UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 001-38306

Ensysce Biosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

82-2755287

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

7946 Ivanhoe Avenue, Suite 201

La Jolla, California

92037

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (858) 263-4196

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.0001 par value per share		ENSC		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 11, 2024, the registrant had 19,574,014 shares of common stock, $0.0001 par value per share, outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will” and “would,” or the negative of these terms or other similar expressions intended to identify statements about the future. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements include, without limitation, statements about:

	●	our estimates regarding expenses, revenue, capital requirements and timing and availability of and the need for additional financing will almost certainly not match actual amounts and timing;

	●	our ability to continue as a going concern for the next twelve months;

	●	the risk that our lead product candidate PF614 and PF614-MPAR may not be successful in limiting or impeding abuse, overdose, or misuse or providing additional safety upon commercialization;

	●	the need for substantial additional funding to complete the development and commercialization of our product candidates;

	●	the risk that our clinical trials may fail to replicate positive results from earlier preclinical studies or clinical trials conducted by us or third parties;

	●	the risk that the potential product candidates that we develop may not progress through clinical development or receive required regulatory approvals within expected timelines or at all;

	●	the risk that clinical trials may not confirm any safety, potency, or other product characteristics described or assumed in this Quarterly Report on Form 10-Q;

	●	the risk that we will be unable to successfully market or gain market acceptance of our product candidates;

	●	the risk that our product candidates may not be beneficial to patients or successfully commercialized;

	●	the risk that we have overestimated the size of the target market, patients’ willingness to try new therapies, and the willingness of physicians to prescribe these therapies;

	●	effects of competition;

	●	the risk that third parties on which we depend for laboratory, clinical development, manufacturing, and other critical services will fail to perform satisfactorily;

	●	the risk that we will be unable to obtain and maintain sufficient intellectual property protection for its investigational products or will infringe the intellectual property protection of others;

	●	the loss of key members of our management team;

	●	changes in our regulatory environment;

	●	the ability to attract and retain key scientific, medical, commercial, or management personnel;

	●	changes in our industry;

	●	our ability to remediate any material weaknesses or establish and maintain effective internal controls over financial reporting;

	●	the risk that our common stock will be delisted from Nasdaq;

	●	The risk that we may not be able to regain or maintain compliance with applicable listing standards of Nasdaq;

	●	other factors disclosed in this Quarterly Report on Form 10-Q; and

	●	other factors beyond our control.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on Ensysce’s current expectations and beliefs concerning future developments and their potential effects on Ensysce. There can be no assurance that future developments affecting Ensysce will be those that Ensysce has anticipated. These forward-looking statements involve risks, uncertainties (some of which are beyond Ensysce’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, and other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Moreover, the occurrence of the events described in the “Risk Factors” in our Annual Report on Form 10-K may adversely affect Ensysce. Ensysce will not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

