Enveric Biosciences, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations References to the “Company,” “our,” “us,” or “we” in this section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Enveric” refer to Enveric Biosciences, Inc. The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements involving risks and uncertainties and should be read together with the “Risk Factors” and the “Cautionary Statement Regarding Forward-Looking Statements” sections of this Annual Report on Form 10-K. Such risks and uncertainties could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Business Overview We are an early-development-stage biosciences company developing next-generation mental health and oncology treatments using our clinical discovery platform to help leverage psychedelic-derived molecules for the mind and synthetic cannabinoids for the body. We seek to improve the lives of patients suffering from cancer, initially by developing palliative and supportive care products for people suffering from certain side effects of cancer and cancer treatment such as anxiety, depression, pain, and skin damage from radiation treatment. We currently intend to offer such palliative and supportive care products in the United States, following approval through established regulatory pathways. Amalgamation Agreement with MagicMed Industries Inc. On May 24, 2021, the Company entered into an Amalgamation Agreement (the “Amalgamation Agreement”) with 1306432 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of the Company (“HoldCo”), 1306436 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of HoldCo (“Purchaser”), and MagicMed Industries Inc., a corporation existing under the laws of the Province of British Columbia (“MagicMed”), pursuant to which, among other things, the Company, indirectly through Purchaser, acquired all of the outstanding securities of MagicMed in exchange for securities of the Company by way of an amalgamation under the British Columbia Business Corporations Act, upon the terms and conditions set forth in the Amalgamation Agreement, such that, upon completion of the Amalgamation (as defined herein), the amalgamated corporation (“Amalco”) will be an indirect wholly-owned subsidiary of the Company. The Amalgamation was completed on September 16, 2021. - 54 - At the effective time of the Amalgamation (the “Effective Time”), holders of outstanding common shares of MagicMed (the “MagicMed Shares”) received such number of shares of common stock of the Company (“Company Shares”) representing, together with the Company Shares issuable upon exercise of the Warrants and the Converted Options (each as defined herein), approximately 36.6% of the issued and outstanding Company Shares (on a fully diluted basis). The MagicMed Shares were initially converted into Amalco Redeemable Preferred Shares (as defined in the Amalgamation Agreement), which immediately following the Amalgamation were redeemed for 0.000001 of a Company Share. Following such redemption, the shareholders of MagicMed received additional Company Shares equal to the product of the Exchange Ratio (as defined in the Amalgamation Agreement) multiplied by the number of MagicMed Shares held by each such shareholder. Additionally, following the Effective Time (i) each outstanding MagicMed stock option was converted into and became an option to purchase (the “Converted Options”) the number of Company Shares equal to the Exchange Ratio multiplied by the number of MagicMed Shares subject to such MagicMed stock option, and (ii) each holder of an outstanding MagicMed warrant (including Company Broker Warrants (as defined in the Amalgamation Agreement), the “Warrants”) received upon exercise of such Warrant that number of Company Shares which the holder would have been entitled to receive as a result of the Amalgamation if, immediately prior to the date of the Amalgamation (the “Effective Date”), such holder had been the registered holder of the number of MagicMed Shares to which such holder would have been entitled if such holder had exercised such holder’s Warrants immediately prior to the Effective Time (the foregoing collectively, the “Amalgamation”). In aggregate, holders of MagicMed Shares received 9,951,217 Company Shares representing approximately 31.7% of the Company Shares following the consummation of the Amalgamation. The maximum number of Company Shares to be issued by the Company as in respect of the Warrants and Converted Options shall not exceed 7,404,101 Company Shares. The aggregate number of Company Shares that the Company issued in connection with the Amalgamation (collectively, the “Share Consideration”) was in excess of 20% of the Company’s pre-transaction outstanding Company Shares. Accordingly, the Company sought and received stockholder approval of the issuance of the Share Consideration in the Amalgamation in accordance with the NASDAQ Listing Rules. Pursuant to the terms of the Amalgamation Agreement, the Company appointed, effective as of the Effective Time two individuals selected by MagicMed to the Company Board of Directors, Dr. Joseph Tucker and Dr. Brad Thompson. The Amalgamation Agreement contained representations and warranties, closing deliveries and indemnification provisions customary for a transaction of this nature. The closing of the Amalgamation was conditioned upon, among other things, (i) the Share Consideration being approved for listing on Nasdaq, (ii) the effectiveness of a Registration Statement on Form S-4 registering the Share Consideration (the “S-4 Registration Statement”) and (iii) the approval (a) of the MagicMed stockholders of the Amalgamation and (b) of the Company’s stockholders of each of the Amalgamation and the issuance of the Share Consideration in the Amalgamation. The closing of the Amalgamation occurred on September 16, 2021. MagicMed Industries develops and commercializes psychedelic-derived pharmaceutical candidates. MagicMed’s psychedelic derivatives library, the Psybrary™, is an essential building block from which industry can develop new patented products. The initial focus of the Psybrary™ is on psilocybin and DMT derivatives, and it is then expected to be expanded to other psychedelics. Subsequent Events Public Offering On February 15, 2022, the Company completed a public offering of 20,000,000 shares of Common Stock and warrants to purchase up to 20,000,000 shares of Common Stock for gross proceeds of approximately $10 million, before deducting underwriting discounts and commissions and other offering expenses. A.G.P./Alliance Global Partners acted as sole book-running manager for the offering. In addition, Enveric granted the underwriter a 45-day option to purchase up to an additional 3,000,000 shares of common stock and/or warrants to purchase up to an additional 3,000,000 shares of common stock at the public offering price, which the underwriter has partially exercised for warrants to purchase up to 3,000,000 shares of common stock. - 55 - All the securities being sold in the offering were offered by Enveric. At closing, Enveric received net proceeds from the offering of approximately $9.2 million, after deducting underwriting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from this offering for working capital and to fund other general corporate purposes. Nasdaq Bid Price Minimum On February 18, 2022, the Company received a letter from the Listing Qualifications Department of the Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between January 5, 2021, through February 17, 2022, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until August 17, 2022, in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). The letter further provided that if, at any time during the 180-day period, the closing bid price of the Company’s common stock was at least $1.00 for a minimum of 10 consecutive business days, Nasdaq would provide the Company with written confirmation that it had achieved compliance with the minimum bid price requirement. Financial Overview We are a pre-revenue biotech company that has to date, not generated any revenues. During the year ended December 31, 2021, we raised approximately $25.0 million from the sales of common stock and warrants and from proceeds realized from the exercise of cash warrants. In addition, the Amalgamation was a cash accretive transaction from which we realized approximately $3.1 million in cash assets. These amounts were the primary source of funds upon which our operations were financed. Research and Development Expenses Research and development expenses consist primarily of costs incurred for the research and development of our preclinical product candidates, and include, without limitation: ● employee-related expenses, including salaries, benefits and share-based compensation expense; ● expenses incurred under agreements with contract research organizations, contract manufacturing organizations, and consultants and other entities engaged to support our product research and development activities; ● the cost of acquiring, developing and manufacturing materials and lab supplies used in research and development activities; ● facility, equipment, depreciation and other expenses, which include, without limitation direct and allocated expenses for rent, maintenance of our facilities and equipment, insurance and other supplies; ● costs associated with preclinical activities and regulatory operations, including, without limitation, patent related costs; ● consulting and professional fees associated with research and development activities. We expense research and development costs to operations as incurred. Research and development activities are central to our business model. We utilize a combination of internal and external efforts to advance product development from early-stage work to future clinical trial manufacturing and clinical trial support. External efforts include work with consultants and increasingly substantial work at CROs and CMOs. We support an internal research and development team and our facility in Calgary, Alberta, Canada. To move these programs forward along our development timelines, a large portion (approximately 75%) of our staff are research and development employees. Because of the numerous risks and uncertainties associated with product development, however, we cannot determine with certainty the duration and completion costs of these or other current or future preclinical studies and clinical trials. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rates and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. - 56 - General and Administrative Expenses General and administrative expenses consist principally of salaries, benefits and related costs such as share-based compensation for personnel and consultants in executive, finance, business development, corporate communications and human resource functions, facility costs not otherwise included in research and development expenses, accounting and audit costs, tax compliance costs, SEC compliance costs, investor relation costs, training and conference costs, insurance costs and legal fees. We anticipate that our general and administrative expenses will increase in the future as they relate to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission requirements, director and officer liability insurance, investor relations costs and other costs associated with being a public company. Impairment of Intangible Assets and Goodwill Intangible assets consist of the Psybrary and Patent Applications, In Process Research and Development (“IPR&D”) and license agreements. Psybrary and Patent Applications intangible assets are valued using the relief from royalty method . The cost of license agreements is amortized over the economic life of the license. The Company assesses the carrying value of its intangible assets for impairment each year. During the year ended December 31, 2021, the Company acquired intangible assets, valued at approximately $35.5 million and relating to the Psybrary and Patent Applications and IPR&D. Goodwill consists of the excess fair value after the allocation to the identifiable net assets. During the year ended December 31, 2021, the Company recorded goodwill in aggregate of approximately $9.8 million, consisting of $9.1 million being specifically attributable to the deferred tax liabilities incurred and $0.8 million relating to the residual intangible asset that generates earnings in excess of a normal return on all other tangible and intangible assets. The Company performs an annual impairment test of intangible assets and goodwill as of December 31 of each fiscal year. As of December 31, 2021, the Company qualitatively assessed whether it is more likely than not that the respective fair value of the Company’s intangible assets and goodwill is less than its carrying amount. During the fourth quarter 2021, the Company experienced a sustained decline in the quoted market price of the Company’s common stock and as a result the Company determined that as of December 31, 2021 it was more likely than not that the carrying value of these acquired intangibles exceeded their estimated fair value. Accordingly, the Company performed an impairment analysis as of that date using the income approach. This analysis required significant judgments, including primarily the estimation of future development costs, the probability of success in various phases of its development programs, potential post launch cash flows and a risk-adjusted weighted average cost of capital. Pursuant to ASU 2017-04, the Company recorded an impairment of intangible assets of approximately $30.5 million, and an impairment of goodwill of approximately $8.2 million. There were no impairment charges during the year ended December 31, 2020. There was no goodwill or indefinite lived intangible assets as of December 31, 2020. Stock-Based Compensation A significant portion of our operating expenses is related to stock-based compensation costs. Stock based compensation costs were approximately $12.6 million and $2.0 million for the years ended December 31, 2021 and 2020, respectively. Stock based compensation consists of restricted stock units (“RSU”), restricted stock awards (“RSA”) and options to purchase shares of the Company’s common stock. The Company follows Accounting Standards Codification (“ASC”) 718, Compensation - Stock Compensation, which addresses the accounting for stock-based payment transactions, requiring such transactions to be accounted for using the fair value method. The fair value of RSU or RSA awards is determined by the closing price per share of the Company’s common stock on the date of the award. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of options issued. - 57 - RSU’s and RSA’s may contain vesting conditions that include, without limitation, any or all of the following: immediate vesting, vesting over a defined time period, vesting based on specific volume weighted average price levels being achieved by the Company’s common stock as publicly traded within specified measurement periods, and vesting based on the achievement of specific performance milestones. Options contain vesting conditions that provide for vesting over a defined time period. The fair value of RSU’s, RSA’s and options, is charged to expense, on a straight line basis over the vesting periods defined in the award agreements, except for the fair value which is attributable to achievement a specific performance milestones, which are charged to expense upon achievement of such milestones. Change in fair value of warrant liabilities The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company accounts for warrants for shares of the Company’s common stock that are not indexed to its own stock as derivative liabilities at fair value on the consolidated balance sheet. The Company adjusts this derivative liability at each reporting period, with the liability recorded on the balance sheet being equal to fair value of such liability on the relevant balance sheet date. Fair value of derivative liabilities is determined in accordance with ASC 820-10 “Fair Value Measurement”. As of December 31, 2021, the fair value of all derivative liabilities was determined using the Black-Scholes method, which is a level 3 method, as defined in ASC 820-10. The were no derivative liabilities existing on the Company’s balance sheet as of December 31, 2020. Derivative liabilities with an initial fair value of approximately $10.0 million were recorded during the year ended December 31, 2021, all of which were attributable to certain warrants issued as part the Company’s sales of common stock and warrants in January and February 2021. During the year ended December 31, 2021 an aggregate decrease in value of derivative liabilities of approximately $9.3 million was recorded, resulting in other income equal to such amount. The fair value of these derivative liabilities has a strong correlation to the price per share of the Company’s common stock as publicly traded. Increases in the Company’s price per share will result in an increased derivative liability, with a corresponding other expense being recorded in the other income (expense) section of the statement of operations. Decreases in the Company’s price per share will result in a decreased derivative liability, with a corresponding other income being recorded in the other income (expense) section of the statement of operations. Key Components of Our Results of Operations Operating Expenses Our operating expenses include, without limitation, research and development, employee compensation and payroll taxes, employee benefits, insurance costs, facility costs, laboratory supplies, office expenses, conference and meeting costs, travel expenses, cyber costs, financial statement preparation services, tax compliance, various consulting and director fees, legal services, auditing fees, stock-based compensation, impairment of intangible assets, depreciation of equipment and amortization of intangible assets. These expenses have increased in connection with the Company’s expanded product development activities which significantly increased as a result of the Amalgamation Agreement and the Company’s management expects these expenses to continue to at current or increased levels as the Company continues to execute its product development plans. - 58 - Results of Operations The following table sets forth information comparing the components of net loss for the years ended December 31, 2021 and the comparable period in 2020: Year Ended December 31, 2021 2020 Operating expenses Research and development costs $ 4,788,807 $ 174,083 General and administrative expenses 20,499,052 5,322,362 Impairment of intangible assets and goodwill 38,678,918 — Depreciation and amortization 656,643 120,872 Total operating expenses 64,623,420 5,617,317 Loss from operations (64,623,420 ) (5,617,317 ) Other income (expense) Interest expense (10,316 ) (445,250 ) Change in fair value of warrant liabilities 9,327,326 — Inducement expense (1,125,291 ) (802,109 ) Total other income (expense) 8,191,719 (1,247,359 ) Net loss before income taxes $ (56,431,701 ) $ (6,864,676 ) Income tax benefit 7,454,805 — Net loss after income tax benefit (48,976,896 ) (6,864,676 ) Other comprehensive gain (loss) Foreign exchange gain (loss) 150,475 (169,655 ) Comprehensive loss $ (48,826,421 ) $ (7,034,331 ) Net loss per share - basic and diluted $ (2.07 ) $ (1.19 ) Weighted average shares outstanding, basic and diluted 23,617,104 5,753,598 Known Trends or Uncertainties The current inflationary trend existing in the North American economic environment is considered by Management to be reasonably likely to have a material unfavorable impact on results of continuing operations. Higher rates of price inflation, as compared to recent prior levels of price inflation have caused a general increase the cost of labor and materials. In addition, there is an increased risk of the Company experiencing labor shortages as a result of a potential inability to attract and retain human resources due to increased labor costs resulting from the current inflationary environment. Operating Expenses Operating expenses increased to $64,623,420 for the year ended December 31, 2021 from $5,617,317 for the year ended December 31, 2020, an increase of $59,006,103, or 1,050%. This change was primarily driven by costs that include, without limitation, costs related to impairment of intangible assets and goodwill of $38,678,918, which did not occur in the prior year, and increases in research and development costs of $4,614,724, stock-based compensation of $9,812,669, legal & accounting costs of $1,706,263, human resource costs of $1,585,457, insurance costs of $1,752,068 and marketing, & public company costs of $554,813, as compared to the prior year. - 59 - Interest Expense Interest expense for the year ended December 31, 2021 was $10,316 compared to $445,250 for the year ended December 31, 2020. A decrease of 98%. This decrease is due to the Company’s satisfaction of promissory notes with an aggregate principal amount of approximately $2.1 million during the year ended December 31, 2020, resulting in the current year having significantly decreased interest-bearing liabilities. Inducement Expense Inducement expense was $1,125,291 for the year December 31, 2021 as compared to $802,109 for the year ended December 31, 2020. An increase of 40%. The expenses recorded are related to inducement incurred related to the conversion of warrants and options. Change in fair value of warrant liabilities Change in fair value of warrant liabilities for the year ended December 31, 2021 was an income of $9,327,326 as compared to $— for the year ended December 31, 2020. The change in fair value of warrant liabilities is significantly influenced by the change in the closing price of Common Stock at the end of each period, as compared to the closing price of Common Stock at the beginning of each period with a strong inverse relationship between changes in fair value of warrant liabilities and the trading price of Common Stock. Income tax benefit Income tax benefit for the year ended December 31, 2021 was $7,454,805 as compared to $— for the year ended December 31, 2020. The income tax benefit was realized in conjunction with the decrease in deferred tax liability resulting