )

( 18,021,309 )

( 17,863,686 )

Other income (expense):

Issuance costs for convertible notes

( 1,118,721 )

Change in fair value of derivative liabilities

Loss on issuance of convertible notes

Change in fair value of convertible notes

Issuance of liability classified warrants

( 3,737,371 )

( 1,325,804 )

( 3,737,371 )

( 1,325,804 )

Change in fair value of liability classified warrants

1 unchanged sentence

( 1,702,642 )

( 4,000,155 )

Interest expense

( 1,282,820 )

Loss on extinguishment of debt

Interest expense, net

Other income and expense, net

Total other income (expense), net

( 3,692,240 )

( 1,245,091 )

$ ( 9,855,565 )

$ ( 17,199,474 )

Total other income, net

$ ( 2,191,806 )

5 unchanged sentences

$ ( 1,666,686 )

$ ( 19,563,588 )

$ ( 19,046,801 )

Net loss per share:

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

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

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

Biosciences, Inc.

Statements of Changes in Stockholders’ EQUITY (Deficit)

Noncontrolling

Stockholders’ Equity (Deficit)

Noncontrolling

Balance on June 30, 2021

$ ( 57,841,991 )

$ ( 243,653 )

Stock-based compensation

Issuance of warrants

Warrants modification

( 17,163,526 )

( 17,199,474 )

Balance on September 30, 2021

$ ( 75,005,517 )

$ ( 279,601 )

$ ( 385,287 )

Balance on June 30, 2022

Balance on December 31, 2021

$ ( 85,845,567 )

1 unchanged sentence

$ ( 8,158,058 )

Consultant compensation

Conversion of convertible notes

Stock-based compensation

Settlement of restricted stock units

Stock-based compensation

Deemed dividend related to warrants down round provision

( 9,834,073 )

( 9,855,565 )

Balance on September 30, 2022

$ ( 105,409,155 )

Balance on March 31, 2022

$ ( 87,512,253 )

$ ( 279,633 )

The accompanying notes are an

integral part of these consolidated financial statements.

Biosciences, Inc.

Statements of Changes in Stockholders’ EQUITY (Deficit)

Stockholders’

Equity (Deficit)

Noncontrolling

Balance on December 31, 2022

2 unchanged sentences

$ ( 315,208 )

Retroactive application of recapitalization

$ ( 4,029,652 )

Balance on December 31, 2020, effect of reverse recapitalization

$ 107,216,566

$ ( 110,931,063 )

Exercise of stock options

Settlement of convertible notes

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

Stock-based compensation

Issuance of warrants

Warrants modification

$ ( 315,208 )

$ ( 4,029,652 )

Balance on September 30, 2021

$ ( 75,005,517 )

$ ( 279,601 )

$ ( 385,287 )

Balance on December 31, 2021

$ ( 85,845,567 )

$ ( 279,815 )

$ ( 8,158,058 )

Beginning balance, value

$ ( 85,845,567 )

$ ( 279,815 )

$ ( 8,158,058 )

Consultant compensation

Conversions of convertible notes

Settlement of restricted stock units

Conversion of convertible notes

Settlement of commitment fee

Public offering, net

Transaction costs associated with public offering

Stock-based compensation

Reverse split fractional shares

Deemed dividend related to warrants down round provision

1 unchanged sentence

( 2,191,806 )

Balance on September 30, 2022

Balance on March 31, 2023

$ 113,293,834

1 unchanged sentence

$ ( 319,149 )

Ending balance, value

$ ( 152,424 )

1 unchanged sentence

$ ( 113,127,237 )

$ ( 319,149 )

$ ( 152,424 )

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

2 unchanged sentences

(U naudited )

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

4 unchanged sentences

Accrued interest

Accretion of discounts on promissory notes

Change in fair value of derivative liabilities

Change in fair value of liability classified warrants

( 5,626,130 )

Loss on issuance of convertible notes

Change in fair value of convertible notes

( 2,767,178 )

Change in fair value of liability classified warrants

( 2,794,398 )

Loss on extinguishment of debt

Stock-based compensation

Issuance of warrants for share subscription facility

Issuance of liability classified warrants

Issuance costs for convertible notes

Commitment fee for share subscription facility

Warrant modification

Loss on debt conversions

Stock-based compensation

Changes in operating assets and liabilities:

8 unchanged sentences

Cash flows from investing activities:

Proceeds from sale of asset

Proceeds from sale of assets

Net cash provided by investing activities

Cash flows from financing activities:

Proceeds from issuance of convertible notes, net

Proceeds from issuance of promissory notes to related parties

Proceeds from exercise of stock options

Repayment of promissory notes

Repayments of convertible notes

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

Proceeds public offering, net

Transaction costs associated with public offering

Repayment of convertible notes

Repayment of financed insurance premiums

Net cash (used in) provided by financing activities

Increase in cash and cash equivalents

Net cash provided by (used in) financing activities

Decrease in cash and cash equivalents

( 1,731,937 )

( 3,823,784 )

Cash and cash equivalents beginning of period

4 unchanged sentences

Stock-based compensation

Conversions of convertible notes and accrued interest into common stock

Payable to related parties

Net assets acquired in business combination

Financed insurance premiums

Share subscription facility transaction costs

Conversions of convertible notes into common stock

Cash true-up liability

Settlement of commitment fee in shares

Deemed dividend related to warrants down round provision

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

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

BIOSCIENCES, INC.

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Biosciences, Inc.

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

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

wholly-owned subsidiaries EBI Operating, Inc.

(“Ensysce”), along with its 79.2 %-owned subsidiary, EBIR, Inc.

(“EBIR”, formerly known as Covistat,

Inc.) and its wholly-owned subsidiaries EBI Operating, Inc.

and EBI OpCo, Inc.

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

company using its two novel proprietary technology platforms to develop safer prescription drugs.

The primary focus of the Company is

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

Protection) opioid product candidate, PF614.

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

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

The Company has also commenced development work applying

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

January 31, 2021, LACQ entered into the Merger Agreement with Former Ensysce

and Merger Sub.

Pursuant to the

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

Ensysce surviving the merger (“Merger”).

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

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

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

Stock”), of LACQ.

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

Biosciences, Inc.” Unless the context otherwise requires, “we,” “us,” “our” and the “Company”

refer to Ensysce and the combined company and its subsidiaries following the Closing.

Unless the context otherwise requires, references

to “LACQ” refer to Leisure Acquisition Corp., a Delaware corporation, prior to the Closing.

connection with the Business Combination, outstanding shares of common stock of Former Ensysce (including shares resulting from the conversion

of Former Ensysce’s convertible debt prior to Closing) were converted into the right to receive shares of Ensysce at an exchange

ratio of 0.06585 .

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

common stock of the combined company.

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

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

foregoing exchange ratio).

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

under the new ticker symbol “ENSC”.

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

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.

In August 2022, Covistat was renamed EBIR, Inc.

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

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

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

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

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

biotech company using its proprietary technology platforms to develop safer prescription drugs.

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.

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

of a separate entity, EBIR, a Delaware corporation.

Pursuant to the certificate 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.

Ensysce is a 79.2 %

stockholder in EBIR, with 19.8 % and 1.0 % of the shares held by certain key personnel of the Company and an unrelated party, respectively.

The non-Ensysce owned shares and the activity are reflected on the financial statements as Noncontrolling interests.

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

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

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

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

and its subsidiaries.

All intercompany balances

and transactions have been eliminated in the consolidation.

All intercompany balances and

transactions have been eliminated in the consolidation.

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

Operating results for the three and nine months ended September 30, 2022, are not necessarily indicative of the results that

may be expected for the year ending December 31, 2022.

The interim unaudited consolidated financial statements have been prepared under

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

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

Reverse Stock Split

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

reverse split of its outstanding common stock.

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

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

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

Under this method of accounting, LACQ

was identified as the acquired company for financial reporting purposes, primarily because the stockholders of Former Ensysce control

the majority of the voting power of the combined company, Former Ensysce’s board of directors comprise a majority of the governing

body of the combined company, and Former Ensysce’s senior management comprise the leadership of the combined company.

for accounting purposes, the transaction was treated as the equivalent of Former Ensysce issuing shares for the net assets of LACQ, accompanied

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 no goodwill or other intangible assets recorded.

The shares and net loss per share prior to the reverse

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

The financial statements reflect the historical

operations of Ensysce.

Operating results for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected

for the year ending December 31, 2023.

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

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

the fiscal year ended December 31, 2022, which may be found in the Company’s Form 10-K filed with the SEC on March 30, 2023.

March 2023, the Company completed a 1-for-12 reverse split of its outstanding common stock.

All references in these consolidated financial

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

The number of authorized

shares and the par value of the shares did not change as a result of the reverse stock split.

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

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

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

Company has not generated any product revenue and had an accumulated deficit of $ 113.1 million at March 31, 2023.

There is no assurance

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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

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 (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 common stock of the Company (Note 10) and the remaining $ 0.4

million due in January 2023 may be paid from the proceeds of a draw against the facility or in freely tradable common stock

of the Company.