GLOSSARY

Definitions:
2021 Notes		The senior secured convertible promissory notes in the aggregate original principal amount of $15.9 million, sold in two closings on September 24, 2021, and November 5, 2021, respectively, pursuant to the Securities Purchase Agreement entered into on September 24, 2021
2021 Omnibus Incentive Plan		Ensysce Biosciences, Inc. Amended and Restated 2021 Omnibus Incentive Plan
2022 Notes		The senior secured convertible promissory notes in the aggregate original principal amount of $8.48 million, sold in two closings on June 30, 2022, and August 8, 2022, respectively, pursuant to the Securities Purchase Agreement entered into on June 30, 2022
2023 Notes		The senior secured convertible promissory notes in the aggregate original principal amount of $1.8 million, sold in two closings on October 25, 2023, and November 28, 2023, respectively, pursuant to the Securities Purchase Agreement entered into on October 23, 2023
2022 December Offering		The Company’s December 2022 registered direct offering of common stock (including pre-funded warrants in lieu thereof). The Offering closed on December 9, 2022, for aggregate consideration of $4.1 million
2023 February Offering		The Company’s February 2023 registered direct offering of common stock and private placement warrants for aggregate consideration of $3.0 million
2023 May Offering		The Company’s May 2023 registered direct offering of common stock (including pre-funded warrants in lieu thereof) for aggregate consideration of $7.0 million
2024 February Warrant Inducement		The Company’s February 2024 transaction including the cash exercise of certain existing warrants at a reduced price and the issuance of new warrants
2024 August Warrant Inducement		The Company’s August 2024 transaction including the cash exercise of certain existing warrants at a reduced price and the issuance of new warrants
2024 August Offering		The Company’s August 2024 registered direct offering of common stock, issuance of private placement warrants and the cash exercise of certain existing warrants at a reduced price and the issuance of new warrants.
Abeyance shares		Shares issued to certain holders and held at the Company’s transfer agent to be delivered to those holders at their request. Shares held in abeyance have not been issued and are not outstanding.
August Inducement Letter		Inducement offer letter entered into with certain holders of existing warrants to purchase 7,203,504 shares of the Company’s common stock (issued in February of 2024) to reduce the exercise price from $1.06 per share to $0.47 per share. The Company also agreed to amend certain existing warrants to purchase up to an aggregate of 2,000,000 shares of common stock that were previously issued in November 2023 and had an exercise price of $1.5675 per share such that the amended warrants have a reduced exercise price of $0.47 per share.
Board		Board of directors of Ensysce, or a committee thereof, as applicable
Business Combination		The definitive merger agreement among LACQ, Merger Sub and Former Ensysce, dated January 31, 2021, providing for, among other things, and subject to terms and conditions therein, the business combination between LACQ and Former Ensysce pursuant to the merger of Merger Sub with and into Former Ensysce, with Former Ensysce continuing as the surviving entity and as a wholly-owned subsidiary of LACQ
CMOs		Contract manufacturing organizations
Company		Ensysce Biosciences, Inc. and its consolidated subsidiaries
COVID-19		Novel coronavirus disease
Covistat		A subsidiary renamed EBIR, Inc.
CROs		Contract research organizations
EBIR		Previously known as Covistat, Inc., EBIR, Inc. is a clinical stage pharmaceutical company that is developing a compound utilized in the Company’s overdose protection program for the treatment of COVID-19 and 79.2%-owned subsidiary of the Company
Ensysce		Ensysce Biosciences Inc.
Exchange Act		Securities Exchange Act of 1934, as amended
FDA		United States Food and Drug Administration
February Inducement Letter		Inducement offer letter entered into with certain holders of existing warrants to purchase 3,601,752 shares of the Company’s common stock (issued on May 12, 2023) to reduce the exercise price from $3.637 per share to $1.31 per share.
Former Ensysce		Ensysce Biosciences, Inc., a Delaware corporation, prior to the consummation of the merger with and into Merger Sub
GAAP		Generally Accepted Accounting Principles in the United States of America
GCP		Good Clinical Practices

iii

Investor Notes		The 2021 Notes, 2022 Notes and 2023 Notes, collectively
LACQ		Leisure Acquisition Corp., a Delaware Corporation
LACQ Warrants		Warrants that relate to the Business Combination or were issued prior to it and are exercisable for 21,993 shares of our common stock at a weighted average exercise price of $2,725.90 per share
Merger		The merger of Merger Sub with and into Former Ensysce, with Former Ensysce continuing as the surviving entity and a wholly owned subsidiary of LACQ, which changed its name to Ensysce Biosciences, Inc. following consummation of the Merger.
Merger Agreement		Agreement and Plan of Merger, dated as of January 31, 2021, by and among LACQ, Merger Sub and Former Ensysce, providing for, among other things, and subject to the terms and conditions therein, a business combination between Former Ensysce and LACQ pursuant to the proposed merger of Merger Sub with and into Former Ensysce, with Former Ensysce surviving the transaction as a wholly-owned subsidiary of LACQ, which changed its name to Ensysce Biosciences, Inc. following consummation of the Merger
Merger Sub		EB Merger Sub, Inc., a Delaware corporation, a wholly-owned subsidiary of LACQ prior to the consummation of the Merger
MPAR Grant		Research and development grant related to the development of its MPAR^® overdose prevention technology awarded to the Company by NIH through NIDA in September 2018
Nasdaq		The Nasdaq Stock Market LLC
NIDA		National Institute of Drug Abuse
NIH		National Institutes of Health
OUD Grant		Research and development grant related to the development of its TAAP/MPAR^® abuse deterrent technology for Opioid Use Disorder awarded to the Company by NIH/NIDA in September 2019
Prior Warrants		Warrants issued pursuant to the Securities Purchase Agreement. The Prior Warrants issued in (i) 2021 are exercisable for an aggregate of 4,518 shares of our common stock at an exercise price of $3.64 per share and in (ii) 2022 are exercisable for an aggregate of 38,900 shares of our common stock at an exercise price of $3.64 per share
Public Warrants		The redeemable warrants issued by us and sold as part of the units in the LACQ IPO (whether they were purchased in the LACQ IPO or thereafter in the open market). The Public Warrants are exercisable for an aggregate of approximately 41,666 shares of our common stock at an exercise price of $2,760.00 per share
Registered Direct Offering		August 2024 registered direct offering of common stock (3,553,194 shares), private placement warrants (to purchase up to 7,106,388 shares) and the cash exercise of certain existing warrants (7,203,504 warrant shares) at a reduced price and the issuance of new warrants (to purchase up to 21,610,512 shares).
R&D		Research and Development
SEC		U.S. Securities and Exchange Commission
Securities Act		Securities Act of 1933, as amended
Securities Purchase Agreement		The Securities Purchase Agreement, dated as of September 24, 2021, June 30, 2022, October 23, 2023, or August 28, 2024, as the context dictates, by and between Ensysce and the institutional investors party thereto
SPA		A Securities Purchase Agreement, dated as of September 24, 2021, June 30, 2022, October 23, 2023, or August 28, 2024 as the context dictates, by and between Ensysce and the institutional investors party thereto
TAAP		Trypsin Activated Abuse Protection