from the impairment of intangible assets and goodwill charges incurred during the year ended December 31, 2021. Foreign currency translation Gain on foreign currency translation was $150,475 for the year ended December 31, 2021 as compared to a loss on foreign currency translation of $169,655, a net increase in comprehensive income of $320,130. Gains and losses on foreign currency translation result from financial transactions of the Company’s two subsidiaries in Canada being recorded in their functional currency of Canadian dollars and then translated to United States dollars at period end for consolidated reporting by the parent company. The Company incurred significant impairment of intangible asset charges at December 31, 2021, with these large amounts being applied to the variation in exchange rates as compared to prior period end translations being the primary catalyst of the increase in comprehensive income relating to foreign currency translation as compared to the year ended December 31, 2021. Liquidity and Capital Resources The Company has incurred continuing losses from its operations. As of December 31, 2021, the Company had an accumulated deficit of $60,736,453 and working capital of $15,653,281. Since inception, the Company’s operations have been funded principally through the issuance of debt and equity. The Company’s material cash requirements consist of working capital to fund capital expenditures incurred at our research facility in Calgary and our operations, which consist primarily of, without limitation, employee related expenses, product development activities conducted by third parties, research materials and lab supplies, facility related expenses including rent and maintenance, costs associated with preclinical studies, patent related costs, costs of regulatory and public company compliance, insurance costs, audit costs, consultants and legal fees. Additionally, we currently utilize third-party contract CROs to assist with our clinical development activities. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses to engage third-party contract CMOs to carry out our clinical manufacturing activities as we do not yet have a commercial organization, and incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. The Company’s current working capital resources, which include amounts received pursuant to the February 2022 underwritten public offering described below are sufficient to fund these material cash requirements for the next twelve months. - 60 - We expect to finance our future cash needs through public or private equity offerings, debt financings, or business development transactions. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our research and development programs or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain pipeline candidates that we might otherwise seek to develop or commercialize independently. Our ability finance our future cash need through equity offerings may be limited by our amount of authorized and unissued share. As of the date of filing of this Annual Report on Form 10-K, the Company does not have sufficient unreserved, authorized shares to secure an equity investment of sufficient amount, based on the Company’s currently traded price per share. The Company intends to seek shareholder approval for an increase in authorized shares to remedy the insufficiency of unreserved authorized shares. There can be no assurances given as to shareholder approval of an increase in authorized shares. Furthermore, on February 18, 2022, we received a letter from the Listing Qualifications Department of the Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between January 5, 2022, through February 17, 2022, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until August 17, 2022 (the “Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). In order to regain compliance with Nasdaq’s minimum bid price requirement, the Company’s common stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period. In the event the Company does not regain compliance by the end of the Compliance Period, the Company may be eligible for additional time to regain compliance. To qualify, the Company will be required to meet the continued listing requirement for the market value of its publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split if necessary. If the Company meets these requirements, the Company may be granted an additional 180 calendar days to regain compliance. However, if it appears to Nasdaq that the Company will be unable to cure the deficiency, or if the Company is not otherwise eligible for the additional cure period, Nasdaq will provide notice that the Company’s common stock will be subject to delisting. While the letter has no immediate impact on the listing of the Company’s common stock, which will continue to be listed and traded on The Nasdaq Capital Market, subject to the Company’s compliance with the other listing requirements of The Nasdaq Capital Market, a failure to cure this deficiency would result in a delisting from the Nasdaq, which would result in significantly increased uncertainty as to the Company’s ability to raise capital required to fund its material cash requirements. February 2022 underwritten public offering On February 11, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with A.G.P./Alliance Global Partners (the “Underwriter”). Pursuant to the Underwriting Agreement, the Company agreed to sell, in a firm commitment offering, 20,000,000 shares of the Company’s common stock, $0.01 par value per share, and accompanying warrants to purchase up to an aggregate of 20,000,000 shares of its common stock, as well as up to 3,000,000 additional shares of common stock and/or warrants to purchase an aggregate of up to 3,000,000 shares of its common stock that may be purchased by the Underwriter pursuant to a 45-day option granted to the Underwriter by the Company (the “Offering”). Each share of common stock is being sold together with a common warrant to purchase one share of common stock, at an exercise price of $0.55 per share. Such common warrants are immediately exercisable and will expire five years from the date of issuance. The combined public offering price of each share of common stock and accompanying common warrant sold in the Offering was $0.50. On February 14, 2022, the Underwriter exercised its option to purchase warrants to purchase up to 3,000,000 additional shares of the Company’s common stock. All the securities being sold in the offering were offered by Enveric. At closing, Enveric received net proceeds from the offering of approximately $9.2 million, after deducting underwriting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from this offering for working capital and to fund other general corporate purposes. This offering was made pursuant to an effective shelf registration statement on Form S-3 (No. 333-257690) previously filed with the U.S. Securities and Exchange Commission (the “SEC”) that was declared effective by the SEC on July 9, 2021, and to a prospectus supplement and accompanying prospectus. The final prospectus supplement and accompanying prospectus relating to the offering were filed with the SEC and are available on the SEC’s website located at http://www.sec.gov. Warrant exercises during the year ended December 31, 2021 During the year ended December 31, 2021, the Company received aggregate proceeds of $3,285,171 pursuant to the exercise