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

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

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

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

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

Without the availability of proceeds through the GEM Agreement, existing cash resources are not sufficient to fund current planned operations.

While the Company believes in the viability

of its strategy to ultimately realize revenues and in its ability to raise additional funds, management cannot be certain that additional

funding will be available on acceptable terms, or at all.

The Company’s ability to continue as a going concern is dependent upon

its ability to obtain adequate financing and achieve profitable operations.

As a result, these plans do not alleviate substantial doubt

about the Company’s ability to continue as a going concern for a period of 12 months following the date these consolidated financial

statements were issued.

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 4,608 warrants with a five-year term to purchase common stock of Ensysce at an exercise price of $ 2,402.40 per share

The Company was 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 common stock of the Company (Note 10) and the remaining $ 0.4 million was paid in January 2023

in common stock of the Company.

Usage of the GEM facility is limited by other agreements of the Company.

The Company has not raised any

capital to date pursuant to the GEM facility and may not raise any capital pursuant to it prior to its expiration.

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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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, warrants, options to purchase the Company’s common stock, and the notes

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.

and cash equivalents

5 unchanged sentences

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.

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

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

2 unchanged sentences

estimated useful lives of five to six years .

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

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

Depreciation expense

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

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

might not be recoverable.

Conditions that would necessitate an impairment assessment include a significant decline in the observable

market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that

would indicate that the carrying amount of an asset or group of assets is not recoverable.

For long-lived assets to be held and used,

the Company will recognize an impairment loss only if the carrying amount is not recoverable through its undiscounted cash flows and

measure any impairment loss based on the difference between the carrying amount and estimated fair value.

There were no such losses for

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

Property and equipment are fully depreciated as such there is no depreciation recognized

in the periods presented.

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

of operations.

financial instruments

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

prices in active markets for identical assets or liabilities.

other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.

inputs which are supported by little, or no market activity and values determined using pricing models, discounted cash flow methodologies,

or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

Quoted prices in active markets for identical assets

or liabilities.

Inputs other than Level

1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Unobservable inputs which

are supported by little, or no market activity and values determined using pricing models, discounted cash flow methodologies, or

similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at

1 unchanged sentence

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

of September 30, 2022 and December 31, 2021, the recorded values of cash and cash equivalents, prepaid expenses, accounts payable, and

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

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

The Company elected the fair value option to account for

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

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

stock underlying the conversion option and redemption feature.

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

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

Significant assumptions include the discount rate used in the

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

Changes in the fair value of the notes

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

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

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

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

settlement features contained within the notes.

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

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

value estimate of the 2022 Notes was based on a discounted cash flow model and a Monte Carlo model, which represent Level 3

of March 31, 2023 and December 31, 2022, the recorded values of cash and cash equivalents, prepaid expenses, accounts payable, and accrued

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

2021 the Company issued convertible notes and 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 used in the Monte Carlo model.

conversion 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.

July 2022 the Company issued convertible notes and 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

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 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.

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Refer to Note 8 for details of the warrants.

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

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

following tables present liabilities measured and recorded at fair value on the Company’s consolidated balance sheets as of March

31, 2023 and December 31, 2022.

OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

September 30, 2022

Fair value of convertible notes

March 31, 2023

Liability classified warrants

2 unchanged sentences

Liability classified warrants

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

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

OF CHANGE IN FAIR VALUE OF COMPANY’S LEVEL 3

Convertible notes

Liability classified warrants

Convertible note

Liability classified

Fair value, December 31, 2022

Additions, net

( 3,056,892 )

Cash payments

Cash true-up liability

Change in fair value

( 8,186,115 )

( 2,559,985 )

( 5,626,130 )

Fair value, September 30, 2022

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

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

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

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

In August 2019, the

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

million in years 1 and 2, respectively).

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

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

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

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

This brings total funding under this grant to approximately

$ 10.8 million.

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

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

total approved budget was approximately $ 5.4 million and the current grant period ends in August 2023.

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

The Company believes this policy is consistent with the overarching

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

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

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

as defined in ASC 606.

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

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

Fair value, March 31, 2023

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

awarded the Company a research and development grant related to the development of its MPAR TM overdose prevention technology

(the “MPAR Grant”).

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

and $ 2.2 million in years 1 and 2, respectively) of which the Company must contribute $ 1.1 million in the first year of the grant.

August 2019, the grant was amended such that the approved budget for the two-year period decreased to approximately $ 5.1 million ($ 2.1

million and $ 3.0 million in years 1 and 2, respectively).