Table of Contents

		Page

	Forward-Looking Statements	i
	Glossary	iii

PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Changes in Stockholders’ Equity (Deficit)	3
	Consolidated Statements of Cash Flows	4
	Notes to Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION	30

Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
Signatures		32

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Ensysce Biosciences, Inc.

Consolidated Balance Sheets

(Unaudited)

	September 30, 2024			December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	4,153,592		$	1,123,604
Unbilled receivable		1,782,805			97,561
Prepaid expenses and other current assets		3,154,110			1,067,703
Total current assets		9,090,507			2,288,868
Other assets		294,217			419,217
Total assets	$	9,384,724		$	2,708,085
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	1,967,573		$	1,936,007
Accrued expenses and other liabilities		447,035			542,260
Notes payable and accrued interest		387,176			854,697
Total current liabilities		2,801,784			3,332,964
Long-term liabilities:
Liability classified warrants		3,213			26,388
Total long-term liabilities		3,213			26,388
Total liabilities	$	2,804,997		$	3,359,352
Commitments and contingencies (Note 6)		-			-
Stockholders’ equity (deficit)
Preferred stock, $0.0001 par value, 1,500,000 shares authorized, no shares issued and outstanding at September 30, 2024 (unaudited) and December 31, 2023	$	-		$	-
Common stock, $0.0001 par value, 250,000,000 shares authorized at September 30, 2024 (unaudited) and December 31, 2023; 13,870,591 and 3,146,157 shares issued at September 30, 2024 (unaudited) and December 31, 2023, respectively; 13,870,510 and 3,146,076 shares outstanding at September 30, 2024 (unaudited) and December 31, 2023, respectively		1,387			315
Additional paid-in capital		132,886,700			121,233,901
Accumulated deficit		(125,979,877	)		(121,557,074	)
Total Ensysce Biosciences, Inc. stockholders’ equity (deficit)		6,908,210			(322,858	)
Noncontrolling interests in stockholders’ deficit		(328,483	)		(328,409	)
Total stockholders’ equity (deficit)		6,579,727			(651,267	)
Total liabilities and stockholders’ equity (deficit)	$	9,384,724		$	2,708,085

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

Ensysce Biosciences, Inc.

Consolidated Statements of Operations

(Unaudited)

	2024			2023			2024			2023
	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Federal grants	$	3,418,853		$	435,380		$	3,906,372		$	1,715,488
Operating expenses:
Research and development		1,690,674			1,914,970			3,416,807			5,354,713
General and administrative		1,083,433			1,227,724			3,643,223			3,923,277
Total operating expenses		2,774,107			3,142,694			7,060,030			9,277,990

Income (loss) from operations		644,746			(2,707,314	)		(3,153,658	)		(7,562,502	)

Other income (expense):
Change in fair value of convertible notes		-			-			-			146,479
Change in fair value of liability classified warrants		6,403			17,223			23,175			279,873
Interest expense, net		(4,063	)		(7,649	)		(1,279,691	)		(9,146	)
Other income (expense), net		14,683			6,934			(12,413	)		23,382
Total other income (expense), net		17,023			16,508			(1,268,929	)		440,588