of cash warrants with an aggregate of 2,643,047 shares of Common Stock being issued. - 61 - Amalgamation with MagicMed On May 24, 2021, the Company entered into the Amalgamation Agreement with Holdco and Purchaser and MagicMed, pursuant to which, among other things, the Company, indirectly through Purchaser, acquired all of the outstanding securities of MagicMed in exchange for securities of the Company by way of an amalgamation under the British Columbia Business Corporations Act, upon the terms and conditions set forth in the Amalgamation Agreement, such that, upon completion of the Amalgamation (as defined herein), Amalco will be an indirect wholly-owned subsidiary of the Company. The Amalgamation was completed on September 16, 2021. At the Effective Time, holders of the MagicMed Shares received such number of shares of Company Shares representing, together with the Company Shares issuable upon exercise of the Warrants and the Converted Options (each as defined herein), approximately 36.6% of the issued and outstanding Company Shares (on a fully diluted basis). The MagicMed Shares were initially converted into Amalco Redeemable Preferred Shares (as defined in the Amalgamation Agreement), which immediately following the Amalgamation were redeemed for 0.000001 of a Company Share. Following such redemption, the shareholders of MagicMed received additional Company Shares equal to the product of the Exchange Ratio (as defined in the Amalgamation Agreement) multiplied by the number of MagicMed Shares held by each such shareholder. Additionally, following the Effective Time (i) each outstanding MagicMed stock option was converted into and became an option to purchase (the “Converted Options”) the number of Company Shares equal to the Exchange Ratio multiplied by the number of MagicMed Shares subject to such MagicMed stock option, and (ii) each holder of an outstanding MagicMed warrant (including Company Broker Warrants (as defined in the Amalgamation Agreement), the “Warrants”) received upon exercise of such Warrant that number of Company Shares which the holder would have been entitled to receive as a result of the Amalgamation if, immediately prior to the date of the Amalgamation (the “Effective Date”), such holder had been the registered holder of the number of MagicMed Shares to which such holder would have been entitled if such holder had exercised such holder’s Warrants immediately prior to the Effective Time (the foregoing collectively, the “Amalgamation”). In aggregate, holders of MagicMed Shares received 9,951,217 Company Shares representing approximately 31.7% of the Company Shares following the consummation of the Amalgamation. The maximum number of Company Shares to be issued by the Company as in respect of the Warrants and Converted Options shall not exceed 7,404,101 Company Shares. The aggregate number of Company Shares that the Company issued in connection with the Amalgamation (collectively, the “Share Consideration”) was in excess of 20% of the Company’s pre-transaction outstanding Company Shares. Accordingly, the Company sought and received stockholder approval of the issuance of the Share Consideration in the Amalgamation in accordance with the NASDAQ Listing Rules. Pursuant to the terms of the Amalgamation Agreement, the Company appointed, effective as of the Effective Time two individuals selected by MagicMed to the Company Board of Directors, Dr. Joseph Tucker and Dr. Brad Thompson. The Amalgamation Agreement contained representations and warranties, closing deliveries and indemnification provisions customary for a transaction of this nature. The closing of the Amalgamation was conditioned upon, among other things, (i) the Share Consideration being approved for listing on Nasdaq, (ii) the effectiveness of a Registration Statement on Form S-4 registering the Share Consideration (the “S-4 Registration Statement”) and (iii) the approval (a) of the MagicMed stockholders of the Amalgamation and (b) of the Company’s stockholders of each of the Amalgamation and the issuance of the Share Consideration in the Amalgamation. The closing of the Amalgamation occurred on September 16, 2021. This transaction was cash accretive to the Company, with an aggregate of $3,055,328 in cash being included in the net assets acquired. February 2020 Note On February 24, 2020, Jay Pharma received $50,000 in exchange for a promissory note with a lender (the “February 2020 Note”). The February 2020 Note bore interest at a rate of 10% on its face value per annum. In the case of an event of default, the interest rate would increase to 24% per year. The note matured on July 31, 2020. The February 2020 Note was convertible into common shares of Jay Pharma at any time at a conversion price of $0.38 per share. On December 30, 2020, the February 2020 Note was converted into 190,004 shares of the Company’s common stock. Alpha Note Simultaneously with the execution of the Original Amalgamation Agreement, Jay Pharma issued the Original Note, dated January 10, 2020, to Alpha, pursuant to which, on January 10, 2020, Jay Pharma received a $1,500,000 loan from Alpha. The Original Note was amended to reflect an additional investment of $500,000, resulting in a total principal amount of $2,000,000. The Original Note was further amended on August 12, 2020, to account for the termination of the Original Amalgamation Agreement and the change in the structure of the transaction from an amalgamation to a stock-for-stock exchange offer. Upon the closing of the Offer, the Note was converted into the right to receive 2,473,848 common shares of Jay Pharma and warrants to purchase 2,333,970 common shares of Jay Pharma at an exercise price of $1.03 per share immediately prior to the Offer. In connection with the Offer, such common shares and warrants of Jay Pharma acquired by Alpha upon conversion of the Note were converted into the right to receive (i) 547,278 shares of Series B Preferred Stock that are convertible into up to 547,278 shares of Common Stock, after giving effect to the Reverse Stock Split, and (ii) warrants to purchase up to 516,333 shares of Common Stock at an exercise price of $4.64 per share, after giving effect to the Reverse Stock Split. - 62 - Alpha Investment Alpha also acquired 3,500,954 common shares of Jay Pharma and warrants to purchase 3,500,954 common shares of Jay Pharma at an exercise price of $1.03 per share, immediately prior to the Offer, in connection with the $3 million private placement completed prior to the completion of the Offer. In connection with the Offer, such common shares and warrants of Jay Pharma acquired by Alpha in the Alpha Investment were converted into, as applicable, the right to receive (i) 774,499 shares of Series B Preferred Stock that are convertible into up to 774,499 shares of Common Stock, after giving effect to the Reverse Stock Split, and (ii) warrants to purchase up to 774,499 shares of Common Stock at an exercise price of $4.64 per share, after giving effect to the Reverse Stock Split. Alpha December Investment On December 4, 2020, Jay Pharma and Alpha executed a securities purchase agreement whereby Alpha purchased an additional 1,000,000 common shares of Jay Pharma and warrants to purchase 500,000 common shares of Jay Pharma at an exercise price of $0.30 per share for an aggregate purchase price of $300,000 (the “Alpha December Investment”). In connection with the Offer, such shares were exchanged for 221,225 