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Enveric Biosciences(ENVB) - 2022 Q4 - Annual Report

Part I Business Enveric Biosciences develops novel small-molecule therapeutics for mental health and palliative care, focusing on psychedelic pipeline assets - The company is a biotechnology firm developing novel small-molecule therapeutics for anxiety, depression, and addiction disorders, as well as palliative care products for cancer patients24 - Following the amalgamation with MagicMed in September 2021, the company is developing the Psybrary™, a proprietary library of psychedelic derivatives, and uses a proprietary PsyAI™ tool to screen molecules and accelerate development3233 - In May 2022, the company announced plans to spin off its cannabinoid clinical development pipeline assets to its majority-owned subsidiary, Akos Biosciences, Inc., to focus solely on psychedelic-based treatments3436 Product Candidate Pipeline | Product Candidates | Targeted Indications | Status | Expected Next Steps | | :--- | :--- | :--- | :--- | | EVM-201 (lead candidate EB-373) | Anxiety | Research & Development, Lead Optimization | In-vitro and in-vivo experimentation; Phase 1 trial expected Q4 2023 | | EVM-301 | Mental health indication | Research & Development, Hit-to-Lead Generation | In-vitro experimentation | | EV104: CBD + Celecoxib Conjugate | Osteoarthritis | Research & Development, Lead Optimization | Synthesis of molecular conjugates | | Cannabinoid-Infused Topical Product | Oncology-related skincare conditions (e.g., radiodermatitis) | Research & Development/Discovery | IND submission; Exploratory Phase 1/2 trial | - The company owns full rights to 16 patent applications related to psychedelics, including psilocybin derivatives, prodrugs of psilocin, and mescaline derivatives40 Risk Factors The company faces substantial risks including going concern doubts, dependence on early-stage product success, and regulatory hurdles - The company's independent registered public accounting firm has expressed substantial doubt about its ability to continue as a going concern as of December 31, 2022, due to recurring losses and the need for additional funds135 - The company is dependent on the success of its product candidates, which are in early stages of development and may never receive regulatory approval or be successfully commercialized137 - Psychedelic product candidates are subject to strict controlled substance laws (Schedule I), complicating research and adding significant hurdles to potential commercialization220224 - A material weakness in internal control over financial reporting was identified as of December 31, 2022, related to insufficient segregation of duties and lack of formalized control documentation273274421 - The planned spin-off of the cannabinoid business into Akos Biosciences may not be completed successfully, potentially triggering a Put Right on Akos preferred stock by May 5, 2023, guaranteed by Enveric310311312 - The company has a history of unprofitability, with an accumulated deficit of $79.2 million, and does not expect to be profitable in the foreseeable future186 Unresolved Staff Comments The company reports no unresolved comments from the SEC staff Properties The company's principal corporate office is in Naples, Florida, with a Canadian office and lab lease expiring in July 2023 - Principal corporate office is located in Naples, FL, under a month-to-month operating lease316 - Canadian office is located in Calgary, Alberta, under an operating lease expiring in July 2023316 Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial position - The Company reports no pending litigation that would have a material adverse effect on its financial position, results of operations or cash flows317 Mine Safety Disclosures Not applicable Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "ENVB"; it has never paid cash dividends and made no issuer equity purchases - Common stock is traded on the Nasdaq Capital Markets under the symbol "ENVB"320 - The Company has never declared or paid cash dividends on its common stock and has no intention to do so in the foreseeable future322 Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported a net loss of $18.5 million in 2022, a significant reduction from $49.0 million in 2021, with auditors expressing going concern doubts Results of Operations (Years Ended December 31) | | 2022 | 2021 | | :--- | :--- | :--- | | Total operating expenses | $27,415,106 | $64,623,420 | | General and administrative | $11,605,761 | $20,499,052 | | Research and development | $8,027,773 | $4,788,807 | | Impairment of intangible assets and goodwill | $7,453,662 | $38,678,918 | | Loss from operations | ($27,415,106) | ($64,623,420) | | Net loss | ($18,471,333) | ($48,976,896) | | Net loss per share - basic and diluted | ($13.00) | ($103.69) | - The company has incurred losses since inception, with an accumulated deficit of $79.2 million as of December 31, 2022, raising substantial doubt about its ability to continue as a going concern383 - Management believes its current cash of $17.7 million (as of Dec 31, 2022) is sufficient to fund operations through December 31, 2023, but not for a full year, requiring additional capital384581 - General and administrative expenses decreased by 43% in 2022, primarily due to a $10.2 million reduction in stock-based compensation374 - Research and development expenses increased by 68% in 2022 to $8.0 million, driven by a full year of psychedelic product development activities375 - The company recorded an impairment of intangible assets and goodwill of