Net income (loss)	$	661,769		$	(2,690,806	)	$	(4,422,587	)	$	(7,121,914	)
Net loss attributable to noncontrolling interests		-			(1,235	)		(74	)		(12,236	)
Deemed dividend related to warrants down round provision		-			-			290			12,038
Net income (loss) attributable to common stockholders	$	661,769		$	(2,689,571	)	$	(4,422,803	)	$	(7,121,716	)
Net income (loss) per basic and diluted share:
Net income (loss) per share attributable to common stockholders, basic and diluted	$	0.07		$	(0.87	)	$	(0.57	)	$	(3.32	)
Weighted average common shares outstanding, basic and diluted		9,890,390			3,085,873			7,782,540			2,145,505

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

Ensysce Biosciences, Inc.

Consolidated Statements of Changes in Stockholders’ EQUITY (Deficit)

(Unaudited)

	Number of Shares			Amount		Paid-In Capital			Accumulated Deficit			Noncontrolling interests			Total
	Stockholders’ Equity (Deficit)
	Common Stock					Additional
	Number of Shares			Amount		Paid-In Capital			Accumulated Deficit			Noncontrolling interests			Total

Balance on June 30, 2023		2,669,792		$	267	$	119,481,957		$	(115,363,208	)	$	(326,209	)	$	3,792,807
Settlement of restricted stock units		314			-		-			-			-			-
Issuance of common stock upon exercise of warrants		193,898			20		(20	)		-			-			-
Stock-based compensation		-			-		55,674			-			-			55,674
Net loss		-			-		-			(2,689,571	)		(1,235	)		(2,690,806	)
Balance on September 30, 2023		2,864,004		$	287	$	119,537,611		$	(118,052,779	)	$	(327,444	)	$	1,157,675

Balance on June 30, 2024		8,151,172		$	815	$	128,448,699		$	(126,641,646	)	$	(328,483	)	$	1,479,385
Public offering		3,553,194			355		1,669,646			-			-			1,670,001
Issuance of common stock upon warrant inducement		2,166,144			217		3,385,430			-			-			3,385,647
Transaction costs associated with public offering and warrant inducement		-			-		(637,894	)		-			-			(637,894	)
Stock-based compensation		-			-		20,819			-			-			20,819
Net income		-			-					661,769			-			661,769
Balance on September 30, 2024		13,870,510		$	1,387	$	132,886,700		$	(125,979,877	)	$	(328,483	)	$	6,579,727

Balance on December 31, 2022		534,490		$	53	$	107,216,566		$	(110,931,063	)	$	(315,208	)	$	(4,029,652	)
Settlement of restricted stock units		938			-		-			-			-			-
Settlement of commitment fee		44,444			4		399,996			-			-			400,000
Conversion of convertible notes		408,580			41		3,056,851			-			-			3,056,892
Public offerings, net		1,381,619			139		9,049,865			-			-			9,050,004
Transaction costs associated with public offerings		-			-		(447,879	)		-			-			(447,879	)
Issuance of common stock upon exercise of warrants		494,795			50		(50	)		-			-			-
Stock-based compensation		-			-		250,224						-			250,224
Reverse split fractional shares		(862	)		-		-			-			-			-
Deemed dividend related to warrants down round provision		-			-		12,038			(12,038	)		-			-
Net loss		-			-		-			(7,109,678	)		(12,236	)		(7,121,914	)
Balance on September 30, 2023		2,864,004		$	287	$	119,537,611		$	(118,052,779	)	$	(327,444	)	$	1,157,675

Balance on December 31, 2023		3,146,076		$	315	$	121,233,901		$	(121,557,074	)	$	(328,409	)	$	(651,267	)
Balance		3,146,076		$	315	$	121,233,901		$	(121,557,074	)	$	(328,409	)	$	(651,267	)
Settlement of restricted stock units		63			-		-			-			-			-
Conversion of convertible notes		745,521			75		1,168,525			-			-			1,168,600
Public offering		3,553,194			355		1,669,646			-			-			1,670,001
Public offering, net		3,553,194			355		1,669,646									1,670,001
Issuance of common stock upon exercise of warrants		1,323,904			132		2,075,087			-			-			2,075,219
Issuance of common stock upon warrant inducements		5,101,752			510		8,103,433			-			-			8,103,943
Transaction costs associated with public offering and warrant inducements		-			-		(1,444,756	)		-			-			(1,444,756	)
Stock-based compensation		-			-		80,574			-			-			80,574
Deemed dividend related to warrants down round provision		-			-		290			(290	)		-			-
Net loss		-			-		-			(4,422,513	)		(74	)		(4,422,587	)
Net income (loss)		-			-		-			(4,422,513	)		(74	)		(4,422,587	)
Balance on September 30, 2024		13,870,510		$	1,387	$	132,886,700		$	(125,979,877	)	$	(328,483	)	$	6,579,727
Balance		13,870,510		$	1,387	$	132,886,700		$	(125,979,877	)	$	(328,483	)	$	6,579,727