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

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

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

additional $ 2.8 million of funding in year 4 under the MPAR Grant from July 1, 2022 through June 30, 2023.

This brings total funding

under this grant to approximately $ 10.7 million.

September 2019, the NIH/NIDA awarded the Company a second research and development grant related to the development of its TAAP/MPAR TM

abuse deterrent technology for Opioid Use Disorder (the “OUD Grant”).

The total approved budget was approximately $ 5.4

Company recognizes revenue when costs related to the grants are incurred and assessed as reimbursable.

The Company believes this policy

is consistent with the overarching premise in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers

(“ASC 606”), applied by analogy, to ensure that it recognizes revenues to reflect the transfer of promised goods or services

to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services,

even though there is no “exchange” as defined in ASC 606.

The Company believes the recognition of revenue as costs are incurred

and reimbursable amounts become due is analogous to the concept of transfer of control of a service over time under ASC 606.

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

OF REVENUE RECOGNIZATION UNDER GRANTS

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Three Months Ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Three Months Ended March 31,

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

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allowances are recorded.

Immaterial Correction

of an Error Adjusted in Prior Quarter

In August 2022, the

Company concluded that due to an error in the measurement of the unbilled receivable and the associated grant revenue as of December

31, 2021, and March 31, 2022, the June 30, 2022, balance sheet would be adjusted.

The change resulted in a decrease in the balance

of the unbilled receivable of $ 214,308

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

operations for the three months ended June 30, 2022.

The Company, in consultation

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

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

108, Considering the Effects of

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

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

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

The Company looked at both quantitative

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

and development costs

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of management’s judgment.

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

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

For the three months ended March 31, 2023, stock-based compensation costs are recorded in general and

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

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

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during the period, determined using the treasury stock method and the average stock price during the period.

A reconciliation of the

numerators and denominators of the basic and diluted earnings per share calculations follows:

OF EARNINGS PER SHARE RECONCILIATION

Three Months Ended September 30,

Nine Months Ended September 30,

Net loss attributable to common stockholders

$ ( 9,897,612 )

$ ( 17,163,526 )

$ ( 19,563,588 )

$ ( 19,046,801 )

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

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OF WEIGHTED AVERAGE SHARES OF ANTI-DILUTIVE SECURITIES

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Stock options

Convertible notes

Anti-dilutive weighted average shares

Issued Accounting Pronouncements

December 2019, the FASB issued ASU No.

2019-12, Income Taxes (“ASU 2019-12”), which simplifies the accounting for income

taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology

for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the

accounting for transactions that result in a step-up in the tax basis of goodwill.

The guidance is effective for fiscal years beginning

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

On January 1, 2022, the Company adopted ASU 2019-12 and the adoption did

not have a significant impact on the consolidated financial statements.

August 2020, the FASB issued ASU No.

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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.

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.

Company adopted the standard with an effective date of January 1, 2023 and the adoption did not have a significant impact on the consolidated

financial statements.

4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

expenses and other current assets consisted of the following:

OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

September 30,

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

March 31, 2023

December 31, 2022

Prepaid research and development

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5 – ACCRUED EXPENSES AND OTHER LIABILITIES

expenses and other liabilities consisted of the following:

SCHEDULE OF ACCRUED EXPENSES AND OTHER LIABILITIES

September 30,

Share subscription facility commitment fees

March 31, 2023

December 31, 2022

Accrued research and development

Bonus accrual

Share subscription facility commitment fees

Professional fees

Accrued scientific advisory board fees

Consultant stock compensation expenses

Other accrued liabilities

Total accrued expenses and other liabilities

long-term liabilities consisted of the following:

SCHEDULE OF OTHER LONG-TERM LIABILITIES

September 30,

Share subscription facility commitment fees

Liability classified warrants

Total other long-term liabilities

6 – COMMITMENTS AND CONTINGENCIES

of September 30, 2022, the Company’s commitments included an estimated $ 25.7 million related to the Company’s open purchase

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

of March 31, 2023, the Company’s commitments included an estimated $ 20.4 million related to the Company’s open purchase orders

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

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

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to the delivery of goods or the performance of services.

of September 30, 2022 and December 31, 2021, there were no pending legal proceedings against the Company that are expected to have a

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

From time to time, the Company could become involved

in disputes and various litigation matters that arise in the normal course of business.

These may include disputes and lawsuits related

to intellectual property, licensing, contract law and employee relations matters.

Periodically, the Company reviews the status of significant

matters, if any exist, and assesses its potential financial exposure.

