| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 research and development services, the valuation allowance
of deferred tax assets resulting from net operating losses, warrants, options to purchase the Company’s common stock, and the notes
payable. 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 may exceed federally insured limits. The
Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the
cash and cash equivalents are held. The Company has no financial instruments with off-balance sheet risk of loss. Property
and Equipment Property
and equipment include office and laboratory equipment that is recorded at cost and depreciated using the straight-line method over the
estimated useful lives of five to six years. No 50 151 Property
and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable
market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that
would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used,
the Company will recognize an impairment loss only if the carrying amount is not recoverable through its undiscounted cash flows and
measure any impairment loss based on the difference between the carrying amount and estimated fair value. There were no such losses for
the three and nine months ended September 30, 2022 and 2021. Derivative
Financial Instruments The
Company does not use derivative instruments to hedge exposures to interest rate, market, or foreign currency risks. The Company evaluates
all of its financial instruments, including notes payable, to determine whether such instruments are derivatives or contain features
that qualify as embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements
for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of
the host contract and the features of the derivatives. Bifurcated embedded derivatives are recognized at fair value, with changes in
fair value recognized in the consolidated statement of operations each period. Bifurcated embedded derivatives are classified with the
related host contract in the Company’s consolidated balance sheet. Fair
Value Measurement ASC
820, Fair Value Measurements 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, 2022 and December 31, 2021, the recorded values of cash and cash equivalents, prepaid expenses, accounts payable, and
accrued expenses and other liabilities approximate their fair values due to the short-term nature of these items. 2021
Notes In
2021 the Company issued convertible notes with a face value of $ 15.9 2022
Notes In
July 2022 the Company issued convertible notes with a face value of $ 8.5 Distinguishing Liabilities from Equity, Warrants In
2021 the Company issued liability classified warrants in connection with the issuance of the 2021 Notes. In 2022 the Company issued liability
classified warrants in connection with the issuance of the 2022 Notes. The warrants were liability classified due to certain cash settlement
features and included in “Other long-term liabilities” on the consolidated balance sheets. The Company uses a Black Scholes
model to estimate the fair value of the warrants. Changes in the fair value of the warrants are recognized in other income (expense)
for each reporting period. Refer to Note 8 for details of the warrants. The
following tables present assets and liabilities measured and recorded at fair value on the Company’s consolidated balance sheet
as of September 30, 2022 and December 31, 2021. SCHEDULE
OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
Total Level 1 Level 2 Level 3
September 30, 2022
Total Level 1 Level 2 Level 3
Fair value of convertible notes $ 8,586,102 $ - $ - $ 8,586,102
Liability classified warrants 1,414,829 - - 1,414,829
Total $ 10,000,931 $ - $ - $ 10,000,931
Total Level 1 Level 2 Level 3
December 31, 2021
Total Level 1 Level 2 Level 3
Fair value of convertible note $ 16,799,837 $ - $ - $ 16,799,837
Liability classified warrants 3,303,588 - - 3,303,588
Total $ 20,103,425 $ - $ - $ 20,103,425 The
following table summarizes the change in fair value of the Company’s Level 3 assets and liabilities: SCHEDULE
OF CHANGE IN FAIR VALUE OF COMPANY’S LEVEL 3
Total Convertible notes Liability classified warrants
Fair value, December 31, 2021 $ 20,103,425 $ 16,799,837 $ 3,303,588
Additions, net 12,217,371 8,480,000 3,737,371
Conversions (14,133,750 ) (14,133,750 ) -
Change in fair value (8,186,115 ) (2,559,985 ) (5,626,130 )
Fair value, September 30, 2022 $ 10,000,931 $ 8,586,102 $ 1,414,829 Federal
Grants In
September 2018, the National Institutes of Health (“NIH”) through the National Institute on Drug Abuse awarded the Company
a research and development grant related to the development of its MPAR TM 5.4 3.2 2.2 1.1 5.1 2.1 3.0 2.8 2.8 10.8 In
September 2019, the NIH/National Institute on Drug Abuse awarded the Company a research and development grant related to the development
of its TAAP/MPAR TM 5.4 The
Company recognizes revenue when costs related to the grants are incurred. The Company believes this policy is consistent with the overarching
premise in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers The