shares of Common Stock, and such warrants were exchanged for warrants to purchase 110,613 shares of Common Stock at $1.36 per share. Series B Warrants Additionally, at the effective time of the Offer, the Company issued five-year warrants (the “Series B Warrants”) to purchase 1,791,923 shares of Common Stock at an exercise price of $0.01 to Alpha, after giving effect to the Reverse Stock Split. The number of shares of Common Stock issuable upon the exercise of the Series B Warrants is equal to the product of (i) 8,100,000 and (ii) the Exchange Ratio of 0.8849, post-Reverse Stock Split. Registered Direct and Public Offerings On January 14, 2021, the Company completed an offering of 2,221,334 shares of Common Stock and pre-funded warrants at approximately $4.50 per share and a concurrent private placement of warrants to purchase 1,666,019 shares of Common Stock at $4.95 per share, exercisable immediately and terminating five years after the date of issuance for gross proceeds of approximately $10,000,000. The net proceeds to the Company after deducting financial advisory fees and other costs and expenses were approximately $8,800,087, with $4,617,087 of such amount allocated to share capital and $4,846,000 allocated to warrant liability and the remaining $663,000 recorded as an expense. On February 11, 2021, the Company completed an offering of 3,007,026 shares of Common Stock and a concurrent private placement of warrants to purchase 1,503,513 shares of Common Stock at $4.90 per share, exercisable immediately and terminating five year from the date of issuance for gross proceeds of approximately $12,800,000. The net proceeds to Enveric from the offering after deducting financial advisory fees and other costs and expenses were approximately $11,624,401, with $7,016,401 of such amount allocated to share capital and $5,135,000 allocated to warrant liability and the remaining $527,000 recorded as an expense. On February 15, 2022, the Company completed a public offering of 20,000,000 shares of Common Stock and warrants to purchase up to 20,000,000 shares of Common Stock for gross proceeds of approximately $10 million, before deducting underwriting discounts and commissions and other offering expenses. A.G.P./Alliance Global Partners acted as sole book-running manager for the offering. In addition, Enveric granted the underwriter a 45-day option to purchase up to an additional 3,000,000 shares of common stock and/or warrants to purchase up to an additional 3,000,000 shares of common stock at the public offering price, which the underwriter has partially exercised for warrants to purchase up to 3,000,000 shares of common stock. All the securities being sold in the offering were offered by Enveric. At closing, Enveric received net proceeds from the offering of approximately $9.2 million, after deducting underwriting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from this offering for working capital and to fund other general corporate purposes. - 63 - This offering was made pursuant to an effective shelf registration statement on Form S-3 (No. 333-257690) previously filed with the U.S. Securities and Exchange Commission (the “SEC”) that was declared effective by the SEC on July 9, 2021, and to a prospectus supplement and accompanying prospectus. We believe that, as a result of these transactions, we currently have sufficient cash and financing commitments to meet our funding requirements over the next year. Notwithstanding, we expect that we will need to raise additional financing to accomplish our development plan over the next several years. We may seek to obtain additional funding through debt or equity financing in the future. There are no assurances that we will be able to raise capital on terms acceptable to us or at all, or that cash flows generated from our operations will be sufficient to meet our current operating costs. Our ability to obtain additional capital may depend on prevailing economic conditions and financial, business and other factors beyond our control. The COVID-19 pandemic has caused an unstable economic environment globally. Disruptions in the global financial markets may adversely impact the availability and cost of credit, as well as our ability to raise money in the capital markets. Current economic conditions have been and continue to be volatile. Continued instability in these market conditions may limit our ability to access the capital necessary to fund and grow our business. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our financial condition and operating results. Cash Flows Since inception, we have primarily used our available cash to fund our product development expenditures. Cash Flows for the Years Ended December 31, 2021 and 2020 The following table sets forth a summary of cash flows for the periods presented: Year Ended December 31, 2021 2020 Net cash used in operating activities $ (11,457,671 ) $ (3,888,785 ) Net cash provided by (used in) investing activities 2,190,609 (44,143 ) Net cash provided by financing activities 24,899,659 5,531,270 Effect of foreign exchange rate on cash 144,942 (63,596 ) Net increase in cash $ 15,777,539 $ 1,534,746 Operating Activities Net cash used in operating activities was $11,457,671 during the year ended December 31, 2021, which consisted primarily of a net loss of $48,976,896 and non-cash income related to change in fair value of warrant liability of $9,327,326, and non-cash income tax benefits of $7,454,805, offset by adjustments to reconcile net loss to cash used in operating activities, which include, without limitation, impairment of intangible assets of $38,678,918, stock and options based compensation of $12,597,001, amortization of intangible assets of $643,333 and inducement expense of $1,125,291 and changes in operating assets consisting of decreases in prepaid expenses and other current assets of $826,837 and increases in accounts payable and accrued liabilities of $383,199. Net cash used in operating activities was $3,888,785 during the year ended December 31, 2020, which consisted primarily of a net loss of $6,864,676, offset by amortization of note discount of $288,631, stock-based compensation of $1,977,155, induced conversion of warrants of $802,109, amortization of intangible assets of $120,872, increases in prepaid expenses and other current assets for $636,497, and increases in accounts payable and accrued liabilities of $267,002. Investing Activities Net cash provided by investing activities was $2,190,609 during the year ended December 31, 2021, which consisted of $3,055,328 in cash provided by the cash accretive acquisition of MagicMed, offset by $675,000 in cash used for the purchase of a license agreement and $189,719 cash used in equipment purchases. - 64 - Net cash used in investing activities was $44,143 during the year ended December 31, 2020, which consisted of the acquisition of intellectual property from Tikkun Pharma. Financing Activities Net cash provided by financing activities was $24,899,659 during the year ended December 31, 2021, which consisted of $21,614,488 in cash provided from the sales of common stock and $3,285,171 in cash provided by the exercise of cash warrants. Net cash provided by financing activities was $5,531,270 during the year ended December 31, 2020, which consisted primarily of $50,000 in proceeds from convertible notes payable, $1,812,410 in proceeds from note payable, proceeds from the offering and reverse merger of $3,372,500, September 2020 private placement of $227,500, December 2020 private placement of $260,500 and a decrease of $191,640 in repayment of note payable. Critical Accounting Policies and Significant Judgments and Estimates Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. We have identified certain accounting estimates which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial conditions or results of operations. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results. There have been no changes to estimates during the periods presented in the filing. Historically, changes in management estimates have not been material. Use of Estimates The preparation of the consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Our most significant estimates include impairment charges to intangible assets and goodwill, measurement of stock-based compensation expenses and the valuation of warrant derivative liabilities. Actual results could differ from these estimates. Recent Accounting Standards Management does not believe that any recently issued, but not yet effective accounting standards, when adopted, will have a material effect on the accompanying financial statements, other than those disclosed below. In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, Income Taxes (Topic 740: Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which removes certain exceptions to the general principles in Topic 740. ASU 2019-12 is effective for the fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. In October 2020, the FASB issued ASU 2020-10, “Codification Improvements.” The new accounting rules improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50) that had only been included in the Other Presentation Matters Section (Section 45) of the Codification. Additionally, the new rules also clarify guidance across various topics including defined benefit plans, foreign currency transactions, and interest expense. The new accounting rules were effective for the Company in the first quarter of 2021. The adoption of the new accounting rules did not have a material impact on the Company’s consolidated financial statements. - 65 - In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The amendments in ASU No. 2021-04 provides guidance 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 amendments in this ASU No. 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, including interim periods within those fiscal years. As a result, the Company adopted ASU 2021-04 effective January 1, 2022. The adoption of the new accounting rules did not have a material impact on the Company’s consolidated financial statements. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts. As of December 31, 2021, the Company had greater than $250,000 at US or Canadian financial institutions. Foreign Currency Risk From inception through December 31, 2021, the reporting currency of the Company is the United States dollar while the functional currency of the Company’s Canadian subsidiaries is the Canadian dollar. As a result, the Company is subject to exposure from changes in the exchange rates of the Canadian dollar and the U.S. dollar. The Company has not entered into any financial derivative instruments that expose it to material market risk, including any instruments designed to hedge the impact of foreign currency exposures. The Company may, however, hedge such exposure to foreign currency exchange fluctuations in the future. Recent Developments January 2021 Registered Direct Offering On January 12, 2021, we entered into a Securities Purchase Agreement (the “January 2021 Purchase Agreement”) with Alpha, The Hewlett Fund LP, Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (“Alto”), Iroquois Master Fund Ltd., Iroquois Capital Investment Group LLC and Hudson Bay Master Fund Ltd (collectively, the “Subsequent Investors”), pursuant to which the Company issued and sold in a registered direct offering (the “January 2021 Direct Offering”) an aggregate of 2,221,334 shares of our Common Stock at an offering price of $4.5018 per share, for gross proceeds of approximately $10,000,000 before the deduction of fees and offering expenses. Under the January 2021 Purchase Agreement, the Subsequent Investors could choose to purchase pre-funded warrants (the “Pre-funded Warrants”) in lieu of shares of Common Stock. The offering closed on January 14, 2021. - 66 - The Pre-funded Warrants have an exercise price of $0.01 per share. The Pre-funded Warrants are immediately exercisable and may be exercised at any time after their original issuance until such Pre-funded Warrants are exercised in full. A holder of a Pre-funded Warrant may not exercise any portion of such holder’s Pre-funded Warrants to the extent that the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding shares of Common Stock immediately after exercise (the “Beneficial Ownership Limitation”), except that upon at least 61 days’ prior notice from the holder to the Company, the holder may increase the Beneficial Ownership Limitation to up to 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise. The shares, the Pre-funded Warrants, and the shares of Common Stock issuable upon the exercise of the Pre-funded Warrants (the “Pre-funded Warrant Shares”) were offered by the Company pursuant to a shelf registration statement on Form S-3 (File No. 333-233260), previously filed with the SEC on August 14, 2019, and declared effective by the SEC on November 19, 2019. Pursuant to the January 2021 Purchase Agreement, in a concurrent private placement (the “January 2021 Private Placement”) that also closed on January 14, 2021, the Company issued to the Subsequent Investors, unregistered warrants to purchase up to 1,666,019 shares of Common Stock (the “January 2021 Warrants”). The January 2021 Warrants are exercisable immediately upon issuance and terminate five years following issuance and are exercisable at an exercise price of $4.9519 per share, subject to adjustment as set forth therein. A holder of January 2021 Warrants will not have the right to exercise any portion of its January 2021 Warrants if the holder, together with its affiliates, would beneficially own in excess of the Beneficial Ownership Limitation; provided, however, that upon 61 days’ prior notice to the Company, the holder may increase or decrease the Beneficial Ownership Limitation, provided that in no event shall the Beneficial Ownership Limitation exceed 9.99%. The January 2021 Warrants and the shares of our Common Stock issuable upon the exercise of the January 2021 Warrants (the “January 2021 Warrant Shares”) were not registered under the Securities Act, were not offered pursuant to the shelf registration statement, and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder as a transaction by the issuer not involving a public offering. To induce the Subsequent Investors into the January 2021 Purchase Agreement, the Company also entered into a registration rights agreement, dated January 12, 2021 (the “January Registration Rights Agreement”), with the Subsequent Investors, pursuant to which, among other things, the Company agreed to prepare and file with the Securities and Exchange Commission this Registration Statement to register for resale of all of the January 2021 Warrant Shares. Letter Agreement with Alpha On January 12, 2021 we entered into a letter agreement (the “Letter Agreement”) with Alpha. Under the Letter Agreement, (i) we