If the potential loss from any claim or legal claim is considered

probable and the amount can be estimated, the Company accrues a liability for the estimated loss.

of March 31, 2023 and December 31, 2022, there were no pending legal proceedings against the Company that are expected to have a material

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

From time to time, the Company could become involved in disputes

and various litigation matters that arise in the normal course of business.

These may include disputes and lawsuits related to intellectual

property, licensing, contract law and employee relations matters.

Periodically, the Company reviews the status of significant matters,

if any exist, and assesses its potential financial exposure.

If the potential loss from any claim or legal claim is considered probable

and the amount can be estimated, the Company accrues a liability for the estimated loss.

Legal proceedings are subject to uncertainties,

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

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

The original lease commencement date was October 1, 2020 and

was subsequently amended to extend the term of the lease through October 31, 2023 with no option to renew.

The amendment resulted in

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

of September 30, 2022, the future lease payments totaled $ 35,403 .

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

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

Subject to Shareholder Approval

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

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

and 10,000 restricted stock units each.

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

market conditions.

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

shareholder meeting in January 2022, at which time the warrants were replaced by non-qualified stock options with similar terms.

As the original

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

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

On February 14, 2022, the equity awards were granted,

and the Company reclassified the outstanding liability to stockholders’ equity (See Note 9 for additional details of the Company’s stock-based compensation).

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

March 31, 2023, the future lease payments totaled $ 19,120 .

The Company recognized total rent expense of $ 8,375 in the three months ended

March 31, 2023 and $ 7,834 in the three months ended March 31, 2022.

7 – NOTES PAYABLE

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

Company’s outstanding debt balance was zero as of March 31, 2023.

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

SCHEDULE OF DEBT

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Financed insurance

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

Principal balance

Accrued interest

value adjustment

Net debt balance

Financed Insurance

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

interest expense recognized for financed insurance was as follows:

SCHEDULE OF INTEREST EXPENSE DEBT

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Three months ended

Nine months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Three months ended March 31,

Stated interest accrual

Debt discount amortization

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

The agreement provided

The agreement provides

for two closings:

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

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) occurred on November

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

5, 2021 (the “Second Closing”).

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

rights to its patents and licenses.

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

2021 Notes mature on June 23, 2023 for the First Closing, and August 4, 2023 for the Second Closing.

The 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.

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

The interest could be settled in

cash or shares at the option of the Company and was payable together with monthly redemptions of the outstanding principal amount of

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 million.

The Company recorded total issuance costs of $ 1.9 million

representing investment banking and legal fees of $ 1.0 million

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.

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

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

(loss) for the three-month period then ended

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

million (gain) for the nine-month period

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

The September 30, 2022 fair value

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

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

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

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

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

of $ 117.40 , subject to a beneficial ownership limitation of 4.99% (subject to adjustment).

The Company must reserve sufficient shares

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

The shares were registered for public

resale under a registration statement.

the Company’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) $ 117.40 and (b) 92 % of the average of the three lowest volume-weighted average prices (“VWAP”) during the 10

consecutive trading days prior to the applicable Monthly Redemption Date.

The Company may not pay the Monthly Redemption Amount in shares

unless the applicable conversion price is greater than or equal to $ 15.60 and the Company has been in compliance with customary requirements

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

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

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

During the period ended September 30, 2022, the

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

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

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

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

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

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

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

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

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

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

OF CONVERSION DEBT

Three Months Ended

Weighted Average

Conversion Price

Conversion Value

March 31, 2022

June 30, 2022

September 30, 2022

On August 8, 2022, the parties

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

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

On September 20, 2022, the parties agreed to

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

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

The Company recorded an inducement expense equal to the excess fair

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

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

The total loss on debt

conversions was $ 1.4 million and $ 4.0 million ,

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

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

periods ended September 30, 2022, The remaining 2021

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

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

2021 Notes were settled on October 11, 2022 and were not outstanding during the quarter ending March 31, 2023.

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

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

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

preceding the redemption date.

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

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

Accordingly, the Company determined that the 2022 Notes

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

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

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

million which included a loss upon issuance of $ 3.6

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

Additionally, the

Company recorded issuance costs of $ 1.1

million representing a 6 %

original issue discount of $ 0.5

million, $ 0.6

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

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

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

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

The September 30, 2022 fair value measurement includes the assumption of

accrued interest and interest expense (at the stated rate plus an 8% cash settlement premium) and thus a separate amount is not reflected

on the consolidated statements of operations.

If presented separately, the amount of interest expense after consideration of the conversions

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

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

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

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

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

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

The Company may elect to pay all or part

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

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

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

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

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

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 and $ 0.6 million of legal and investment banking fees, which were immediately

connection with each of the first and second closings of the 2022 Notes the Company also issued warrants to purchase 38,894 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

The warrants had an original exercise price of $ 170.04 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 $ 187.20 .