revenue recognized under the MPAR Grant and OUD Grant was as follows: SCHEDULE
OF REVENUE RECOGNIZATION UNDER GRANTS
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Three Months Ended Nine months ended
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
MPAR $ 206,290 $ 1,119,312 $ 710,761 $ 1,246,424
OUD 73,061 81,504 379,159 649,483
Total $ 279,351 $ 1,200,816 $ 1,089,920 $ 1,895,907 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 timely, no valuation
allowances are recorded. Immaterial Correction
of an Error Adjusted in Prior Quarter In August 2022, the
Company concluded that due to an error in the measurement of the unbilled receivable and the associated grant revenue as of December
31, 2021, and March 31, 2022, the June 30, 2022, balance sheet would be adjusted. The change resulted in a decrease in the balance
of the unbilled receivable of $ 214,308 The Company, in consultation
with the Audit Committee of the Board of Directors, evaluated the effect of these adjustments on the Company’s consolidated financial
statements under ASC 250, Accounting Changes and Error Corrections and Staff Accounting Bulletin No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements and determined it was not necessary to recall
its previously issued consolidated financial statements as the errors did not materially misstate any previously issued consolidated
financial statements and the correction of the error in the current fiscal year is also not material. The Company looked at both quantitative
and qualitative characteristics of the required corrections in making the determination. 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. For the three and nine months ended September 30, 2022 and 2021, stock-based compensation costs are recorded
in general and administrative expenses and research and development expenses in the consolidated statements of operations. 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 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. Earnings
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. The diluted earnings per share is calculated by dividing the
Company’s net earnings attributable to common stockholders by the diluted weighted average number of common shares outstanding
during the period, determined using the treasury stock method and the average stock price during the period. A reconciliation of the
numerators and denominators of the basic and diluted earnings per share calculations follows: SCHEDULE
OF EARNINGS PER SHARE RECONCILIATION
2022 2021 2022 2021
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Numerator:
Net loss attributable to common stockholders $ (9,897,612 ) $ (17,163,526 ) $ (19,563,588 ) $ (19,046,801 )
Denominator:
Weighted average shares outstanding, basic and diluted 1,928,727 1,212,791 1,666,253 937,764
Net loss per share attributable to common stockholders, basic and diluted $ (5.13 ) $ (14.15 ) $ (11.74 ) $ (20.31 ) 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: SCHEDULE
OF WEIGHTED AVERAGE SHARES OF ANTI-DILUTIVE SECURITIES
2022 2021 2022 2021
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Stock options 350,995 222,203 328,538 225,833
Warrants 1,421,306 1,000,953 1,177,247 335,531
Total 1,772,301 1,223,156 1,505,785 561,364 Recently
Issued Accounting Pronouncements In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (“ASU 2019-12”), which simplifies the accounting for income
taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology
for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The
new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the
accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning
after December 31, 2021 and interim periods within that year. On January 1, 2022, the Company adopted ASU 2019-12 and the adoption did
not have a significant impact on the consolidated financial statements. In
August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Topic 470) to address issues identified
as a result of the complexity with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The
FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock, resulting in
fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Certain types of
convertible instruments will continue to be subject to separation models: (a) those with embedded conversion features that are not clearly
and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from
derivative accounting and (b) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in
capital. For convertible instruments, the contracts primarily affected are those with beneficial conversions or cash conversion features
as the accounting models for those specific features have been removed. For contracts in an entity’s own equity, the contracts
primarily affected are freestanding instruments and embedded features that are accounted for as derivatives due to a failure to meet
the settlement conditions of the derivatives scope exceptions. The FASB simplified the settlement assessment by removing the requirements
to (a) consider whether the contract would be settled in registered shares, (b) to consider whether collateral is required to be posted,