approximately $7.5 million in 2022 and $38.7 million in 2021, primarily due to a sustained decline in its stock price362 Quantitative and Qualitative Disclosure About Market Risk Not applicable Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2022 and 2021, including balance sheets, statements of operations, and cash flows - The auditor's report from Marcum LLP for 2022 includes an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern542 - Critical Audit Matters for the 2022 audit included impairment of long-lived assets and accounting for redeemable non-controlling interest and derivative liability related to the Akos spin-off548 Consolidated Balance Sheet Highlights (As of December 31) | | 2022 | 2021 | | :--- | :--- | :--- | | Total Assets | $19,552,925 | $26,719,133 | | Cash | $17,723,884 | $17,355,999 | | Intangible assets, net | $379,686 | $6,923,928 | | Goodwill | $0 | $1,587,634 | | Total Liabilities | $3,995,973 | $4,413,213 | | Total Shareholders' Equity | $14,671,924 | $22,305,920 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None reported Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2022, due to material weaknesses in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2022413 - Material weaknesses were identified in internal controls, including insufficient segregation of duties and lack of formalized control policies and procedures417421 - Remediation efforts include engaging third-party experts to design internal controls, implementing new software, and using experts for independent supervision of accounting and financial reporting422 Other Information None reported Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable Part III Directors, Executive Officers and Corporate Governance This section details the company's executive officers and seven-member Board of Directors, including key executives, board independence, and committee structures Executive Officers and Directors | Name | Position(s) | | :--- | :--- | | Joseph Tucker, Ph.D. | Chief Executive Officer and Director | | Avani Kanubaddi | President and Chief Operating Officer | | Dr. Bob Dagher | Chief Medical Officer | | Peter Facchini, Ph.D. | Chief Innovation Officer | | Kevin Coveney | Chief Financial Officer | | Michael Webb | Chair of the Board of Directors | | George Kegler | Director and Chair of the Audit Committee | | Dr. Douglas Lind | Director and Chair of the Nominating and Corporate Governance Committee | | Dr. Marcus Schabacker | Director | | Frank Pasqualone | Director and Chair of the Compensation Committee | | Bevin O'Neil | Director | - The Board has determined that six of its seven members are independent directors as defined by Nasdaq Listing Rules449 - The Board has three standing committees: Audit, Compensation, and Nominating and Corporate Governance, with all committee members being independent directors451452 Executive Compensation This section details executive compensation for 2021 and 2022, including salaries, bonuses, and stock awards, along with severance provisions and amendments to the Long-Term Incentive Plan Summary Compensation Table (2022) | Name and Principal Position | Salary | Bonus | Stock Awards | Total | | :--- | :--- | :--- | :--- | :--- | | Joseph Tucker, CEO | $361,667 | $464,270 | $0 | $825,937 | | Avani Kanubaddi, President & COO | $335,833 | $209,138 | $755,626 | $1,300,597 | | Dr. Peter Facchini, CIO | $221,750 | $110,625 | $0 | $332,375 | - Employment agreements for the CEO, COO, and CIO include severance provisions for 12 months of base salary upon termination without cause467473480 - The 2020 Long-Term Incentive Plan was amended to increase the share reserve and add an "evergreen" provision, tying available shares to 15% of outstanding common stock491 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 30, 2023, directors and executive officers as a group beneficially owned 78,060 shares, representing 3.8% of outstanding common stock - As of March 30, 2023, all directors and executive officers as a group beneficially owned 78,060 shares of common stock, representing 3.8% of the outstanding shares516 - No individual director or named executive officer beneficially owned more than 5% of the company's common stock516 Certain Relationships and Related Transactions and Director Independence The company entered a consulting agreement with former Executive Chairman David Johnson, providing a monthly fee of $23,833 and a $286,000 termination fee - On January 1, 2023, the Company entered into a consulting agreement with David Johnson, the former Executive Chairman518 - Mr. Johnson will earn $23,833 per month for consulting services, with the agreement terminating upon the earlier of its terms or the Akos spin-off518 Principal Accountant Fees and Services The company's principal accountant is Marcum LLP, with total fees of $286,095 in 2022 and $235,110 in 2021, all pre-approved by the Audit Committee Accountant Fees | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit fees | $286,095 | $170,025 | | Tax fees | $0 | $10,000 | | Audit-related fees | $0 | $5,150 | | All other fees | $0 | $49,935 | | Total | $286,095 | $235,110 | - In September 2022, Marcum LLP acquired certain assets of Friedman LLP, becoming the Company's auditor519 - The Audit Committee's policy is to pre-approve all audit and non-audit services provided by the independent registered public accounting firm524 Part IV Exhibits and Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including financial statements and a detailed index of exhibits, with no financial statement schedules filed Form 10–K Summary Not applicable