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

rights to its patents and licenses.

5 unchanged sentences

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

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

The notes bear interest

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

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

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

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

OF CONVERSION DEBT

Three Months Ended

Weighted Average Conversion Price

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 was reflected as interest expense within

the consolidated statement of operations.

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

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

The interest may be settled in cash or shares

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

The outstanding

principal and interest balances were satisfied in March 2023.

following table provides a summary of the Company’s 2022 Notes conversions during the quarter ended March 31, 2023:

SCHEDULE OF CONVERSION DEBT

Weighted Average

Conversion Price

Conversion Value

September 30, 2022

During the quarter ended March 31, 2023

January 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 $ 24.07 to $ 9.01 for the period from January 12, 2023 until May 12, 2023.

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

Such payments due are recorded as Accrued Expenses and Other Liabilities (Note 5).

insurance premiums

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

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

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

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

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

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

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

$ 399,949 , the liability was paid in full by March 31, 2023.

The Company paid a total of $ 9,402 in interest from inception through March

2023 when the note will be paid in full.

The Company expensed $ 1,497 of interest for the three months ended March 31, 2023.

8 - STOCKHOLDERS’ EQUITY

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

authorize 150,000,000

shares of common stock and 1,500,000

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

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

shares of common stock.

As of September 30, 2022 and December 31, 2021, there were no

shares of preferred stock issued and outstanding.

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

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

shares of common stock outstanding were assumed by the Company.

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

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

25,000 shares of common

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

6,250 shares of common

stock were issued in settlement of deferred underwriting costs.

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

June 2021, the Company amended and restated its Certificate of Incorporation to authorize

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

In September 2022,

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

As of March 31, 2023 and December 31, 2022, there were no shares of preferred stock issued and outstanding.

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 entitled 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 had no dividend rights

and was fully redeemed following the effectiveness of a reverse stock split on March 31, 2023.

March 31, 2023, outstanding warrants to purchase shares of common stock are as follows:

SCHEDULE OF OUTSTANDING WARRANT

Shares Underlying Outstanding Warrants

Exercise Price

3 unchanged sentences

Share subscription facility

On June 30, 2021, as a

result of the closing of the Business Combination, the Company assumed a total of 945,063 warrants previously issued by LACQ.

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

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

A total of 500,000 of the outstanding warrants are

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

The remaining 445,063 warrants are private

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

On August 3, 2021, the

Company entered into an agreement with an existing warrant holder to reduce the exercise price of 25,000 warrants issued on June

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

administrative expense.

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

to the share subscription facility.

The warrants have a three -year life and an exercise price of $ 200.20 per share.

The grant date

fair value of the warrants, based on the $ 289.80 stock price on the date of issuance, was $ 11.6 million, and was recognized in general

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

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

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

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

dates, respectively, as required by a down round adjustment feature of the warrant, due to common stock issued at a price below the

then current exercise price.

Public offering

June 30, 2021, as a result of the Closing, the Company assumed a total of 78,751 warrants previously issued by LACQ (subsequently

in December 2022, 7,782 warrants were cancelled).

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

of between $ 2,400.00 and $ 2,760.00 per share and expire June 30, 2026 , five years following the completion of the Business Combination.

A total of 41,666 of the outstanding warrants are public warrants which trade on the OTC Pink Open Market under the ticker symbol

The remaining 29,303 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 2,083 warrants issued

on June 30, 2021 from $ 2,760.00 to $ 2,400.00 .

On July 2, 2021, upon public

listing of the Company’s shares, the Company issued 4,608 warrants to purchase common stock pursuant to the share subscription

The warrants have a three -year life.

The grant date fair value of the warrants, based on the $ 3,477.60 stock price on the

date of issuance, was $ 11.6 million, and was recognized in general and administrative expense due to the uncertainty of future issuance

of shares under the share subscription facility.

The 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 $ 2,402.40 per share to the current exercise price at March 31,

2023 of $ 8.58 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

September 24, 2021, the Company issued 18,058

warrants in connection with the issuance of the 2021 Notes.

The warrants were immediately exercisable with an exercise price of

(subject to downward revision protection in the event the Company makes certain issuances of common stock at prices below the

conversion price) and expire on September

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

after (utilizing a Black-Scholes model) is reflected on the consolidated statement of operations as a deemed dividend.

On September 24, 2021 and

November 5, 2021, the Company issued 1,504 and 3,008 warrants in connection with the issuance of the 2021 Notes.