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

Ensysce Biosciences, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	2024			2023
	Nine Months Ended September 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(4,422,587	)	$	(7,121,914	)
Adjustments to reconcile net loss to net cash used in operating activities:
Accrued interest and interest expense related to note conversions		33,175			9,146
Amortization of original issue discount and debt issuance costs		1,197,200			-
Change in fair value of liability classified warrants		(23,175	)		(279,873	)
Change in fair value of convertible notes		-			(146,479	)
Stock-based compensation		80,574			250,224
Lease cost		-			(135	)
Changes in operating assets and liabilities:
Unbilled receivable		(1,685,244	)		169,083
Prepaid expenses and other assets		(1,729,252	)		1,235,252
Accounts payable		(57,666	)		(2,027,375	)
Accrued expenses and other liabilities		(131,635	)		(1,066,036	)
Net cash used in operating activities		(6,738,610	)		(8,978,107	)
Cash flows from financing activities:
Proceeds public offerings, net		1,670,001			9,050,004
Proceeds from warrant exercises		2,075,219			-
Proceeds from warrant inducement, net of issuance costs		8,103,943			-
Transaction costs associated with public offerings		-			(447,879	)
Transaction costs associated with public offering and warrant inducements		(1,319,115	)		-
Repayments of convertible notes		(485,190	)		(1,000,208	)
Repayment of financed insurance premiums		(276,260	)		(307,131	)
Net cash provided by financing activities		9,768,598			7,294,786
Increase (decrease) in cash and cash equivalents		3,029,988			(1,683,321	)
Cash and cash equivalents beginning of period		1,123,604			3,147,702
Cash and cash equivalents end of period	$	4,153,592		$	1,464,381

Supplemental disclosure of non-cash investing and financing activities:
Incremental fair value of August 2024 Warrant Inducement	$	10,210,616		$	-
Incremental fair value of February 2024 Warrant Inducement	$	5,167,372		$	-
Conversions of convertible notes into common stock	$	1,168,600		$	3,056,892
Proceeds from financed insurance premiums, net	$	232,155		$	445,737
Transaction costs from warrant inducement and public offering included in accounts payable	$	125,641		$	-
Deemed dividend related to warrants down round provision	$	290		$	12,038
Settlement of commitment fee in shares	$	-		$	400,000

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

ENSYSCE BIOSCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

Ensysce Biosciences, 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 pharmaceutical company using its proprietary technology platforms to develop safer prescription drugs. The primary focus of the Company is developing abuse- and overdose-resistant pain technology, with a lead product candidate in the abuse-resistant, TAAP (Trypsin-Activated Abuse Protection) opioid, PF614. In addition, the Company is developing its MPAR^® (Multi-Pill Abuse Resistance) technology for overdose protection, which is being applied to the PF614 program with a second product candidate, PF614-MPAR. The Company is also applying its TAAP and MPAR^® technology to a methadone prodrug for use in the treatment of Opioid Use Disorder.

In 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 9.9% and 10.9% of the shares held by a certain key person of the Company and two unrelated parties, respectively. The non-Ensysce owned shares and the activity are reflected on the financial statements as Noncontrolling interests.

The Company currently operates in one business segment, which is pharmaceuticals. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chief operating decision maker, the Chief Executive Officer.

NOTE 2 - BASIS OF PRESENTATION

The 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. and its subsidiaries. All intercompany balances and transactions have been eliminated in the consolidation.

In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the consolidated financial statements. Operating results for the nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 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, 2023, which may be found in the Company’s Form 10-K filed with the SEC on March 15, 2024.

Going concern

The 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.

The Company has not generated any product revenue. There is no assurance that profitable operations will ever be achieved, and, if achieved, will be sustained on a continuing basis. Product development activities, clinical and pre-clinical testing, and commercialization of the Company’s product candidates are necessary to develop the Company’s products and will require significant additional financing. There can be no assurance the Company will be able to obtain such funds. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

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.