agreed to register 1,791,923 of the Series B Warrant Shares issuable upon the exercise of Series B Warrants, (ii) the Series B Warrant Shares will not be subject to an existing lock-up agreement between us and Alpha, and Alpha will no longer be subject to any limitations on its ability to dispose of the Series B Warrant Shares that are imposed by us to the extent permitted by applicable rules and regulations, (iii) Alpha agreed to limit its sales of Common Stock on each trading day to no more than 10% of the daily reported trading volume of Common Stock on the Nasdaq Stock Market for such trading day, provided, such limitation shall terminate if the closing price of our shares of Common Stock on the Nasdaq Stock Market exceeds $5.29 per share for five consecutive trading days and (iv) we will be free to waive the terms and conditions of any lock-up agreement between us and any of the former shareholders of Jay Pharma Inc. without the consent of, or notice to, Alpha once this registration statement registering the Series B Warrant Shares is declared effective by the SEC. February 2021 Registered Direct Offering On February 8, 2021, we entered into a Securities Purchase Agreement (the “February 2021 Purchase Agreement”) with the Subsequent Investors, pursuant to which the Company issued and sold in a registered direct offering (the “February 2021 Direct Offering”) an aggregate of 3,007,026 shares of our Common Stock at an offering price of $4.27 per share, for gross proceeds of approximately $12,800,000 before the deduction of fees and offering expenses. The offering closed on February 11, 2021. - 67 - The shares were offered by the Company pursuant to a shelf registration statement on Form S-3 (File No. 333-233260), previously filed with the SEC on August 14, 2019, and declared effective by the SEC on November 19, 2019. Pursuant to the February 2021 Purchase Agreement, in a concurrent private placement (the “February 2021 Private Placement”) that also closed on February 11, 2021, the Company issued to the Subsequent Investors, unregistered warrants to purchase up to 1,503,513 shares of Common Stock (the “February 2021 Warrants”). The February 2021 Warrants are exercisable immediately upon issuance and terminate five years following issuance and are exercisable at an exercise price of $4.90 per share, subject to adjustment as set forth therein. A holder of February 2021 Warrants will not have the right to exercise any portion of its February 2021 Warrants if the holder, together with its affiliates, would beneficially own in excess of the Beneficial Ownership Limitation; provided, however, that upon 61 days’ prior notice to the Company, the holder may increase or decrease the Beneficial Ownership Limitation, provided that in no event shall the Beneficial Ownership Limitation exceed 9.99%. The February 2021 Warrants and the shares of our Common Stock issuable upon the exercise of the February 2021 Warrants (the “February 2021 Warrant Shares”) were not registered under the Securities Act, were not offered pursuant to the shelf registration statement, and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder as a transaction by the issuer not involving a public offering. To induce the Subsequent Investors into the February 2021 Purchase Agreement, the Company also entered into a registration rights agreement, dated February 8, 2021 (the “February Registration Rights Agreement”), with the Subsequent Investors, pursuant to which, among other things, the Company agreed to prepare and file with the Securities and Exchange Commission this Registration Statement to register for resale of all of the February 2021 Warrant Shares. Palladium Warrants In connection with its role as financial advisor to the Company in the January 2021 Direct Offering, the January 2021 Private Placement, the February 2021 Direct Offering and the February 2021 Private Placement, the Company issued Palladium 155,493 warrants with an exercise price of $4.9519 and 210,492 warrants with an exercise price of $4.90 (the “Palladium Warrants”) on February 11, 2021. The Palladium Warrants and the shares of our Common Stock issuable upon the exercise of the Palladium Warrants (the “Palladium Warrant Shares”) were not registered under the Securities Act and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder as a transaction by the issuer not involving a public offering. Resale Registration Statement On February 16, 2021, we filed a resale registration statement on Form S-3 (File No. 333-253196) (the “Resale Registration Statement”) registering 5,497,878 shares of our common stock, consisting of the Series B Warrant Shares, the January 2021 Warrant Shares, the February 2021 Warrant Shares, the Palladium Warrant Shares, 156,318 shares issued to former directors and officers of Ameri and 14,121 shares issued to a former consultant of the Company. February 2022 underwritten public offering On February 15, 2022, the Company completed a public offering of 20,000,000 shares of Common Stock and warrants to purchase up to 20,000,000 shares of Common Stock for gross proceeds of approximately $10 million, before deducting underwriting discounts and commissions and other offering expenses. A.G.P./Alliance Global Partners acted as sole book-running manager for the offering. In addition, Enveric granted the underwriter a 45-day option to purchase up to an additional 3,000,000 shares of common stock and/or warrants to purchase up to an additional 3,000,000 shares of common stock at the public offering price, which the underwriter has partially exercised for warrants to purchase up to 3,000,000 shares of common stock. All the securities being sold in the offering were offered by Enveric. At closing, Enveric received net proceeds from the offering of approximately $9.2 million, after deducting underwriting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from this offering for working capital and to fund other general corporate purposes. This offering was made pursuant to an effective shelf registration statement on Form S-3 (No. 333-257690) previously filed with the U.S. Securities and Exchange Commission (the “SEC”) that was declared effective by the SEC on July 9, 2021, and to a prospectus supplement and accompanying prospectus. The final prospectus supplement and accompanying prospectus relating to the offering were filed with the SEC and are available on the SEC’s website located at http://www.sec.gov. Nasdaq Bid Price Minimum On February 18, 2022, the Company received a letter from the Listing Qualifications Department of the Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between January 5, 2021, through February 17, 2022, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until August 17, 2022, in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). The letter further provided that if, at any time during the 180-day period, the closing bid price of the Company’s common stock was at least $1.00 for a minimum of 10 consecutive business days, Nasdaq would provide the Company with written confirmation that it had achieved compliance with the minimum bid price requirement. Item 7A. Quantitative and Qualitative Disclosure About Market Risk Not applicable. Item 8. Financial Statements and Supplementary Data The information required by this Item 8 is included at the end of this Annual Report on Form 10-K beginning on page F-1. - 68 - Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.