The warrants were

immediately exercisable with an exercise price of $ 1,831.20 (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 $ 187.20 .

On July 1, 2022 and August

9, 2022, the Company issued 19,447 warrants each in connection with the issuance of the 2022 Notes.

The warrants were immediately

exercisable with an exercise price of $ 170.04 (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.

As a result of

the issuance of shares and warrants in connection with the December public offering, the exercise price of these warrants was adjusted

down to $ 24.07 .

The difference in fair value of the existing warrant prior to the adjustment and the

value of the warrant after (utilizing a “Black-Scholes model”) is reflected on the consolidated statement of operations

in other income (expense).

November 5, 2021, the Company issued 36,116

warrants in connection with the issuance of the 2021 Notes.

The warrants were immediately exercisable with an exercise price of

(subject to downward revision protection in the event the Company makes certain issuances of common stock at prices below the

conversion price) and expire on November

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

The difference in fair value of the existing warrant prior to the adjustment and the

value of the warrant after (utilizing a “Black-Scholes model”) is reflected on the consolidated statement of operations

in other income (expense).

On July 1, 2022, the Company

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

The warrants were immediately exercisable with an exercise

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

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

On August 9, 2022, the

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

The warrants were immediately exercisable with

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

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

On December 9, 2022, the

Company issued 549,987 equity classified warrants in connection with a public offering.

The warrants were immediately exercisable

with an exercise price of $ 16.80 (subject to downward revision protection in the event the Company makes certain issuance of common

stock at prices below the exercise price) and expire on December 9, 2027 .

On February 6, 2023, the

Company issued 318,451 equity classified warrants in connection with a public offering.

The warrants were immediately exercisable

with an exercise price of $ 8.58 - $ 12.60 (subject to downward revision protection in the event the Company makes certain issuance

of common stock at prices below the exercise price) and expire on February 2, 2028 , and August 7, 2028 .

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

2 unchanged sentences

SCHEDULE OF WARRANTS FAIR VALUE ESTIMATION ASSUMPTIONS

(grant date varies)

subscription facility

(grant date 7/2/21)

subscription facility

(remeasurement

$ 4.80 - 85.80

Exercise price

Expected term (years)

Risk free rate

(a) LACQ warrants (grant date varies)

$ 2,400.00 - 2,760.00

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

(b) Share subscription facility (remeasurement date varies)

$ 7.01 - 1,029.60

Expected term (years)

$ 8.58 - 1,080.00

Risk free rate

classified warrants

(d) Liability

classified warrants

(d) Liability

classified warrants

(remeasured at

Exercise price

Expected term (years)

Risk free rate

(e) Liability

classified warrants

(e) Liability

classified warrants

(f) Liability

classified warrants

(f) Liability

classified warrants

Exercise price

Expected term (years)

Risk free rate

92.6 % - 125.3 %

1.0 % - 4.9 %

102.9 % - 103.4 %

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

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

(d) Liability classified warrants (remeasured at 3/31/23)

9 - STOCK-BASED COMPENSATION

2016, Former Ensysce adopted the Ensysce Biosciences, Inc.

2016 Stock Incentive Plan (the “2016 Plan”).

The 2016 Plan, as

amended, allowed for the issuance of non-statutory stock options, incentive stock options and other equity awards to Former Ensysce’s

employees, directors, and consultants.

March 2019, Former Ensysce adopted the 2019 Directors Plan, which was amended in August 2020.

The 2019 Directors Plan, as amended, allowed

for the issuance of shares of Former Ensysce’s common stock pursuant to the grant of non-statutory stock options.

addition to the 2016 Plan and the 2019 Directors Plan, the Company has two legacy equity incentive plans (the “Legacy Plans”).

No additional equity awards may be made under the Legacy Plans and the outstanding options will expire if unexercised by certain dates

through August 2024.

connection with the Business Combination, the Company assumed the 2021 Omnibus Incentive Plan (the “2021 Omnibus Plan”),

2 unchanged sentences

and reserves for issuance an additional 4,166 shares for future awards under the 2021 Omnibus Plan.

On January 26, 2022, the 2021 Omnibus

Plan was amended and restated to include an additional 150,000 shares available for future grant and to provide for future annual increases.

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

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

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

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

research and development.

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

to research and development.

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

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

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

price of between $ 8.50 and $ 125.60 per share.

There were no stock option grants in 2021.

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

No further awards may be made under

the Former Ensysce stock plans.

January 2022, the 2021 Omnibus Plan was amended and restated to include an additional 12,500 shares available for future grant and to

provide for future annual increases.