The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of estimates and assumptions

Preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosed in the accompanying notes. Actual results may differ from those estimates and such differences may be material to the consolidated financial statements. The more significant estimates and assumptions by management include, but are not limited to, the expense recognition for certain accrued research and development services.

Cash and cash equivalents

For purposes of the consolidated balance sheets and consolidated statements of cash flows, the Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

Concentrations of credit risk and off-balance sheet risk

Cash and cash equivalents are financial instruments that are potentially subject to concentrations of credit risk. The Company’s cash and cash equivalents are deposited in accounts at large financial institutions and amounts currently exceed federally insured limits. The Company has no financial instruments with off-balance sheet risk of loss. Additionally, the Company had concentration in accounts payable, as one and two research and development vendors, respectively, made up greater than 10% individually, and 72% and 38% in aggregate, of the outstanding accounts payable balance as of September 30, 2024, and December 31, 2023, respectively.

Property and equipment

Property and equipment are fully depreciated and as such there is no depreciation expense recognized in the periods presented.

Fair Value Measurement

ASC 820, Fair Value Measurements, (“ASC 820”) provides guidance on the development and disclosure of fair value measurements. Pursuant to ASC 820, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

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

	Level 1:	Quoted prices in active markets for identical assets or liabilities.
	Level 2:	Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
	Level 3:	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.

The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them for each reporting period. This determination requires significant judgments to be made by the Company.

As of September 30, 2024, and December 31, 2023, 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.

Warrants

The Company issued liability-classified warrants in connection with the issuance of the 2021 Notes and the 2022 Notes. The warrants were liability-classified due to certain cash settlement features and included in “Other long-term liabilities” on the consolidated balance sheets. The Company uses a Black-Scholes model to estimate the fair value of the warrants by using assumptions within the model for the expected volatility, expected term, risk-free interest rate and dividend yield. Changes in the fair value of the warrants are recognized in other income (expense) for each reporting period. Refer to Note 8 for details of the warrants.

The following tables present liabilities measured and recorded at fair value on the Company’s consolidated balance sheets as of September 30, 2024, and December 31, 2023.

	Total		Level 1		Level 2		Level 3
	September 30, 2024
	Total		Level 1		Level 2		Level 3
Liability classified warrants	$	3,213	$	-	$	-	$	3,213
Total	$	3,213	$	-	$	-	$	3,213

	Total		Level 1		Level 2		Level 3
	December 31, 2023
	Total		Level 1		Level 2		Level 3
Liability classified warrants		26,388		-		-		26,388
Total	$	26,388	$	-	$	-	$	26,388

The following table summarizes the change in fair value of the Company’s Level 3 liabilities for the nine months ended September 30, 2024 (no level 3 assets as of the nine months ended September 30, 2024):

	Liability classified warrants
Fair value, December 31, 2023	$	26,388
Change in fair value		(23,175	)
Fair value, September 30, 2024	$	3,213

Federal Grants

In 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^® overdose prevention technology (the “MPAR Grant”). The initial grant was extended several times and cumulative funding under this grant of approximately $10.7 million was completed in December 2023. A new multi-year MPAR Grant was awarded by NIH through NIDA in August 2024, providing funding of $14 million through May 2027.

In September 2019, the NIH/NIDA awarded the Company a second research and development grant related to the development of its TAAP/MPAR abuse deterrent technology for Opioid Use Disorder (the “OUD Grant”). The total approved budget was approximately $5.4 million, and the grant period ended August 31, 2024.

The 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.

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

	2024		2023		2024		2023
	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
MPAR	$	1,782,805	$	119,942	$	1,782,805	$	1,038,484
TAAP/OUD		1,636,048		315,438		2,123,567		677,004
Total	$	3,418,853	$	435,380	$	3,906,372	$	1,715,488

Amounts requested or eligible to be requested through the NIH payment management system, but for which cash has not been received, are presented as an unbilled receivable on the Company’s consolidated balance sheet. As all amounts are expected to be remitted in a timely manner, no valuation allowances are recorded.

Research and development costs

The Company’s research and development expenses consist primarily of third-party research and development expenses, consulting expenses, animal and clinical studies, and any allocable direct overhead, including facilities and depreciation costs, as well as salaries, payroll taxes, and employee benefits for those individuals directly involved in ongoing research and development efforts. Research and development expenses are charged to expense as incurred. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

General and administrative expenses

General and administrative expenses consist primarily of personnel costs associated with the Company’s executive, finance, human resources, compliance, and other administrative personnel, as well as accounting and legal professional services fees.

Stock-based compensation

The Company expenses stock-based compensation over the requisite service period based on the estimated grant-date fair value of the awards using a graded amortization approach. The Company accounts for forfeitures as they occur.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Stock-based compensation costs are recorded in general and administrative expenses and research and development expenses in the consolidated statements of operations.

From time-to-time equity classified awards may be modified. On the modification date, the Company estimates the fair value of the awards immediately before and immediately after modification. The incremental increase in fair value is recognized as expense immediately to the extent the underlying equity awards are vested and over the same remaining amortization schedule as the unvested underlying equity awards.

Income taxes

Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company recognizes any interest and penalties accrued related to unrecognized tax benefits as income tax expense.

Net income (loss) per share

The basic earnings per share is calculated by dividing the Company’s net income or loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Basic shares outstanding include the weighted average effect of the Company’s outstanding pre-funded warrants and abeyance shares, which require no consideration for the delivery of shares of common stock. Diluted net income (loss) per share is calculated by adjusting basic shares outstanding for the dilutive effect of common share equivalents outstanding for the period.

The following weighted average shares have been excluded from the calculations of diluted weighted average common shares outstanding because they would have been anti-dilutive (the Company has utilized the principal balance outstanding and the end of period conversion price for the Convertible Notes for the purposes of the weighted average share calculation below):

	2024		2023		2024		2023
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Stock options		580,414		26,354		580,414		26,354
RSUs		-		63		-		63
Warrants		18,830,377		4,711,236		13,194,861		2,876,380
Convertible notes		137,799		-		137,799		-
Total		19,548,590		4,737,653		13,913,074		2,902,797

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which sets forth improvements to the current segment disclosure requirements in accordance with Topic 280 “Segment Reporting,” including clarifying that entities with a single reportable segment are subject to both new and existing segment reporting requirements. ASU 2023-07 will be effective retrospectively for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. Adoption of this ASU is currently being evaluated by the Company.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public entities with annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	September 30, 2024		December 31, 2023
Prepaid research and development	$	2,652,845	$	535,474
Prepaid insurance		378,360		441,871
Other prepaid expenses		104,905		72,358
Other current assets		18,000		18,000
Total prepaid expenses and other current assets	$	3,154,110	$	1,067,703

NOTE 5 – ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consisted of the following:

	September 30, 2024		December 31, 2023
Accrued research and development	$	214,251	$	329,228
Professional fees		95,730		110,202
Other accrued liabilities		137,054		102,830
Total accrued expenses and other liabilities	$	447,035	$	542,260

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Purchase Commitments

As of September 30, 2024, the Company’s commitments included approximately $13.3 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. Although open purchase orders are considered enforceable and legally binding, the terms generally allow the Company the option to cancel, reschedule, and adjust its requirements based on its business needs prior to the delivery of goods or the performance of services.

Litigation

As of September 30, 2024, and December 31, 2023, 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, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation.

Lease

The Company’s current lease agreement (as amended) has a term that extends through October 31, 2025, with no contracted option to renew. As of September 30, 2024, the future lease payments totaled $38,294. The Company recognized total rent expense of $8,747 and $26,242 in the three and nine months ended September 30, 2024, and $8,375 and $25,124 in the three and nine months ended September 30, 2023.

NOTE 7 – NOTES PAYABLE

The following table provides a summary of the Company’s outstanding debt as of September 30, 2024:

SCHEDULE OF DEBT

	Principal balance		Accrued interest			Net debt balance
2023 Notes	$	216,000	$	6,308	-	$	222,308
Financed insurance		164,868		-	-		164,868
Total	$	380,868	$	6,308	-	$	387,176

The following table provides a summary of the Company’s outstanding debt as of December 31, 2023:

	December 31, 2023
	Principal balance		Accrued interest		Unamortized Debt Discount and Issuance Costs			Net debt balance
2023 Notes	$	1,836,000	$	13,078	$	(1,197,200	)	$	651,878
Financed insurance		197,249		5,570		-			202,819
Total	$	2,033,249	$	18,648	$	(1,197,200	)	$

SEC Form 10-Q filed by Ensysce Biosciences Inc.