and (c) assess shareholder rights. The FASB also decided to enhance information transparency by making targeted improvements to the disclosures
for convertible instruments and earnings-per-share guidance. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023
and early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. Entities must adopt the guidance
as of the beginning of its annual fiscal year and a modified retrospective or fully retrospective transition approach is permitted. The
Company is evaluating the impact of ASU 2020-06 on the consolidated financial statements. In
May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified
Written Call Options (A Consensus of the FASB Emerging Issues Task Force (the “EITF”)) – to clarify and reduce diversity
in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants)
that remain equity classified after modification or exchange. The guidance in the ASU requires the issuer to treat a modification of
an equity-classified warrant that does not cause the warrant to become liability-classified as an exchange of the original warrant for
a new warrant. This guidance applies whether the modification is structured as an amendment to the terms and conditions of the warrant
or as termination of the original warrant and issuance of a new warrant. Under the amendments, an issuer should measure the effect of
a modification as the difference between the fair value of the modified warrant and the fair value of that warrant immediately before
modification. The EITF concluded that the recognition of the modification depends on the nature of the transaction in which a warrant
is modified. If there is more than one element in a transaction (for example, if the modification involves both a debt modification and
an equity issuance), then the guidance requires the issuer to allocate the effect of the option modification to each element. On January
1, 2022, the Company adopted ASU 2021-04 and the adoption did not have a significant impact on the consolidated financial statements. | 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 research and development services, the valuation allowance
of deferred tax assets resulting from net operating losses, the estimated fair values of common stock, warrants and
options to purchase the Company’s common stock, and convertible notes payable. 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 may exceed federally insured limits. The
Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the
cash and cash equivalents are held. The Company has no financial instruments with off-balance sheet risk of loss. Ensysce
Biosciences, Inc. Notes
to the Consolidated Financial Statements Property
and Equipment Property
and equipment include office and laboratory equipment that is recorded at cost and depreciated using the straight-line method over the
estimated useful lives of five to six years. Depreciation expense of $ 151 201 Property
and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable
market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that
would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used,
the Company will recognize an impairment loss only if the carrying amount is not recoverable through its undiscounted cash flows and
measure any impairment loss based on the difference between the carrying amount and estimated fair value. There were no such losses for
the year ended December 31, 2021 and 2020. Derivative
Financial Instruments The
Company does not use derivative instruments to hedge exposures to interest rate, market, or foreign currency risks. The Company evaluates
all of its financial instruments, including notes payable, to determine whether such instruments are derivatives or contain features
that qualify as embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements
for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of
the host contract and the features of the derivatives. Bifurcated embedded derivatives are recognized at fair value, with changes in
fair value recognized in the consolidated statement of operations each period. Bifurcated embedded derivatives are classified with the
related host contract in the Company’s consolidated balance sheet. Between
January 2018 and January 2021, the Company entered into a series of notes that were determined to have embedded derivative instruments
in the form of a contingent put option. The notes were recognized at the value of proceeds received after allocating issuance proceeds
to the bifurcated contingent put option. The notes were subsequently measured at amortized cost using the effective interest method to
accrete interest over their term to bring the notes’ initial carrying value to their principal balance at maturity. The bifurcated
put option was initially measured at fair value and subsequently measured at fair value with changes in fair value recognized as a component
of other expenses in the consolidated statements of operations (see Note 7). The notes and the contingent put option are classified as
either long-term or short-term liabilities based on the maturity date of the related loan. All
outstanding derivative liabilities were settled in connection with the conversion of outstanding notes payable on June 30, 2021. Refer
to Note 7 for details of the conversion. Fair
Value Measurement ASC
820, Fair Value Measurements 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. Ensysce
Biosciences, Inc. Notes
to the Consolidated Financial Statements 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 December 31, 2021 and 2020, the recorded values of cash and cash equivalents, prepaid expenses, accounts payable, and accrued expenses
and other liabilities approximate their fair values due to the short-term nature of these items. 2021
Notes On
September 24 and November 5, 2021, the Company issued convertible notes with a face value of $ 5.3
million and $ 10.6
million, respectively. The Company elected the
fair value option to account for the convertible notes as it believes the fair value option provides users of the financial statements
with greater ability to estimate the outcome of future events as facts and circumstances change, particularly with respect to changes
in the fair value of the common stock underlying the conversion option and redemption feature. The fair value estimate of the 2021
Notes was based on a discounted cash flow model and a Monte Carlo model, which represent Level 3 measurements. Significant assumptions include the discount rate used in the discounted cash flow model and the expected premium for conversion used
in the Monte Carlo model. Changes
in the fair value of the notes are recognized in other income (expense) for each reporting period. Refer to Note 7 for details
of the terms and conditions of the 2021 Notes. Convertible
Notes Pre Business Combination (Contingent Put Option) The
carrying value of outstanding notes payable at December 31, 2020 approximates the estimated aggregate fair value as the embedded contingent
put option is recognized at fair value and classified with the debt host. The put option allowed for certain notes payable to be converted
into common stock, contingent upon completion of an equity financing transaction with gross proceeds above certain thresholds. The fair
value estimate of the embedded put option was based on the probability-weighted discounted value of the put feature and represents a
Level 3 measurement. Significant assumptions used to determine the fair value of the put feature include the estimated probability of
exercise of the put option and the discount rate used to calculate fair value. The estimated probability of exercise is based on management’s
expectation for future equity financing transactions. The discount rate is based on the weighted average effective yield of notes payable
previously issued by the Company, adjusted for changes in market yields of healthcare sector CCC-rated debt. As of December 31, 2020,
assumptions included a probability of exercise of the put option of 10 42.9 Warrants On September 24 and November 5, 2021, the Company
issued liability classified warrants in connection with the issuance of the 2021 Notes. The warrants were liability classified
due to certain cash settlement features and included in “Other long-term liabilities” on the consolidated balance sheets.
The Company uses a Black Scholes model to estimate the fair value of the warrants. Changes in the fair value of the warrants are
recognized in other income (expense) for each reporting period. Refer to Note 8. The
following tables present assets and liabilities measured and recorded at fair value on the Company’s consolidated balance sheet
as of December 31, 2021 and 2020. As of December 31, 2021, all contingent put options, associated with the pre-combination convertible
notes, were settled upon conversion of the notes at the closing of the Business Combination. SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
December 31, 2021
Total Level 1 Level 2 Level 3
Fair value of convertible note $ 16,799,837 $ - $ - $ 16,799,837
Liability classified warrants 3,303,588 3,303,588
Contingent put option $ 670,262 $ - $ - $ 670,262
Total $ 20,103,425 $ - $ - $ 20,103,425 Ensysce
Biosciences, Inc. Notes
to the Consolidated Financial Statements
December 31, 2020
Total Level 1 Level 2 Level 3
Contingent put option $ 670,262 $ - $ - $ 670,262
Total $ 670,262 $ - $ - $ 670,262 The
following table summarizes the change in fair value of the Company’s Level 3 assets and liabilities for the year ended December
31, 2021: SCHEDULE OF CHANGE IN FAIR VALUE OF COMPANY’S LEVEL 3
December 31, 2021
Total Contingent put option Convertible note Liability classified warrants
Fair value, December 31, 2020 $ 670,262 $ 670,262 $ - $ -
Additions 17,768,404 3,052 15,900,000 1,865,352
Conversions (2,093,224 ) - (2,093,224 ) -
Change in fair value 3,757,983 (673,314 ) 2,993,061 1,438,236
Fair value, December 31, 2021 $ 20,103,425 $ - $ 16,799,837 $ 3,303,588 Federal
Grants In
September 2018, the National Institutes of Health (“NIH”) through the National Institute on Drug Abuse awarded the Company
a research and development grant related to the development of its MPAR TM 5.4 3.2 2.2 1.1 5.1 2.1 3.0 2.8 In
September 2019, the NIH/National Institute on Drug Abuse awarded the Company a second research and development grant related to the development
of its TAAP/MPAR TM 5.4 The
Company recognizes revenue when costs related to the grants are incurred. The Company believes this policy is consistent with the overarching
premise in Accounting Standards Codification Topic 606, Revenue from Contracts with The
revenue recognized under the MPAR Grant and OUD Grant was as follows: SCHEDULE OF REVENUE RECOGNIZATION UNDER GRANTS
December 31,
2021 2020
MPAR $ 2,646,579 $ 3,037,234
OUD 884,620 893,975
Total $ 3,531,199 $ 3,931,209 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 timely, no valuation
allowances are recorded. Ensysce
Biosciences, Inc. Notes
to the Consolidated Financial Statements 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. For the year ended December 31, 2021 and 2020, stock-based compensation costs are recorded in general
and administrative expenses in the consolidated statements of operations. 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 on a straight-line basis 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 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. Ensysce
Biosciences, Inc. Notes
to the Consolidated Financial Statements Earnings
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. The diluted earnings per share is calculated by dividing the
Company’s net earnings attributable to common stockholders by the diluted weighted average number of common shares outstanding
during the period, determined using the treasury stock method and the average stock price during the period. A reconciliation of the
numerators and denominators of the basic and diluted earnings per share calculations follows : SCHEDULE OF EARNINGS PER SHARE RECONCILIATION
2021 2020
December 31,
2021 2020
Numerator:
Net income (loss) attributable to common stockholders $ (29,886,851 ) $ 56,770
Denominator:
Weighted average shares outstanding, basic 1,008,227 788,437
Weighted average dilutive stock options - 36,933
Weighted average shares outstanding, diluted 1,008,227 825,370
Net income (loss) per share attributable to common stockholders, basic $ (29.64 ) $ 0.07
Net income (loss) per share attributable to common stockholders, diluted $ (29.64 ) $ 0.07 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: SCHEDULE OF WEIGHTED AVERAGE SHARES OF ANTI-DILUTIVE SECURITIES
December 31,
2021 2020
Stock options 224,915 182,015
Warrants 513,688 988
Total 738,603 183,003 Recently
Issued Accounting Pronouncements In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (“ASU 2019-12”), which simplifies the accounting for income
taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology
for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The
new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the
accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning
after December 31, 2021 and interim periods within that year. Early adoption is permitted. The Company is evaluating the impact of ASU
2019-12 on the consolidated financial statements. In
August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Topic 470) to address issues identified
as a result of the complexity with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The
FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock, resulting in
fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Certain types of
convertible instruments will continue to be subject to separation models: (a) those with embedded conversion features that are not clearly
and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from
derivative accounting and (b) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in
capital. For convertible instruments, the contracts primarily affected are those with beneficial conversions or cash conversion features
as the accounting models for those specific features have been removed. For contracts in an entity’s own equity, the contracts
primarily affected are freestanding instruments and embedded features that are accounted for as derivatives due to a failure to meet
the settlement conditions of the derivatives scope exceptions. The FASB simplified the settlement assessment by removing the requirements
to (a) consider whether the contract would be settled in registered shares, (b) to consider whether collateral is required to be posted,
and (c) assess shareholder rights. The FASB also decided to enhance information transparency by making targeted improvements to the disclosures
for convertible instruments and earnings-per-share guidance. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023
and early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. Entities must adopt the guidance
as of the beginning of its annual fiscal year and a modified retrospective or fully retrospective transition approach is permitted. The
Company is evaluating the impact of ASU 2020-06 on the consolidated financial statements. Ensysce
Biosciences, Inc. Notes
to the Consolidated Financial Statements |