In February 2023, the Company’s Board approved an annual increase of 26,725 shares available

for future grant.

Company recognized within general and administrative expense stock-based compensation expense of $ 96,270 and $ 373,944 for the three months

ended March 31, 2023 and 2022, respectively.

During the three months ended March 31, 2023 and 2022, the Company recognized stock-based

compensation expense of $ 20,863 and $ 28,490 , respectively, within research and development expense.

were no stock options granted during the three months ended March 31, 2023.

During the three months ended March 31, 2022, the Company

granted stock options to purchase an aggregate of 8,275 shares of common stock to employees, consultants and members of the Board.

options vest over periods between zero and four years and have an exercise price of between $ 259.20 and $ 1,507.20 per share.

following table summarizes the Company’s stock option activity during the three months ended March 31, 2023:

SCHEDULE OF STOCK OPTION ACTIVITY

Weighted average

Exercise price

contractual life

2 unchanged sentences

Expired / Forfeited

Outstanding at September 30, 2022

Exercisable at September 30, 2022

Outstanding at March 31, 2023

Exercisable at March 31, 2023

Vested and expected to vest

4 unchanged sentences

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

Nine Months Ended

September 30, 2022

$ 8.60 - 34.00

Three Months Ended

March 31, 2022

Exercise price

1 unchanged sentence

Expected stock price volatility

76.12 % - 95.87 %

Expected term (years)

20 unchanged sentences

on the Company’s common stock.

weighted-average grant date fair value of options granted during the nine months ended September 30, 2022 was $ 19.24 .

There were no options

granted during the nine months ended September 30, 2021.

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

recognized over the weighted average period of 1.42 years.

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

weighted-average grant date fair value of options granted during the three months ended March 30, 2022 was $ 1.01 .

of March 31, 2023, the Company had an aggregate of $ 296,845 of unrecognized share-based compensation cost, which is expected to be recognized

over the weighted average period of 1.48 years.

following table summarizes the Company’s restricted stock units activity during the three months ended March 31, 2023:

SCHEDULE OF RESTRICTED STOCK UNITS

Restricted Stock Units

Weight average fair value

Weighted average

Outstanding at December 31, 2022

Outstanding at September 30, 2022

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

estimated fair value of each of the Company’s was determined on the date of grant based on the closing price of the Company’s

common stock on the previous trading date.

Outstanding at March 31, 2023

were no restricted stock units granted or forfeited during the three months ended March 31, 2023.

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

trading date.

Reserved for Future Issuance

1 unchanged sentence

SCHEDULE OF COMMON STOCK FUTURE ISSUANCE

September 30, 2022

March 31, 2023

Awards outstanding under the 2021 Omnibus Incentive Plan

Awards available for future grant under 2021 Omnibus Incentive Plan

2022 Notes outstanding

Warrants outstanding

1 unchanged sentence

10 - RELATED PARTIES

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

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

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

In July 2022, the Chief Executive

Officer and a Board member transferred 46,062 shares

of registered common stock to GYBL to settle $ 0.8 million

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

In October 2022, 46,062 shares

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

reimbursement.

11 - SUBSEQUENT EVENTS

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

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

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

All references in these consolidated

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

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

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

million of principal and interest of the 2022 Notes.

December 9, 2022, the Company completed a public offering for the sale of 241,666 shares of common stock at $ 16.80 per share and issued

550,000 warrants with an exercise price of $ 16.80 per share that expire five years following the date of issuance.

A Board member purchased

29,761 shares of common stock and was issued 59,523 warrants exercisable for common stock in the public offering.

July 2022, the Chief Executive Officer and a Board member transferred 3,838 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, 3,838 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.

NOTE 11 – SUBSEQUENT EVENTS

On May 12, 2023, the Company

completed a public offering of an aggregate of 1,800,876 shares of its common stock (or pre-funded warrants in lieu thereof), Series A-1

warrants to purchase up to 1,800,876 shares of common stock and Series A-2 warrants to purchase 1,800,876 shares of common stock, at a

combined public offering price of $3.887 per share (or pre-funded warrant in lieu thereof) and accompanying warrants.

The Series A-1 warrants

have an exercise price of $ 3.637 per share and expire five years from the date of issuance, and the Series A-2 warrants have an exercise

price of $ 3.637 per share and expire eighteen months from the date of issuance.

The Company received gross proceeds of approximately $ 7.0

million before the deduction of placement agent fees and offering expenses.

May 12, 2023, the Company paid $ 0.6 million of cash true-up payments to holders of the 2022 Notes (Note 7).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements