	June 30, 2023			December 31,2022
	(unaudited)
ASSETS
Current assets:
Cash	$	7,081,408		$	17,723,884
Prepaid expenses and other current assets		1,818,611			708,053
Total current assets		8,900,019			18,431,937

Other assets:
Property and equipment, net		595,233			677,485
Right-of-use operating lease asset		9,607			63,817
Intangible assets, net		295,311			379,686
Total other assets		900,151			1,120,988
Total assets	$	9,800,170		$	19,552,925

LIABILITIES, MEZZANINE EQUITY, AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,234,490		$	463,275
Accrued liabilities		1,499,476			1,705,655
Current portion of right-of-use operating lease obligation		9,611			63,820
Investment option liability		1,813,644			851,008
Warrant liability		368,379			185,215
Derivative liability		—			727,000
Total current liabilities	$	4,925,600		$	3,995,973

Commitments and contingencies (Note 9)		-			-

Mezzanine equity
Series C redeemable preferred stock, $0.01 par value, 100,000 shares authorized, and 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022		—			—
Redeemable non-controlling interest		—			885,028
Total mezzanine equity		—			885,028

Shareholders’ equity
Preferred stock, $0.01 par value, 20,000,000 shares authorized; Series B preferred stock, $0.01 par value, 3,600,000 shares authorized, 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022		—			—
Common stock, $0.01 par value, 100,000,000 shares authorized, 2,141,782 and 2,078,271 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		21,417			20,782
Additional paid-in capital		95,640,571			94,395,662
Accumulated deficit		(90,241,366	)		(79,207,786	)
Accumulated other comprehensive loss		(546,052	)		(536,734	)
Total shareholders’ equity		4,874,570			14,671,924
Total liabilities, mezzanine equity, and shareholders’ equity	$	9,800,170		$	19,552,925

See the accompanying notes to the unaudited condensed consolidated financial statements.

~~AMERI HOLDINGS,~~

ENVERIC BIOSCIENCES, INC.

AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~INCOME (LOSS)~~

Three Months
Ended
September 30,
2017

Three Months
Ended
September 30,
2016

Nine Months
Ended
September 30,
2017

Nine Months
Ended
September 30,
2016

Revenue $ 12,529,928 $ 10,058,558 $ 37,139,114 $ 23,758,460
Cost of revenue 9,966,490 8,361,960 28,941,535 18,897,059
Gross profit 2,563,438 1,696,598 8,197,579 4,861,401

Operating expenses
Selling and marketing 402,846 137,024 1,170,051 401,487
General and administration 5,283,059 1,326,327 12,389,581 5,316,390
Acquisition related expenses 5,694 1,015,558 390,174 1,630,778
Depreciation and amortization 817,284 509,377 2,332,041 722,390
Operating expenses 6,508,883 2,988,286 16,281,847 8,071,045
Operating income (loss) (3,945,445 ) (1,291,688 ) (8,084,268 ) (3,209,644 )
Interest expenses (132,973 ) (290,423 ) (388,122 ) (674,683 )
Changes in estimates - - 400,000 -
Others, net 17,446 (195,518 ) 21,921 (197,679 )
Income (loss) before income taxes (4,060,972 ) (1,777,629 ) (8,050,469 ) (4,082,006 )
Tax benefit / (provision) - - - -
Income after income taxes (4,060,972 ) (1,777,629 ) (8,050,469 ) (4,082,006 )
Net income attributable to non-controlling interest (6,632 ) - (18,504 ) -
Net income (loss) attributable to the Company (4,067,604 ) (1,777,629 ) (8,068,973 ) (4,082,006 )
Dividend on preferred stock (541,864 ) - (1,546,655 ) -
Net loss attributable to common stock holders (4,609,468 ) (1,777,629 ) (9,615,628 ) (4,082,006 )
Other comprehensive income (loss), net of tax - - - -
Foreign exchange translation (14,234 ) 59,079 (11,084 ) (6,619 )
Comprehensive income/(loss) $ (4,623,702 ) $ (1,718,550 ) $ (9,626,712 ) $ (4,088,625 )
Comprehensive income/(loss) attributable to the Company (4,617,070 ) (1,718,550 ) (9,608,208 ) (4,088,625 )
Comprehensive income/(loss) attributable to the non-controlling interest (6,632 ) - (18,504 ) -
$ (4,623,702 ) $ (1,718,550 ) $ (9,626,712 ) $ (4,088,625 )

Basic income (loss) per share $ (0.31 ) $ (0.13 ) $ (0.66 ) $ (0.32 )
Diluted income (loss) per share $ (0.31 ) $ (0.13 ) $ (0.66 ) $ (0.32 )

Basic weighted average number of common shares outstanding 14,715,947 13,653,586 14,472,322 12,794,149
Diluted weighted average number of common shares outstanding 14,715,947 13,653,586 14,472,322 12,794,149

LOSS

	2023			2022			2023			2022
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2023			2022			2023			2022
Operating expenses
General and administrative	$	3,155,400		$	2,501,206		$	5,910,991		$	5,269,072
Research and development		2,513,089			2,120,051			4,531,690			4,078,765
Depreciation and amortization		86,518			85,502			173,004			154,767
Total operating expenses		5,755,007			4,706,759			10,615,685			9,502,604

Loss from operations		(5,755,007	)		(4,706,759	)		(10,615,685	)		(9,502,604	)

Other income (expense)
Change in fair value of warrant liabilities		(233,821	)		1,969,922			(183,164	)		2,245,891
Change in fair value of investment option liability		(1,082,141	)		—			(962,636	)		—
Change in fair value of derivative liability		714,000			(53,000	)		727,000			(53,000	)
Interest income (expense)		916			(668	)		905			(4,806	)
Total other (expense) income		(601,046	)		1,916,254			(417,895	)		2,188,085

Net loss		(6,356,053	)		(2,790,505	)		(11,033,580	)		(7,314,519	)
Less preferred dividends attributable to non-controlling interest		6,712			7,808			19,041			7,808
Less deemed dividends attributable to accretion of embedded derivative at redemption value		36,997			73,994			147,988			73,994
Net loss attributable to shareholders		(6,399,762	)		(2,872,307	)		(11,200,609	)		(7,396,321	)

Other comprehensive loss
Foreign currency translation		(11,286	)		(281,014	)		(9,318	)		(192,305	)

Comprehensive loss	$	(6,411,048	)	$	(3,153,321	)	$	(11,209,927	)	$	(7,588,626	)

Net loss per share - basic and diluted	$	(3.04	)	$	(2.73	)	$	(5.35	)	$	(7.78	)

Weighted average shares outstanding, basic and diluted		2,107,583			1,053,760			2,093,008			951,193

See the accompanying notes to the unaudited condensed consolidated financial statements.

~~Table of Contents~~

~~AMERI HOLDINGS,~~

ENVERIC BIOSCIENCES, INC.

AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

Nine Months
Ended
September 30,

2017 2016

Cash flow from operating activities
Comprehensive income/(loss) $ (9,626,712 ) $ (4,088,625 )
Adjustment to reconcile comprehensive income/(loss) to net cash used in operating activities
Depreciation and amortization 2,332,041 722,390
Provision for Preference dividend 1,546,655 -
Changes in estimate of contingent consideration (400,000 ) -
Stock, option, restricted stock unit and warrant expense 5,167,358 945,959
Foreign exchange translation adjustment 11,085 -
Changes in assets and liabilities:
Increase (decrease) in:
Accounts receivable (1,107,178 ) (2,852,778 )
Other current assets (779,097 ) (285,831 )
Increase (decrease) in:
Accounts payable and accrued expenses 1,056,277 2,561,321
Net cash provided by (used in) operating activities (1,799,571 ) (2,997,564 )
Cash flow from investing activities
Purchase of fixed assets (7,797 ) 3,261,617
Acquisition consideration (694,711 ) (8,779,040 )
Investments - 82,908
Net cash used in investing activities (702,508 ) (5,434,515 )
Cash flow from financing activities
Proceeds from bank loan and convertible notes, net 1,966,296 4,467,879
Additional stock issued - 5,000,000

Net cash provided by financing activities 1,966,296 9,467,879
Net increase (decrease) in cash and cash equivalents (535,783 ) 1,035,800
Cash and cash equivalents as at beginning of the period 1,379,887 1,878,034
Cash at the end of the period $ 844,104 $ 2,913,834

CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

	-	Shares			Amount			Equity			Shares		Amount		Capital			Deficit			Loss			Equity
		Redeemable Non-controlling Interest						Total Mezzanine			Common Stock				Additional Paid-In			Accumulated			Accumulated Other Comprehensive			Total Shareholders’
		Shares			Amount			Equity			Shares		Amount		Capital			Deficit			Loss			Equity
Balance at January 1, 2023	-		1,000		$	885,028		$	885,028			2,078,271	$	20,782	$	94,395,662		$	(79,207,786	)	$	(536,734	)	$	14,671,924
Stock-based compensation			—			—			—			—		—		532,835			—			—			532,835
Preferred dividends attributable to redeemable non-controlling interest			—			12,329			12,329			—		—		(12,329	)		—			—			(12,329	)
Accretion of embedded derivative to redemption value			—			110,991			110,991			—		—		(110,991	)		—			—			(110,991	)
Foreign exchange translation gain			—			—			—			—		—		—			—			1,968			1,968
Net loss	-		—			—			—			—		—		—			(4,677,527	)		—			(4,677,527	)
Balance at March 31, 2023	-		1,000		$	1,008,348		$	1,008,348			2,078,271	$	20,782	$	94,805,177		$	(83,885,313	)	$	(534,766	)	$	10,405,880
Stock-based compensation			—			—			—			—		—		879,738			—			—			879,738
Preferred dividends attributable to redeemable			—			6,712			6,712			—		—		(6,712	)		—			—			(6,712	)
Accretion of embedded derivative to redemption value			—			36,997			36,997			—		—		(36,997	)		—			—			(36,997	)
Redemption of Series A preferred stock			(1,000	)		(1,052,057	)		(1,052,057	)		—		—		—			—			—			—
Issuance of common shares in exchange for RSU conversions from the reduction in force			—			—			—			63,511		635		(635	)		—			—			—
Foreign exchange translation loss			—			—			—			—		—		—			—			(11,286	)		(11,286	)
Net loss	-		—			—			—			—		—		—			(6,356,053	)		—			(6,356,053	)
Balance at June 30, 2023	-		—		$	—		$	—			2,141,782	$	21,417	$	95,640,571		$	(90,241,366	)	$	(546,052	)	$	4,874,570

See the accompanying notes to the unaudited condensed consolidated financial statements.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

	Shares		Amount		Shares		Amount		Equity		Shares		Amount		Capital			Deficit			Income (Loss)			Equity
	Series C Preferred Stock				Redeemable Non-controlling Interest				Total Mezzanine		Common Stock				Additional Paid-In			Accumulated			Accumulated Other Comprehensive			Total Shareholders’
	Shares		Amount		Shares		Amount		Equity		Shares		Amount		Capital			Deficit			Income (Loss)			Equity
Balance at January 1, 2022		—	$	—		—	$	—		—		651,921	$	6,519	$	83,066,656		$	(60,736,453	)	$	(30,802	)	$	22,305,920
February 2022 registered direct offering		—		—		—		—		—		400,000		4,000		5,798,464			—			—			5,802,464
Stock-based compensation		—		—		—		—		—		—		—		768,619			—			—			768,619
Conversion of RSUs into common shares		—		—		—		—		—		899		9		(9	)		—			—			—
Foreign exchange translation gain		—		—		—		—		—		—		—		—			—			88,709			88,709
Net loss		—		—		—		—		—		—		—		—			(4,524,014	)		—			(4,524,014	)
Balance at March 31, 2022		—	$	—		—	$	—	$	—		1,052,820	$	10,528	$	89,633,730		$	(65,260,467	)	$	57,907		$	24,441,698
Stock-based compensation		—		—		—		—		—		—		—		677,543			—			—			677,543
Redeemable non-controlling interest, net of $402,000		—		—		1,000		556,038		556,038		—		—		—			—			—			—
Issuance of redeemable non-controlling Series C		52,865		527		—		—		527		—		—		(527	)		—			—			(527	)
Preferred dividends attributable to redeemable non-controlling interest		—		—		—		7,808		7,808		—		—		(7,808	)		—			—			(7,808	)
Accretion of embedded derivative to redemption		—		—		—		73,994		73,994		—		—		(73,994	)		—			—			(73,994	)
Conversion of RSAs into common shares		—		—		—		—		—		1,223		12		(12	)		—			—			—
Foreign exchange translation gain		—		—		—		—		—		—		—		—			—			(281,014	)		(281,014	)
Net loss		—		—		—		—		—		—		—		—			(2,790,505	)		—			(2,790,505	)
Balance at June 30, 2022		52,865	$	527		1,000	$	637,840	$	638,367		1,054,043	$	10,540	$	90,228,932		$	(68,050,972	)	$	(223,107	)	$	21,965,393

See the accompanying notes to the unaudited condensed consolidated financial statements.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	2023			2022
	For the Six Months Ended June 30,
	2023			2022
Cash Flows From Operating Activities:
Net loss	$	(11,033,580	)	$	(7,314,519	)
Adjustments to reconcile net loss to cash used in operating activities
Change in fair value of warrant liability		183,164			(2,245,891	)
Change in fair value of investment option liability		962,636			—
Change in fair value of derivative liability		(727,000	)		53,000
Stock-based compensation		1,412,573			1,446,162
Amortization of right-of-use asset		54,703			68,910
Amortization of intangible assets		84,375			84,375
Depreciation expense		88,629			70,392
Gain on disposal of property and equipment		(4,212	)		—
Change in operating assets and liabilities:
Prepaid expenses and other current assets		(1,111,913	)		(1,031,979	)
Accounts payable and accrued liabilities		542,397			(187,902	)
Right-of-use operating lease liability		(54,702	)		(76,686	)
Net cash used in operating activities		(9,602,930	)		(9,134,138	)

Cash Flows From Investing Activities:
Purchases of property and equipment		(5,187	)		(559,398	)
Proceeds from disposal of property and equipment		16,872			—
Net cash used in investing activities		11,685			(559,398	)

Cash Flows From Financing Activities:
Proceeds from sale of common stock, warrants, and investment options, net of offering costs		—			9,397,884
Redemption of Series A Preferred Stock (see Note 8)		(1,052,057	)		—
Proceeds from the sale of redeemable non-controlling interest, net of offering		—			958,038
Net cash (used in) provided by financing activities		(1,052,057	)		10,355,922

Effect of foreign exchange rate on cash		826			(9,434	)

Net (decrease) increase in cash		(10,642,476	)		652,952
Cash at beginning of period		17,723,884			17,355,999
Cash at end of period	$	7,081,408		$	18,008,951

Supplemental disclosure of cash and non-cash transactions:
Cash paid for interest	$	11		$	4,806
Income taxes paid	$	—		$	—
Warrants issued in conjunction with common stock issuance	$	—		$	3,595,420
Issuance of embedded derivative	$	—		$	402,000
Issuance of redeemable non-controlling Series C preferred stock	$	—		$	527
Preferred dividends attributable to redeemable non-controlling interest	$	19,041		$	7,808
Accretion of embedded derivative to redemption value	$	147,988		$	73,994

See the accompanying notes to the unaudited condensed consolidated financial statements.

~~Table of Contents~~

~~AMERI HOLDINGS,~~

ENVERIC BIOSCIENCES, INC.

AND SUBSIDIARIES

NOTES TO ~~UNAUDITED~~ CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2017~~

NOTE 1. BUSINESS AND LIQUIDITY AND OTHER UNCERTAINTIES

Nature of Operations

Enveric Biosciences, Inc. (“Enveric Biosciences, Inc.” “Enveric” or the “Company”) is a pharmaceutical company developing innovative, evidence-based cannabinoid medicines. The head office of the Company is located in Naples, Florida. The Company has the following wholly owned subsidiaries: Jay Pharma Inc. (“Jay Pharma”), 1306432 B.C. Ltd. (“HoldCo”), MagicMed Industries, Inc. (“MagicMed”), Enveric Canada, and Enveric Therapeutics, Pty. Ltd. (“Enveric Therapeutics”).

MagicMed develops and commercializes psychedelic-derived pharmaceutical candidates. MagicMed’s Psychedelic Derivatives (as defined below) library, the Psybrary™, is an essential building block from which the industry can develop new patented products. The initial focus of the Psybrary™ is on psilocybin and N-dimethyltry (“DMT”) derivatives, and it is then expected to be expanded to other psychedelics.

Following the Company’s amalgamation with MagicMed completed in September 2021 (the “Amalgamation”), the Company has continued to pursue the development of MagicMed’s proprietary Psychedelic Derivatives library, the Psybrary™ which the Company believes will help to identify and develop the right drug candidates needed to address mental health challenges, including cancer-related distress. The Company synthesizes novel versions of classic psychedelics, such as psilocybin, DMT, mescaline and MDMA, using a mixture of chemistry and synthetic biology, resulting in the expansion of the Psybrary™, which includes 15 patent families with over a million potential variations and hundreds of synthesized molecules. Within the Psybrary™ the Company has three different types of molecules, Generation 1 (classic psychedelics), Generation 2 (pro-drugs), and Generation 3 (new chemical entities). The Company is working to add novel psychedelic molecular compounds and derivatives (“Psychedelic Derivatives”) on a regular basis through its work at the Company’s labs in Calgary, Alberta, Canada, where the Company has a team of PhD scientists with expertise in synthetic biology and chemistry. To date the Company has created over 500 molecules that are housed in the Psybrary™.

The Company screens newly synthesized molecules in the Psybrary™ through PsyAI™, a proprietary artificial intelligence (“AI”) tool. Leveraging AI systems is expected to reduce the time and cost of pre-clinical, clinical, and commercial development. The Company believes it streamlines pharmaceutical design by predicting ideal binding structures of molecules, manufacturing capabilities, and pharmacological effects to help determine ideal drug candidates, tailored to each indication. Each of these molecules that the Company believes are patentable can then be further screened to see how changes to its makeup alter its effects in order to synthesize additional new molecules. New compounds of sufficient purity are undergoing pharmacological screening, including non-clinical (receptors/cell lines), preclinical (animal), and ultimately clinical (human) evaluations. The Company intends to utilize the Psybrary™ and the AI tool to categorize and characterize the Psybrary™ substituents to focus on bringing more psychedelics-inspired molecules from discovery to the clinical phase.

Akos Spin-Off

On May 11, 2022, the Company announced plans to transfer and spin-off its cannabinoid clinical development pipeline assets to Akos Biosciences, Inc. (formerly known as Acanna Therapeutics, Inc.), a majority-owned subsidiary of the Company (hereafter referred to as “Akos”), which was incorporated on April 13, 2022, by way of dividend to Enveric shareholders (the “Spin-Off”). As of May 12, 2023, the holders of the Company’s Akos Series A Preferred Stock, par value $0.01 per share (“Akos Series A Preferred Stock”) have exercised this right to force redemption of all of the Akos Series A Preferred Stock for $1,000 per share, plus accrued but unpaid dividends of $52,057 for a total of $1,052,057. The Company made full payment on May 19, 2023. See Note 8.

Reverse Stock Split

On July 14, 2022, the Company effected a 1-for-50 reverse stock split. All historical share and per share amounts reflected throughout this report have been adjusted to reflect the reverse stock split.

Australian Subsidiary

On March 21, 2023, the Company established Enveric Therapeutics, an Australia-based subsidiary, to support the Company’s plans to advance its lead program, the EVM201 Series, comprised of the next generation synthetic prodrugs of the active metabolite, psilocin (“EVM201 Series”), towards the clinic. Enveric Therapeutics will oversee the Company’s preclinical, clinical, and regulatory activities in Australia, including ongoing interactions with the local Human Research Ethics Committees (HREC) and the Therapeutic Goods Administration (TGA), Australia’s regulatory authority.

~~NOTE 1.~~

~~ORGANIZATION:~~ 6

~~AMERI Holdings, Inc. is~~

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Going Concern, Liquidity and Other Uncertainties

The Company has incurred a ~~fast-growing technology services company which provides SAP cloud, digital~~loss since inception resulting in an accumulated deficit of $90,241,366 as of June 30, 2023, and ~~enterprise services to clients worldwide. Headquartered in Princeton, New Jersey Ameri100 has offices~~further losses are anticipated in the ~~U.S.~~development of its business. Further, the Company has operating cash outflows of $9,602,930 for the six months ended June 30, 2023. For the six months ended June 30, 2023, the Company had a loss from operations of $10,615,685. Since its inception, being a research and ~~Canada.~~development company, the Company has not yet generated revenue and the Company has incurred continuing losses from its operations. The Company’s operations have been funded principally through the issuance of debt and equity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.

In assessing the Company’s ability to continue as a going concern, the Company monitors and analyzes its cash and its ability to generate sufficient cash flow in the future to support its operating and capital expenditure commitments. At June 30, 2023, the Company had cash of $7,081,408and working capital of $3,974,419. The Company’s current cash on hand is not sufficient enough to satisfy its operating cash needs for the 12 months from the filing of this Quarterly Report on Form 10-Q. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date the financial statements are issued. Management’s plan to alleviate the conditions that raise substantial doubt include reducing the Company’s rate of spend, managing its cash flow, advancing its programs, and raising additional working capital through public or private equity or debt financings or other sources, which may include collaborations with third parties as well as disciplined cash spending, to increase the Company’s cash runway. Adequate additional financing may not be available to us on acceptable terms, or at all. Should the Company be unable to raise sufficient additional capital, the Company may be required to undertake cost-cutting measures including delaying or discontinuing certain operating activities.

The Company’s material cash requirements consist of working capital to fund capital expenditures incurred at their research facility in Calgary and their operations, which consist primarily of, without limitation, employee related expenses, product development activities conducted by third parties, research materials and lab supplies, facility related expenses including rent and maintenance, costs associated with preclinical studies, patent related costs, costs of regulatory and public company compliance, insurance costs, audit costs, consultants and legal fees. Additionally, the Company currently utilizes third-party contract CROs to assist with clinical development activities. If the Company obtains regulatory approval for any of their product candidates, they expect to incur significant expenses to engage third-party contract CMOs to carry out their clinical manufacturing activities as they do not yet have a commercial organization, and incur significant expenses related to developing their internal commercialization capability to support product sales, marketing and distribution. The Company’s current working capital resources are not sufficient to fund these material cash requirements for the next twelve months.

As a result of these factors, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date of the financial statements are issued. The Company’s unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Reduction in Force/Restructuring

On June 16, 2023, the Company entered into a separation agreement with Avani Kanubaddi, the Company’s President and Chief Operating Officer (the “Kanubaddi Separation Agreement”). In accordance with the Kanubaddi Separation Agreement, Mr. Kanubaddi’s outstanding restricted stock units (“RSUs”) will retain their vesting conditions. Mr. Kanubaddi’s 2023 salary and benefits of $464,468 was accrued and will be paid out in twelve equal monthly installments beginning in July 2023. Upon termination, any unvested time-based RSUs became fully vested. The Company accelerated expense recognized related to ~~its clients across industry verticals.~~

these shares that vested was $231,273. Of the 11,278 market performance-based RSUs previously granted, 3,759 will continue to be subject to the original terms and conditions of Mr. Kanubaddi’s employment agreement and the remainder were forfeited.

~~NOTE 2.~~

~~BASIS OF PRESENTATION:~~ 7

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SCHEDULE OF RESTRUCTURING COSTS PAYABLE

	Restructuring Costs Payable
January 1, 2023 Beginning balance	$	—
Restructuring costs incurred		917,527
Restructuring costs paid		(190,808	)
June 30, 2023 ending balance	$	726,719

Inflation Risks

The Company considers the current inflationary trend existing in the North American economic environment reasonably likely to have a material unfavorable impact on results of continuing operations. Higher rates of price inflation, as compared to recent prior levels of price inflation, have caused a general increase in the cost of labor and materials. In addition, there is an increased risk of the Company experiencing labor shortages due to a potential inability to attract and retain human resources due to increased labor costs resulting from the current inflationary environment.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principal of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared ~~by the Company~~ in accordance with accounting principles generally accepted ~~accounting principles~~ in the United States (“U.S. GAAP”) for interim financial information and Article 8 of ~~America, or~~Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. Management’s opinion is that all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for the three and ~~Article 10~~six months ended June 30, 2023 are not necessarily indicative of ~~Regulation S-X~~the results that may be expected for the year ending December 31, 2023. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2022, and related notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023 and subsequently amended on Form 10-K/A Amendment No. 1 filed with the SEC on June 9, 2023 (as amended, the “Annual Report”).

The Company’s significant accounting policies and recent accounting standards are summarized in Note 2 of the Company’s consolidated financial statements for the year ended December 31, 2022. There were no significant changes to these accounting policies during the three and six months ended June 30, 2023.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and expenses during the periods reported. By their nature, these estimates are subject to measurement uncertainty and the effects on the financial statements of changes in such estimates in future periods could be significant. Significant areas requiring management’s estimates and assumptions include determining the fair value of transactions involving common stock and the valuation of stock-based compensation, accruals associated with third party providers supporting research and development efforts, and estimated fair values of long lived assets used to record impairment charges related to intangible assets. Actual results could differ from those estimates.

Foreign Currency Translation

From inception through June 30, 2023, the reporting currency of the Company was the United States dollar while the functional currency of certain of the Company’s subsidiaries were the Canadian dollar and Australian dollar. For the reporting periods ended June 30, 2023 and 2022, the Company engaged in a number of transactions denominated in Canadian dollars and Australian dollars. As a result, the Company is subject to exposure from changes in the exchange rates of the Canadian dollar and Australian dollar against the United States dollar.

The Company translates the assets and liabilities of its Canadian subsidiaries and Australian subsidiary into the United States dollar at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate in effect during each monthly period. Unrealized translation gains and losses are recorded as foreign currency translation gain (loss), which is included in the condensed consolidated statements of shareholders’ equity as a component of accumulated other comprehensive loss.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company has not entered into any financial derivative instruments that expose it to material market risk, including any instruments designed to hedge the impact of foreign currency exposures. The Company may, however, hedge such exposure to foreign currency exchange fluctuations in the future.

Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other comprehensive loss in the condensed consolidated statements of operations and comprehensive loss as incurred.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the federal depository insurance coverage of $250,000 in the United States and Australia and $100,000 in Canada. The Company has not experienced losses on these accounts, and management believes the Company is not exposed to significant risks on such accounts. As of June 30, 2023, the Company had greater than $250,000 at United States financial institutions.

Warrant Liability and Investment Options

The Company evaluates all of its financial instruments, including issued stock purchase warrants and investment options, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 “Distinguishing Liabilities from Equity” (“ASC 480”) and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company accounts for warrants and investment options for shares of the Company’s common stock that are not indexed to its own stock as derivative liabilities at fair value on the unaudited condensed consolidated balance sheets. The Company accounts for common stock warrants and investment options with put options as liabilities under ASC 480. Such warrants and investment options are subject to remeasurement at each unaudited condensed consolidated balance sheet date and any change in fair value is recognized as a component of other expense on the unaudited condensed consolidated statements of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of such common stock warrants and investment options. At that time, the portion of the warrant liability and investment options related to such common stock warrants will be reclassified to additional paid-in capital.

Derivative Liability

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. For derivative financial instruments that are accounted for as assets or liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the unaudited condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as assets or liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the unaudited condensed consolidated balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

Income Taxes

The Company files U.S. federal and state returns. The Company’s foreign subsidiary also files a local tax return in their local jurisdiction. From a U.S. federal, state, and Canadian perspective, the years that remain open to examination are consistent with each jurisdiction’s statute of limitations.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method). The computation of basic net loss per share for the three and six months ended June 30, 2023 and 2022 excludes potentially dilutive securities. The computations of net loss per share for each period presented is the same for both basic and fully diluted. In accordance with ASC 260 “Earnings per Share” (“ASC 260”), penny warrants were included in the calculation of weighted average shares outstanding for the purposes of calculating basic and diluted earnings per share.

Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share the three and six months ended June 30, 2023 and 2022 because the effect of their inclusion would have been anti-dilutive.

SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES

	For the three and six months ended June 30, 2023		For the three and six months ended June 30, 2022
Warrants to purchase shares of common stock		655,463		655,463
Restricted stock units - vested and unissued		55,622		56,071
Restricted stock units - unvested		180,115		94,550
Restricted stock awards - vested and unissued		708		909
Restricted stock awards - unvested		—		65
Investment options to purchase shares of common stock		1,070,000		—
Options to purchase shares of common stock		36,579		22,829
Total potentially dilutive securities		1,998,487		829,887

Fair Value Measurements

Fair value is defined as the price 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. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

For certain financial instruments, including cash and accounts payable, the carrying amounts approximate their fair values as of June 30, 2023, and December 31, 2022 because of their short-term nature.

The following table provides the financial liabilities measured on a recurring basis and reported at fair value on the balance sheet as of June 30, 2023, and December 31, 2022, and indicates the fair value of the valuation inputs the Company utilized to determine such fair value of warrant liabilities, derivative liability, and investment options:

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SCHEDULE OF FAIR VALUE HIERARCHY OF VALUATION INPUTS ON RECURRING BASIS

	Level	June 30, 2023		December 31, 2022
Warrant liabilities - January 2021 Warrants	3	$	145	$	81
Warrant liabilities - February 2021 Warrants	3		147		79
Warrant liabilities - February 2022 Warrants	3		368,087		185,055
Fair value of warrant liability		$	368,379	$	185,215

	Level	June 30, 2023		December 31, 2022
Derivative liability - May 2022	3	$	—	$	727,000
Fair value of derivative liability		$	—	$	727,000

	Level	June 30, 2023		December 31, 2022
H.C. Wainwright & Co., LLC investment options	3	$	84,812	$	44,904
RD investment options	3		648,312		302,289
PIPE investment options	3		1,080,520		503,815
Fair value of investment option liability		$	1,813,644	$	851,008

The warrant liabilities, derivative liability, and investment options are all classified as Level 3, for which there is no current market for these securities such as the determination of fair value requires significant judgment or estimation. Changes in fair value measurement categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

Subsequent measurement

The following table presents the changes in fair value of the warrant liabilities, derivative liability, and investment options that are classified as Level 3:

SCHEDULE OF FAIR VALUE OF WARRANT LIABILITIES AND DERIVATIVE LIABILITY AND INVESTMENT OPTIONS

	Total Warrant Liabilities
Fair value as of December 31, 2022	$	185,215
Change in fair value		183,164
Fair value as of June 30, 2023	$	368,379

	Total Derivative Liability
Fair value as of December 31, 2022	$	727,000
Change in fair value arising from redemption of Akos Series A Preferred Stock - See Note 8		(727,000	)
Fair value of derivative liability as of June 30, 2023	$	—

	Total Investment Option Liability
Fair value as of December 31, 2022	$	851,008
Change in fair value		962,636
Fair value of investment option liability as of June 30, 2023	$	1,813,644

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The key inputs into the Black Scholes valuation model for the Level 3 valuations of the warrant liabilities as of June 30, 2023 are below:

SCHEDULE OF BLACK SCHOLES VALUATION MODELS OF WARRANT LIABILITIES AND INVESTMENT OPTIONS

	January 2021 Warrants			February 2021 Warrants			February 2022 Warrants			February 2022 Post-Modification Warrants
Term (years)		2.5			2.6			3.6			4.6
Stock price	$	3.37		$	3.37		$	3.37		$	3.37
Exercise price	$	247.50		$	245.00		$	27.50		$	7.78
Dividend yield		—	%		—	%		—	%		—	%
Expected volatility		80.0	%		79.0	%		76.0	%		87.0	%
Risk free interest rate		4.70	%		4.60	%		4.40	%		4.20	%
Number of warrants		36,429			34,281			338,000			122,000
Value (per share)	$	—		$	—		$	0.45		$	1.78

The key inputs into the Black Scholes valuation model for the Level 3 valuations of the investment options as of June 30, 2023 are below:

	H.C. Wainwright & Co., LLC Options			RD Offering Options			PIPE Offering Options
Term (years)		4.1			4.6			4.6
Stock price	$	3.37		$	3.37		$	3.37
Exercise price	$	10.00		$	7.78		$	7.78
Dividend yield		—	%		—	%		—	%
Expected volatility		77.0	%		85.0	%		85.0	%
Risk free interest rate		4.30	%		4.20	%		4.20	%
Number of investment options		70,000			375,000			625,000
Value (per share)	$	1.21		$	1.73		$	1.73

The key inputs into the Weighted Expected Return valuation model for the Level 3 valuations of the derivative liability as of redemption, are below:

	May 2022 Derivative Liability
Principal	$	—
Dividend rate		—	%
Market rate		—	%

At the date of the redemption of the of Akos Series A Preferred Stock in May 2023, the derivative liability fair value was $0 due to the probability of a spin-off occurring was zero. See Note 8

Redeemable Non-controlling Interest

In connection with the issuance of Akos Series A Preferred Stock, the Akos Purchase Agreement (as defined below in Note 8) and certificate of designation contain a put right guaranteed by the Company as defined in Note 8. Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer. As a result of this feature, the Company recorded the non-controlling interests as redeemable non-controlling interests and classified them in mezzanine equity within its unaudited condensed consolidated balance sheet initially at its acquisition-date estimated redemption value or fair value. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument by accreting the embedded derivative at each reporting period over 12 months.

In May 2023, pursuant to the Akos Series A Preferred Certificate of Designations, the holders of the Akos Series A Preferred Stock exercised the Put Right (as defined below) requiring Akos to force redemption of all of the Akos Series A Preferred Stock. See Note 8.

Segment Reporting

The Company determines its reporting units in accordance with FASB ASC 280, “Segment Reporting” (“ASC 280”). The Company evaluates a reporting unit by first identifying its operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has multiple operations related to psychedelics and cannabinoids. Both of these operations exist under one reporting unit: Enveric. The Company has one operating segment and reporting unit. The Company is organized and operated as one business. Management reviews its business as a single operating segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and should be applied on a full or modified retrospective basis. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company early adopted ASU 2020-06 effective January 1, 2023, and has determined that the adoption of this guidance had no impact on its condensed consolidated financial statements.

NOTE 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of June 30, 2023 and December 31, 2022, the prepaid expenses and other current assets of the Company consisted of the following:

Schedule of Prepaid Expenses and Other Current Assets


	June 30, 2023		December 31, 2022
Prepaid research and development	$	998,866	$	268,686
Prepaid value-added taxes		222,330		159,782
Prepaid insurance		511,042		174,406
Prepaid other		86,373		105,179
Total prepaid expenses and other current assets	$	1,818,611	$	708,053

NOTE 4. INTANGIBLE ASSETS

As of June 30, 2023, the Company’s intangible assets consisted of:

SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS

Definite lived intangible assets
Balance at December 31, 2022	$	379,686
Amortization		(84,375	)
Balance at June 30, 2023	$	295,311

For identified definite lived intangible assets, there was no impairment expense during the three and six months ended June 30, 2023 and 2022. For identified definite lived intangible assets, amortization expense amounted to $42,187 during the three months ended June 30, 2023, and 2022, respectively. For identified definite lived intangible assets, amortization expense amounted to $84,375 during each of the six months ended June 30, 2023 and 2022.

NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following assets which are located in Calgary, Canada and placed in service by Enveric Biosciences Canada, Inc. (“EBCI”), with all amounts translated into U.S. dollars:

SCHEDULE OF PROPERTY PLANT AND EQUIPMENT NET OF ACCUMULATED DEPRECIATION

	June 30, 2023			December 31, 2022
Lab equipment	$	834,288		$	831,123
Computer equipment and leasehold improvements		28,349			25,137
Less: Accumulated depreciation		(267,404	)		(178,775	)
Property and equipment, net of accumulated depreciation	$	595,233		$	677,485

Depreciation expense was $44,331 and $43,315 for the three months ended June 30, 2023, and 2022, respectively. Depreciation expense was $88,629 and $70,392 for the six months ended June 30, 2023 and 2022, respectively.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. ACCRUED LIABILITIES

As of June 30, 2023 and December 31, 2022, the accrued liabilities of the Company consisted of the following:

SCHEDULE OF ACCRUED LIABILITIES

	June 30, 2023		December 31, 2022
Product development	$	154,870	$	195,104
Accrued salaries and wages		518,846		1,175,963
Professional fees		81,955		83,255
Accrued restructuring costs		719,506		—
Accrued franchise taxes		6,299		—
Patent costs		18,000		251,333
Total accrued expenses	$	1,499,476	$	1,705,655

NOTE 7. SHARE CAPITAL AND OTHER EQUITY INSTRUMENTS

Authorized Capital

The holders of the Company’s common stock are entitled to one vote per share. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds. Upon the liquidation, dissolution, or winding up of the Company, holders of common stock are entitled to share ratably in all assets of the Company that are legally available for distribution. As of June 30, 2023, 100,000,000 shares of common stock and 20,000,000 shares of Preferred Stock were authorized under the Company’s articles of incorporation.

Common Stock Activity

On February 15, 2022, the Company completed a public offering of 400,000 shares of Common Stock and warrants to purchase up to 400,000 shares of Common Stock for gross proceeds of approximately $10 million, before deducting underwriting discounts and commissions and other offering expenses. A.G.P./Alliance Global Partners acted as sole book-running manager for the offering. In addition, Enveric granted the underwriter a 45-day option to purchase up to an additional 60,000 shares of Common Stock and/or warrants to purchase up to an additional 60,000 shares of Common Stock at the public offering price, which the underwriter has partially exercised for warrants to purchase up to 60,000 shares of common stock. At closing, Enveric received net proceeds from the offering of approximately $9.1 million, after deducting underwriting discounts and commissions and estimated offering expenses with $5.8 million allocated to equity, $3.6 million to warrant liability and the remaining $0.3 million recorded as an expense.

On July 22, 2022, the Company entered into a securities purchase agreement (the “Registered Direct Securities ~~Exchange~~Purchase Agreement”) with an institutional investor for the purchase and sale of 116,500 shares of the Company’s common stock, pre-funded warrants to purchase up to 258,500 shares of common stock (the “RD Pre-Funded Warrants”), and unregistered preferred investment options (the “RD Preferred Investment Options”) to purchase up to 375,000 shares of common stock (the “RD Offering”). The gross proceeds from the RD Offering were approximately $3,000,000. Subject to certain ownership limitations, the RD Pre-Funded Warrants became immediately exercisable at an exercise price equal to $0.0001 per share of common stock. On August 3, 2022, all of the issued RD Pre-Funded Warrants were exercised.

Concurrently with the RD Offering, the Company entered into a securities purchase agreement (the “PIPE Securities Purchase Agreement”) with institutional investors for the purchase and sale of 116,000 shares of common stock, pre-funded warrants to purchase up to 509,000 shares of common stock (the “PIPE Pre-Funded Warrants”), and preferred investment options (the “PIPE Preferred Investment Options”) to purchase up to 625,000 shares of the common stock in a private placement (the “PIPE Offering”). The gross proceeds from the PIPE Offering were approximately $5,000,000. Subject to certain ownership limitations, the PIPE Pre-Funded Warrants became immediately exercisable at an exercise price equal to $0.0001 per share of common stock. All of the issued PIPE Pre-Funded Warrants were exercised on various dates prior to August 18, 2022.

The RD Offering and PIPE Offering closed on July 26, 2022, with aggregate gross proceeds of approximately $8 million. The aggregate net proceeds from the offerings, after deducting the placement agent fees and other estimated offering expenses, were approximately $7.1 million, with $3.2 million allocated to equity, $4.3 million to investment option liability, and the remaining $0.4 million recorded as an expense.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the six months ended June 30, 2023, a total of 63,511 shares of Common Stock were issued pursuant to the conversion of restricted stock units. During the six months ended June 30, 2022, a total of 2,122 shares of Common Stock were issued pursuant to the conversion of restricted stock units.

Stock Options

Amendment to 2020 Long-Term Incentive Plan

On May 3, 2022, our board of directors (“Board”) adopted the First Amendment (the “Plan Amendment”) to the Enveric Biosciences, Inc. 2020 Long-Term Incentive Plan (the “Incentive Plan”) to (i) increase the aggregate number of shares available for the grant of awards by 146,083 shares to a total of 200,000 shares, and (ii) add an “evergreen” provision whereby the number of shares authorized for issuance pursuant to awards under the Incentive Plan will be automatically increased on the first trading date immediately following the date the Company issues any share of Common Stock (defined below) to any person or entity, to the extent necessary so that the number of shares of the Company’s Common Stock authorized for issuance under the Incentive Plan will equal the greater of (x) 200,000 shares, and (y) 15% of the total number of shares of the Company’s Common Stock outstanding as of such issuance date. The Plan Amendment was approved by the Company’s shareholders at a special meeting of the Company’s shareholders held on July 14, 2022.

A summary of activity under the Company’s incentive plan for the six months ended June 30, 2023, is presented below:

SCHEDULE OF STOCK OPTION

	Number of Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2022		48,329		$	37.05	$	44.82		4.1	$	—
Forfeited		(11,750	)	$	3.07	$	2.58		—	$	—
Outstanding at June 30, 2023		36,579		$	47.93	$	64.47		3.6	$	—
Exercisable at June 30, 2023		28,265		$	56.59	$	76.86		3.2	$	—

The Company’s stock-based compensation expense, recorded within general and administrative expense in the condensed consolidated statement of operations and comprehensive loss, related to stock options for the three months ended June 30, 2023, and 2022 was $54,375 and $48,697, respectively. The Company’s stock-based compensation expense, recorded within general and administrative expense, related to stock options for the six months ended June 30, 2023 and 2022 was $102,461 and $85,686, respectively. As of June 30, 2023, the Company had $138,388 in unamortized stock option expense, which will be recognized over a weighted average period of 1.5 years.

Restricted Stock Awards

For the three months ended June 30, 2023, and 2022, the Company recorded $0 and $6,250, respectively, in stock-based compensation expense within general and administrative expense, related to restricted stock awards. For the six months ended June 30, 2023 and 2022, the Company recorded $0 and $18,113, respectively, in stock-based compensation expense within general and administrative expense, related to restricted stock awards. As of June 30, 2023, there were no unamortized stock-based compensation costs related to restricted share awards. There are 708 vested and unissued shares of restricted stock awards as of June 30, 2023.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Issuance of Restricted Stock Units

The Company’s activity in restricted stock units was as follows for the six months ended June 30, 2023:

SCHEDULE OF RESTRICTED STOCK UNITS AND AWARDS ACTIVITY

	Number of shares			Weighted average fair value
Non-vested at December 31, 2022		64,053		$	92.57
Granted		182,500		$	2.73
Vested		(57,280	)	$	8.93
Forfeited		(9,158	)	$	44.69
Non-vested at June 30, 2023		180,115		$	30.57

For the three months ended June 30, 2023, and 2022, the Company recorded $825,363 and $622,596, respectively, in stock-based compensation expense related to restricted stock units. For the six months ended June 30, 2023 and 2022, the Company recorded $1,310,112 and $1,342,363 respectively, in stock-based compensation expense related to restricted stock units, which is a component of both general and administrative and research and development expenses in the condensed consolidated statement of operations and comprehensive loss. As of June 30, 2023, the Company had unamortized stock-based compensation costs related to restricted stock units of $2,157,127 which will be recognized over a weighted average period of 2.5 years and unamortized stock-based costs related to restricted stock units which will be recognized upon achievement of specified milestones. As of June 30, 2023, 55,622 restricted stock units are vested without shares of common stock being issued, with 38,382 of these shares due as of June 30, 2023.

The following table summarizes the Company’s recognition of stock-based compensation for restricted stock units for the following periods:

SCHEDULE OF STOCK-BASED COMPENSATION FOR RESTRICTED STOCK UNITS

	2023		2022		2023		2022
	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Stock-based compensation expense for RSUs:
General and administrative	$	592,929	$	358,818	$	845,244	$	717,636
Research and development		232,434		263,778		464,868		624,727
Total	$	825,363	$	622,596	$	1,310,112	$	1,342,363

Warrants

The following table summarizes information about shares issuable under warrants outstanding on June 30, 2023:

SCHEDULE OF WARRANTS OUTSTANDING

	Warrant shares outstanding		Weighted average exercise price		Weighted average remaining life		Intrinsic value
Outstanding at December 31, 2022		655,463	$	58.36		3.6	$	5,514
Outstanding at June 30, 2023		655,463	$	58.36		3.1	$	—
Exercisable at June 30, 2023		655,463	$	58.36		3.1	$	—

The warrants assumed pursuant to the acquisition of MagicMed contain certain down round features, which were not triggered by the February 2022 public offering and July 2022 RD Offering, that would require adjustment to the exercise price upon certain events when the offering price is less than the stated exercise price.

Preferred Investment Options

The following table summarizes information about investment options outstanding on June 30, 2023:

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SCHEDULE OF WARRANTS AND INVESTMENT OPTIONS

	Investment options outstanding		Weighted average exercise price		Weighted average remaining life		Intrinsic value
Outstanding at December 31, 2022		1,070,000	$	7.93		5.1	$	—
Outstanding at June 30, 2023		1,070,000	$	7.93		4.6	$	—
Exercisable at June 30, 2023		1,070,000	$	7.93		4.6	$	—

NOTE 8. REDEEMABLE NON-CONTROLLING INTEREST

Spin-Off and Related Private Placement

In connection with the planned Spin-Off, on May 5, 2022, Akos and the Company entered into a Securities Purchase Agreement (the “Akos Purchase Agreement”) with an accredited investor (the “Akos Investor”), pursuant to which Akos agreed to sell up to an aggregate of 5,000 shares of Akos Series A Preferred Stock, at price of $1,000 per share, and warrants (the “Akos Warrants”) Akos Warrants to purchase shares of Akos’ common stock, par value $0.01 per share (the “Akos Common Stock”), for an aggregate purchase price of up to $5,000,000 (the “Akos Private Placement”). The Akos Purchase Agreement is guaranteed by the Company. Pursuant to the Akos Purchase Agreement, Akos has issued 1,000 shares of the Akos Series A Preferred Stock to the Akos Investor in exchange for $1,000,000 on May 5, 2022. The additional $4,000,000 will be received on or immediately prior to the Spin-Off. The issuance of the Akos Series A Preferred Stock results in RNCI (see Note 2). Palladium Capital Advisors, LLC (“Palladium”) acted as placement agent for the Akos Private Placement. Pursuant to the Akos Purchase Agreement, Akos has agreed to pay Palladium a fee equal to 9% of the aggregate gross proceeds raised from the sale of the shares of the Akos Series A Preferred Stock and a non-accountable expense allowance of 1% of the aggregate gross proceeds raised the sale of the Akos Series A Preferred Stock in the Akos Private Placement. The fee due in connection with the Akos Private Placement to be paid to Palladium in the form of convertible preferred stock and warrants was on similar terms to the securities issued in the Akos Private Placement. Palladium was also entitled to warrants to purchase Akos Common Stock in an amount up to 8% of the number of shares of Akos Common Stock underlying the shares issuable upon conversion of the Akos Series A Preferred Stock. As of June 30, 2023, no accruals have been recorded for the fees or warrants since the Akos Series A Preferred Stock has been redeemed.

Terms of Akos Series A Preferred Stock

Under the Certificate of the Designations, Preferences, and Rights of Series A Convertible Preferred Stock of Akos (the “Akos Series A Preferred Certificate of Designations”), on or immediately prior to the completion of the spin-off of Akos into an independent, separately traded public company listed on the Nasdaq Stock Market, the outstanding Akos Series A Preferred Stock will be automatically converted into a number of shares of Akos Common Stock equal to 25% of the then issued and outstanding Akos Common Stock, subject to the Beneficial Ownership Limitation (as defined in the Akos Purchase Agreement). Cumulative dividends on each share of Akos Series A Preferred Stock accrue at the rate of 5% annually.

The Akos Series A Preferred Certificate of Designations provides that upon the earlier of (i) the one-year anniversary of May 5, 2022, and only in the event that the Spin-Off has not occurred; or (ii) such time that Akos and the Company have abandoned the Spin-Off or the Company is no longer pursuing the Spin-Off in good faith, the holders of the Akos Series A Preferred Stock shall have the right (the “Put Right”), but not the obligation, to cause Akos to purchase all or a portion of the Akos Series A Preferred Stock for a purchase price equal to $1,000 per share, subject to certain adjustments as set forth in the Akos Series A Preferred Certificate of Designations (the “Stated Value”), plus all the accrued but unpaid dividends per share. In addition, after the one-year anniversary of May 5, 2022, and only in the event that the Spin-Off has not occurred and Akos is not in material default of any of the transaction documents, Akos may, at its option, at any time and from time to time, redeem the outstanding shares of Akos Series A Preferred Stock, in whole or in part, for a purchase price equal to the aggregate Stated Value of the shares of Akos Series A Preferred Stock being redeemed and the accrued and unpaid dividends on such shares. Pursuant to the Akos Purchase Agreement, the Company has guaranteed the payment of the purchase price for the shares purchased under the Put Right.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Akos Series A Preferred Certificate of Designations contains limitations that prevent the holder thereof from acquiring shares of Akos Common Stock upon conversion of the Akos Series A Preferred Stock that would result in the number of shares of Akos Common Stock beneficially owned by such holder and its affiliates exceeding 9.99% of the total number of shares of Akos Common Stock outstanding immediately after giving effect to the conversion (the “Beneficial Ownership Limitation”), except that upon notice from the holder to Akos, the holder may increase or decrease the limit of the amount of ownership of outstanding shares of Akos Common Stock after converting the holder’s shares of Akos Series A Preferred Stock, provided that any change in the Beneficial Ownership Limitation shall not be effective until 61 days following notice to Akos.

Redemption of Akos Series A Preferred Stock

In May 2023, pursuant to the Akos Series A Preferred Certificate of Designations, the holders of the Akos Series A Preferred Stock exercised the Put Right requiring Akos to force redemption of all of the Akos Series A Preferred Stock for $1,000 per share, plus accrued but unpaid dividends of approximately $50,000 for a total of approximately $1,052,057. The Company has 20 days following the receipt of the Put Exercise Notice to make the payment and made payment on May 19, 2023. Upon redemption, the Company revalued the derivative liability and the Company recognized a change in fair value of the derivative liability on the Company’s Condensed Consolidated Statement of Operations for the three months ended June 30, 2023 of $714,000.

The Company, Akos, and the Akos Investor have terminated the Akos Purchase Agreement in connection with the planned Spin-Off and certain registration rights agreement in connection with the Akos Private Placement.

Accounting for Akos Series A Preferred Stock

Since the shares of Akos Series A Preferred Stock were redeemable at the option of the holder and the redemption is not solely in the control of the Company, the shares of Akos Series A Preferred Stock were accounted for as a redeemable non-controlling interest and classified within mezzanine equity in the Company’s condensed consolidated balance sheets. The redeemable non-controlling interest was initially measured at fair value. Dividends on the shares of Akos Series A Preferred Stock were recognized as preferred dividends attributable to redeemable non-controlling interest in the Company’s condensed consolidated statement of operations and comprehensive loss.

The table below presents the reconciliation of changes in redeemable non-controlling interest:

SCHEDULE OF RECONCILIATION CHANGE IN REDEEMABLE NONCONTROLLING INTEREST

Balance at December 31, 2022	$	885,028
Preferred dividends attributable to redeemable non-controlling interest		19,041
Accretion of embedded derivative and transaction costs associated with Akos Series A Preferred		147,988
Redemption of Akos Series A Preferred Stock		(1,052,057	)
Balance at June 30, 2023	$	—

As of June 30, 2023, the Akos Series A Preferred Stock has been redeemed for a total of approximately $1,052,057, and the balance of the redeemable non-controlling interest is $0.

NOTE 9. COMMITMENTS AND CONTINGENCIES

The Company is periodically involved in legal proceedings, legal actions and claims arising in the normal course of business. Management believes that the outcome of such legal proceedings, legal actions and claims will not have a significant adverse effect on the Company’s financial position, results of operations or cash flows.

Australian Subsidiary Research and Development

On March 23, 2023, the Company issued a press release announcing the selection of Australian CRO, Avance Clinical, in preparation for Phase 1 Study of EB-373, the Company’s lead candidate targeting the treatment of anxiety disorders. Under the agreement, Avance Clinical will manage the Phase 1 clinical trial of EB-373 in coordination with the Company’s newly established Australian subsidiary, Enveric Therapeutics Pty, Ltd. The Phase 1 clinical trial is designed as a multi-cohort, dose-ascending study to measure the safety and tolerability of EB-373. EB-373, a next-generation proprietary psilocin prodrug, has been recognized as a New Chemical Entity (NCE) by Australia’s Therapeutic Goods Administration (TGA) and is currently in preclinical development targeting the treatment of anxiety disorder. The total cost of the Avance Clinical contract is approximately 3,000,000 AUD, which translates to approximately $2,000,000 USD as of June 30, 2023. As of June 30, 2023, the Company has paid approximately $1,125,103 of the Avance Clinical contract costs and has $783,819 recorded as prepaid assets within prepaid and other current assets on the accompanying condensed consolidated balance sheet. For the three and six months ended June 30, 2023, the Company has expensed $354,419 and $355,232 in research and development expenses, respectively, within the accompanying condensed consolidated statement of operations.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Development and Clinical Supply Agreement

On February 22, 2021, the Company entered into a Development and Clinical Supply Agreement (the “PureForm Agreement”) with PureForm Global, Inc. (“PureForm”), pursuant to which PureForm will be the exclusive provider of synthetic cannabidiol (“API”) for the Company’s development plans for cancer treatment and supportive care. Under the terms of the PureForm Agreement, PureForm has granted the Company the exclusive right to purchase API and related product for cancer treatment and supportive care during the term of the Agreement (contingent upon an initial minimum order of 1 kilogram during the first thirty (30) days from the effective date) and has agreed to manufacture, package and test the API and related product in accordance with specifications established by the parties. All inventions that are developed jointly by the parties in the course of performing activities under the PureForm Agreement will be owned jointly by the parties in accordance with applicable law; however, if the Company funds additional research and development efforts by PureForm, the parties may enter into a further agreement whereby PureForm would assign any resulting inventions or technical information to the Company.

The initial term of the PureForm Agreement is three (3) years commencing on the effective date of the PureForm Agreement, subject to extension by mutual agreement of the parties. The PureForm Agreement may be terminated by either party upon thirty (30) days written notice of an uncured material breach or immediately in the event of bankruptcy or insolvency. The PureForm Agreement contains, among other provisions, representation and warranties, indemnification obligations and confidentiality provisions in favor of each party that are customary for an agreement of this nature.

The Company has met the minimum purchase requirement of 1 kilogram during the first thirty days of the PureForm Agreement’s effectiveness.

Purchase agreement with Prof. Zvi Vogel and Dr. Ilana Nathan

On December 26, 2017, Jay Pharma entered into a purchase agreement with Prof. Zvi Vogel and Dr. Ilana Nathan (the “Vogel-Nathan Purchase Agreement”), pursuant to which Jay Pharma was assigned ownership rights to certain patents, which were filed and unissued as of the date of the Vogel-Nathan Purchase Agreement. The Vogel-Nathan Purchase Agreement includes a commitment to pay a one-time milestone totaling $200,000 upon the issuance of a utility patent in the United States or by the European Patent Office, as defined in the agreement. The Company has accrued such amount as of December 31, 2021, as a result of the milestone criteria being achieved. Payment was made during January 2022. In addition, a milestone payment totaling $300,000 is due upon initiation of a Phase II(b) study. Research activities related to the relevant patents are still in pre-clinical stage, and accordingly, this milestone has not been achieved. The Vogel-Nathan Purchase Agreement contains a commitment for payment of royalties equaling 2% of the first $20 million in net sales derived from the commercialization of products utilizing the relevant patent. As these products are still in the preclinical phase of development, no royalties have been earned.

Other Consulting and Vendor Agreements

The Company has entered into a number of agreements and work orders for future consulting, clinical trial support, and testing services, with terms ranging between 1 and 18 months. These agreements, in aggregate, commit the Company to approximately $1.6 million in future cash payments.

Item 2. Management’s discussion and analysis of financial condition and results of operations

The information set forth below should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Unless stated otherwise, references in this Quarterly Report on Form 10-Q to “us,” “we,” “our,” or our “Company” and similar terms refer to Enveric Biosciences, Inc., a Delaware corporation.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of ~~1934,~~1995. Forward-looking statements may be identified by the use of forward-looking terms such as ~~amended. Certain~~“anticipates,” “assumes,” “believes,” “can,” “could,” “estimates,” “expects,” “forecasts,” “guides,” “intends,” “is confident that,” “may,” “plans,” “seeks,” “projects,” “targets,” and “would” or the negative of such terms or other variations on such terms or comparable terminology. Such forward-looking statements include, but are not limited to, future financial and operating results, the company’s plans, objectives, expectations and intentions and other statements that are not historical facts. 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 speak only as of the date of this Form 10-Q and are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from our historical experience and our present expectations, or projections described under the sections in this Form 10-Q entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These risks and uncertainties include, but are not limited to:

	●	our dependence on the success of our prospective product candidates, which are in the early stages of development and may not reach a particular stage in development, receive regulatory approval, or be successfully commercialized;
	●	potential difficulties that may delay, suspend, or scale back our efforts to advance additional early research programs through preclinical development and investigational new drug (“IND”) application filings and into clinical development;
	●	the risk that the cost savings, synergies and growth from our combination with MagicMed Industries Inc. and the successful use of the rights and technologies acquired in the combination may not be fully realized or may take longer to realize than expected;
	●	the ongoing impact of the novel coronavirus (COVID-19) on our business, including our current plans for product development, as well as any currently ongoing preclinical studies and clinical trials and any future studies or other development or commercialization activities;
	●	the limited study on the effects of medical cannabinoids and psychedelics, and the chance that future clinical research studies may lead to conclusions that dispute or conflict with our understanding and belief regarding the medical benefits, viability, safety, efficacy, dosing, and social acceptance of cannabinoids or psychedelics;
	●	the expensive, time-consuming, and uncertain nature of clinical trials, which are susceptible to change, delays, termination, and differing interpretations;
	●	the ability to establish that potential products are efficacious or safe in preclinical or clinical trials;
	●	the fact that our current and future preclinical and clinical studies may be conducted outside the United States, and the United States Food and Drug Administration may not accept data from such studies to support any new drug applications we may submit after completing the applicable developmental and regulatory prerequisites;
	●	our ability to effectively and efficiently build, maintain and legally protect our molecular derivatives library so that it can be an essential building block from which those in the biotech industry can develop new patented products;
	●	our ability to establish or maintain collaborations on the development of therapeutic candidates;
	●	our ability to obtain appropriate or necessary governmental approvals to market potential products;
	●	our ability to manufacture product candidates on a commercial scale or in collaborations with third parties;
	●	our significant and increasing liquidity needs and potential requirements for additional funding;
	●	our ability to obtain future funding for developing products and working capital and to obtain such funding on commercially reasonable terms;
	●	legislative changes related to and affecting the healthcare system, including, without limitation, changes and proposed changes to the Patient Protection and Affordable Care Act;
	●	the intense competition we face, often from companies with greater resources and experience than us;
	●	our ability to retain key executives and scientists;
	●	the ability to secure and enforce legal rights related to our products, including intellectual property rights and patent protection;
	●	political, economic, and military instability in Israel which may impede our development programs;
	●	our ability to successfully spin off our cannabinoid assets;
	●	our success at managing the risks involved in the foregoing; and
	●	the risk of loss in excess of insurance limitations on funds help in U.S Banking Institutions.

For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those projected in these forward-looking statements, see the risk factors and uncertainties set forth in Part II, Item 1A of this Form 10-Q and Part I, Item 1A of the Annual Report. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise, except as required by law.

Business Overview

We are a biotechnology company dedicated to the development of novel small-molecule therapeutics for the treatment of anxiety, depression, and ~~disclosure notes normally~~addiction disorders. We seek to improve the lives of patients suffering from cancer, initially by developing palliative and supportive care products for people suffering from certain side effects of cancer and cancer treatment such as pain or skin irritation. We currently intend to offer such palliative and supportive care products in the United States, following approval through established regulatory pathways.

Psychedelics

Following our amalgamation with MagicMed completed in September 2021 (the “Amalgamation”), we have continued to pursue the development of MagicMed’s proprietary Psychedelic Derivatives library, the Psybrary™ which we believe will help us to identify and develop the right drug candidates needed to address mental health challenges, including cancer-related distress. We synthesize novel versions of classic psychedelics, such as psilocybin, N-dimethyltryptamine (DMT), mescaline and MDMA, using a mixture of chemistry and synthetic biology, resulting in the expansion of the Psybrary™, which includes 15 patent families with over a million potential variations and hundreds of synthesized molecules. Within the Psybrary™ we have three different types of molecules, Generation 1 (classic psychedelics), Generation 2 (pro-drugs), and Generation 3 (new chemical entities). The Company is working to add novel psychedelic molecular compounds and Psychedelic Derivatives on a regular basis through our work at Enveric Labs in Calgary, Alberta, Canada, where we have a team of PhD scientists with expertise in synthetic biology and chemistry. To date we have created over 500 molecules that are housed in the Psybrary.

We screen newly synthesized molecules in the Psybrary™ through PsyAI™, a proprietary AI tool. Leveraging AI systems is expected to reduce the time and cost of pre-clinical, clinical, and commercial development. We believe it streamlines pharmaceutical design by predicting ideal binding structures of molecules, manufacturing capabilities, and pharmacological effects to help determine ideal drug candidates, tailored to each indication. Each of these molecules that we believe are patentable can then be further screened to see how changes to its makeup alter its effects in order to synthesize additional new molecules. New compounds of sufficient purity are undergoing pharmacological screening, including non-clinical (receptors/cell lines), preclinical (animal), and ultimately clinical (human) evaluations. We intend to utilize our Psybrary™ and the AI tool to categorize and characterize the Psybrary™ substituents to focus on bringing more psychedelics-inspired molecules from discovery to the clinical phase.

Cannabinoids

We aim to advance a pipeline of novel cannabinoid combination therapies for the side effects of cancer treatments, such as chemotherapy and radiotherapy.

We intend to bring together leading oncology clinicians, researchers, academic and industry partners to develop both external proprietary products and a robust internal pipeline of product candidates aimed at improving quality of life and outcomes for cancer patients. We intend to evaluate options to out-license our proprietary technology as it moves along the regulatory pathway.

In developing our product candidates, we intend to focus on cannabinoids derived from non-hemp botanical sources, and synthetic materials containing no tetrahydrocannabinol (“THC”) in order to comply with U.S. federal regulations. Of the potential cannabinoids to be used in therapeutic formulations, THC, which is responsible for the psychoactive properties of marijuana, can result in undesirable mood effects. Selected cannabidiol (CBD) and cannabigerol (CBG) candidates, on the other hand, have amounts of THC well below 0.1% and are not psychotropic and therefore more attractive candidates for translation into therapeutic practice. Drugs with less than 0.1% THC have a history, when approved as drugs by the Food and Drug Administration “FDA”, of being able to be rescheduled by DEA from Schedule I to Schedule V, as in the case of Epidiolex and Marinol. In the future, we may utilize cannabinoids that are derived from cannabis plants, which may contain higher amounts of THC; however, we only intend to do so in jurisdictions where THC is legal. However, synthetic THC is a Schedule I controlled substance; so, the use of any APIs (Active Pharmaceutical Ingredients) containing synthetic THC (or naturally derived THC in concentrations greater than 0.3%) may increase regulatory scrutiny and require additional expenses and authorizations. All current and future product candidates that we are developing or may develop will be tested for safety and efficacy under an IND application and subject to the FDA pre-market approval process for new drugs.

While we continue to pursue the development of our cannabinoid-based product candidates, our principal focus is on the development of psychedelic-based treatments.

On May 11, 2022, the Company announced plans to transfer and spin-off its cannabinoid clinical development pipeline assets (the “Spin-Off”) to Akos Biosciences, Inc. (formerly known as Acanna Therapeutics, Inc.), a majority owned subsidiary of the Company (“Akos”). In connection with the Spin-Off, the Company would transfer its cannabinoid clinical development pipeline assets to Akos, while retaining its psychedelics clinical development pipeline assets. The Spin-Off was subject to various conditions, including Akos meeting the qualifications for listing on the Nasdaq Stock Market, and if successful, would result in two standalone public companies.

In May 2023, pursuant to the Akos Series A Preferred Certificate of Designations, the holders of the Akos Series A Preferred Stock exercised their Put Right requiring Akos to redeem all of the outstanding shares of Akos Series A Preferred Stock for $1,000 per share, plus accrued but unpaid dividends of approximately $50,000 for a total redemption amount of approximately $1,052,057. The Company completed the redemption May 19, 2023. The Company now plans to engage with strategic advisors to identify and pursue alternative routes to capture value from the cannabinoid assets.

Recent Developments

Australian Subsidiary

On March 21, 2023, the Company established Enveric Therapeutics, Pty. Ltd. (“Enveric Therapeutics”), an Australia-based subsidiary, to support the Company’s plans to advance its EVM201 Series towards the clinic. Enveric Therapeutics will oversee the Company’s preclinical, clinical, and regulatory activities in Australia, including ongoing interactions with the local Human Research Ethics Committees (HREC) and the Therapeutic Goods Administration (“TGA”), Australia’s regulatory authority.

On March 23, 2023, the Company issued a press release announcing the selection of Australian CRO, Avance Clinical, in preparation for Phase 1 Study of EB-373, the Company’s lead candidate targeting the treatment of anxiety disorders. Under the agreement, Avance Clinical will manage the Phase 1 clinical trial of EB-373 in coordination with the Company’s newly established Australian subsidiary, Enveric Therapeutics Pty, Ltd. The Phase 1 clinical trial is designed as a multi-cohort, dose-ascending study to measure the safety and tolerability of EB-373. EB-373, a next-generation proprietary psilocin prodrug, has been recognized as a New Chemical Entity (NCE) by Australia’s TGA and is currently in preclinical development targeting the treatment of anxiety disorder. The total cost of the Avance Clinical contract is approximately 3,000,000 AUD, which translates to approximately $2,000,000 as of June 30, 2023. As of June 30, 2023, the Company has paid approximately $1,125,103 of the Avance Clinical contract costs and has $783,819 recorded as prepaid assets. For the three and six months ended June 30, 2023, the Company has expensed $354,419 and $355,232 in research and development expenses, respectively.

Reduction in Force/Restructuring

On June 16, 2023, the Company entered into a separation agreement with Avani Kanubaddi, the Company’s President and Chief Operating Officer (the “Kanubaddi Separation Agreement”). In accordance with the Kanubaddi Separation Agreement, Mr. Kanubaddi’s outstanding RSUs will retain their vesting conditions. Mr. Kanubaddi’s 2023 salary and benefits of $464,468 was accrued and will be paid out in twelve equal monthly installments beginning in July 2023. Upon termination, any unvested time-based RSU’s became fully vested. The Company accelerated expense recognized related to these shares that vested upon termination of $231,273. Of the 11,278 market performance-based RSUs, 3,759 will continue to be subject to the original terms and conditions of Mr. Kanubaddi’s employment agreement and the remainder were forfeited.

Results of Operations

The following table sets forth information comparing the components of net loss for the three months ended June 30, 2023, and 2022:

	For the Three Months Ended June 30,
	2023			2022
Operating expenses
General and administrative	$	3,155,400		$	2,501,206
Research and development		2,513,089			2,120,051
Depreciation and amortization		86,518			85,502
Total operating expenses		5,755,007			4,706,759

Loss from operations		(5,755,007	)		(4,706,759	)

Other income (expense)
Change in fair value of warrant liabilities		(233,821	)		1,969,922
Change in fair value of investment option liability		(1,082,141	)		—
Change in fair value of derivative liability		714,000			(53,000	)
Interest income (expense)		916			(668	)
Total other (expense) income		(601,046	)		1,916,254

Net loss	$	(6,356,053	)	$	(2,790,505	)

General and Administrative Expenses

Our general and administrative expenses increased to $3,155,400 for the three months ended June 30, 2023 from $2,501,206 for the three months ended June 30, 2022, an increase of $654,194, or 26%. This change was primarily driven by an increase in consulting fees of $396,684, an increase in salaries and wages of $330,683, and an increase in stock-based compensation associated with accelerated expense on restricted stock units of $227,861, all primarily related to the reduction in force that occurred during the three months ended June 30, 2023. Other increases related to an increase in director fees of $68,479. This is slightly offset by a decrease in director and officer insurance of $264,350 and a decrease in legal expenses of $175,317 for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Research and Development Expenses

Our research and development expense for the three months ended June 30, 2023 was $2,513,089 as compared to $2,120,051 for the three months ended June 30, 2022 with an increase of $393,038, or approximately 19%. This change was primarily driven by an increase of $355,232 in costs associated with the Avance Clinical contract during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. The Avance Clinical contract was entered into in March 2023, and therefore there was no expense incurred on this contract during the three months ended June 30, 2022.

Depreciation and Amortization Expense

Depreciation and amortization expense for the three months ended June 30, 2023 was $86,518 as compared to $85,502 for the three months ended June 30, 2022, with an increase of $1,016, or approximately 1%. Depreciation and amortization expense was substantially similar for the three months ended June 30, 2023 compared with the three months ended June 30, 2022.

Change in Fair Value of Warrant Liabilities

Change in fair value of warrant liabilities for the three months ended June 30, 2023 resulted in expense of $233,821 as compared to income of $1,969,922 for the three months ended June 30, 2022. The change in fair value of warrant liabilities is significantly influenced by the change in the closing price of Common Stock at the end of each period, as compared to the closing price of Common Stock at the beginning of each period with a strong inverse relationship between changes in fair value of warrant liabilities and the trading price of Common Stock. The Company’s stock price was $3.37 as of June 30, 2023, $1.66 as of March 31, 2023, $10.70 as of June 30, 2022 and $16.50 as of March 31, 2022. The stock price of the Company increased approximately 103% during the three months ended June 30, 2023 compared to a decrease of approximately 35% during the three months ended June 30, 2022. The significant percentage change in the Company’s stock price during the three months ended June 30, 2023 compared to the three months ended June 30, 2022, resulted in the increase to the change in fair value of warrant liabilities.

Change in Fair Value of Investment Option Liability

Change in fair value of investment option liability for the three months ended June 30, 2023 resulted in expense of $1,082,141. The Company did not have any outstanding investment option liabilities during the three months ended June 30, 2022. The change in fair value is due to the significant increase in the Company’s stock price for the three months ended June 30, 2023. The Company’s stock price was $1.66 on March 31, 2023 and $3.37 on June 30, 2023, an increase of approximately 103% during that time.

Change in Fair Value of Derivative Liability

The Company’s change in fair value of derivative liability was expense of $53,000 for the three months ended June 30, 2022, compared with income of $714,000 for the three months ended June 30, 2023 due primarily to redemption of the redeemable stock and the decreased probability of occurrence of the Akos spin-off as of June 30, 2023 as compared to March 31, 2023.

The following table sets forth information comparing the components of net loss for the six months ended June 30, 2023 and 2022:

	For the Six Months Ended June 30,
	2023			2022
Operating expenses
General and administrative	$	5,910,991		$	5,269,072
Research and development		4,531,690			4,078,765
Depreciation and amortization		173,004			154,767
Total operating expenses		10,615,685			9,502,604

Loss from operations		(10,615,685	)		(9,502,604	)

Other income (expense)
Change in fair value of warrant liabilities		(183,164	)		2,245,891
Change in fair value of investment option liability		(962,636	)		—
Change in fair value of derivative liability		727,000			(53,000	)
Interest income (expense)		905			(4,806	)
Total other (expense) income		(417,895	)		2,188,085
Net loss	$	(11,033,580	)	$	(7,314,519	)

General and Administrative Expenses

Our general and administrative expenses increased to $5,910,991 for the six months ended June 30, 2023 from $5,269,072 for the six months ended June 30, 2022, an increase of $641,919, or 12%. This change was primarily driven by an increase in consulting fees of $693,420, coupled with an increase in stock-based compensation associated with restricted stock units and RSAs of $109,495, an increase in salaries and wages of $92,509, and an increase in stock-based compensation associated with options of $16,775, all primarily due to the restructuring that occurred during the three months ended June 30, 2023. Other increases related to an increase in Delaware franchise taxes of $261,075 and an increase in accounting fees of $241,359. This is offset by a decrease in director and officer insurance of $528,700 and a decrease in legal fees of $209,485 during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Research and Development Expenses

Our research and development expense for the six months ended June 30, 2023 was $4,531,690 as compared to $4,078,765 for the six months ended June 30, 2022 with an increase of $452,925, or approximately 11%. This change was primarily driven by an increase of $355,232 in costs associated with the Avance Clinical contract during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. The Avance Clinical contract was entered into in March 2023, and therefore there was no expense incurred on this contract during the six months ended June 30, 2022.

Depreciation and Amortization Expense

Depreciation and amortization expense for the six months ended June 30, 2023 was $173,004 as compared to $154,767 for the six months ended June 30, 2022, with an increase of $18,237, or approximately 12%. This increase is due to fixed asset additions during the six months ended June 30, 2022 which only incurred partial depreciation, compared to a full six months’ of depreciation during the six months ended June 30, 2023.

Change in Fair Value of Warrant Liabilities

Change in fair value of warrant liabilities the six months ended June 30, 2023 resulted in expense of $183,164 as compared to income of $2,245,891 the six months ended June 30, 2022. The change in fair value of warrant liabilities is significantly influenced by the change in the closing price of Common Stock at the end of each period, as compared to the closing price of Common Stock at the beginning of each period with a strong inverse relationship between changes in fair value of warrant liabilities and the trading price of Common Stock. The Company’s stock price was $3.37 as of June 30, 2023, $2.08 as of December 31, 2022, $10.70 as of June 30, 2022 and $46.50 as of December 31, 2021. The stock price of the Company increased approximately 62% during the six months ended June 30, 2023 compared to a decrease of approximately 77% during the six months ended June 30, 2022. The significant percentage change in the Company’s stock price during the six months ended June 30, 2023 compared to the six months ended June 30, 2022, resulted in the increase to the change in fair value of warrant liabilities.

Change in Fair Value of Investment Option Liability

Change in fair value of investment option liability during the six months ended June 30, 2023 resulted in expense of $962,636. The Company did not have any outstanding investment option liabilities during the six months ended June 30, 2022. The change in fair value is due to the significant increase in the Company’s stock price the six months ended June 30, 2023. The Company’s stock price was $2.08 on December 31, 2022 and $3.37 on June 30, 2023, an increase of approximately 62% during that time.

Change in Fair Value of Derivative Liability

The Company’s change in fair value of derivative liability was expense of $53,000 for the six months ended June 30, 2022 compared to income of $727,000 for the six months ended June 30, 2023, due primarily to the decreased probability of occurrence of the Akos spin-off and Akos Series A Preferred Stock redemption as of June 30, 2023 as compared to December 31, 2022.

Going Concern, Liquidity and Capital Resources

The Company has incurred a loss since inception resulting in an accumulated deficit of $90,241,366 as of June 30, 2023 and further losses are anticipated in the development of its business. Further, the Company has operating cash outflows of $9,602,930 for the year ended June 30, 2023. For the six months ended June 30, 2023, the Company had a loss from operations of $10,615,685. Since inception, being a research and development company, the Company has not yet generated revenue and the Company has incurred continuing losses from its operations. The Company’s operations have been funded principally through the issuance of debt and equity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.

In assessing the Company’s ability to continue as a going concern, the Company monitors and analyzes its cash and its ability to generate sufficient cash flow in the future to support its operating and capital expenditure commitments. At June 30, 2023, the Company had cash of $7,081,408 and working capital of $3,974,419. The Company’s current cash on hand is not sufficient enough to satisfy its operating cash needs for the 12 months from the filing of this Quarterly Report on Form 10-Q. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date the financial statements are issued. Management’s plan to alleviate the conditions that raise substantial doubt include reducing the Company’s rate of spend, managing its cash flow, advancing its programs, and raising additional working capital through public or private equity or debt financings or other sources, which may include collaborations with third parties as well as disciplined cash spending, to increase the Company’s cash runway. Adequate additional financing may not be available to us on acceptable terms, or at all. Should the Company be unable to raise sufficient additional capital, the Company may be required to undertake cost-cutting measures including delaying or discontinuing certain operating activities.

In May 2023, the Company entered into a cost reduction plan, including a reduction in force of approximately 35% of its full-time employees to streamline its operations and conserve cash resources. Additionally, contracts with seven consultants that were focused on the Akos cannabinoid spin-out will be terminated. Additionally, on June 16, 2023, the Company entered into the Kanubaddi Separation Agreement with Avani Kanubaddi, the Company’s President and Chief Operating Officer. In accordance with the Kanubaddi Separation Agreement, Mr. Kanubaddi’s outstanding RSUs will retain their vesting conditions. Mr. Kanubaddi’s 2023 salary and benefits was accrued and will be paid out in twelve equal monthly installments beginning in July 2023. The Company recognized severance charges of approximately $917,527 through June 30, 2023, with $190,808 of these charges paid as of June 30, 2023. The plan included a focus on progressing the Company’s existing non-cannabinoid pipeline while reducing the rate of spend and managing cash flow. As of June 30, 2023, the Company has completed the reduction in force, with such severance expenses recorded in salaries and wages and legal accounts.

As a result of these factors, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date of the financial statements are issued. The Company’s condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Cash Flows

Since inception, we have primarily used our available cash to fund our product development and operations expenditures.

Cash Flows for the Six Months Ended June 30, 2023 and 2022

The following table sets forth a summary of cash flows for the years presented:

	For the Six Months Ended June 30,
	2023			2022
Net cash used in operating activities	$	(9,602,930	)	$	(9,134,138	)
Net cash used in investing activities		11,685			(559,398	)
Net cash (used in) provided by financing activities		(1,052,057	)		10,355,922
Effect of foreign exchange rate on cash		826			(9,434	)
Net (decrease) increase in cash	$	(10,642,476	)	$	652,952

Operating Activities

Net cash used in operating activities was $9,602,930 during the six months ended June 30, 2023, which consisted primarily of a net loss adjusted for non-cash items of $8,978,712, an increase in prepaid expenses of $1,111,913, and a decrease in accounts payable and accrued liabilities of $542,397.

Net cash used in operating activities was $9,134,138 during the six months ended June 30, 2022, which consisted primarily of a net loss adjusted for non-cash items of $7,837,571, increase in prepaid expenses and other current assets of $1,031,979, and a decrease in accounts payable and accrued liabilities of $187,902.

Investing Activities

Net cash used in investing activities was $11,685 during the six months ended June 30, 2023, which consisted of the purchase of property and equipment.

Net cash used in investing activities was $559,398 during the six months ended June 30, 2022, which consisted of the purchase of property and equipment.

Financing Activities

Net cash used in financing activities was $1,052,057 during the six months ended June 30, 2023, which consisted of the redemption of redeemable non-controlling interest.

Net cash provided by financing activities was $10,355,922 during the six months ended June 30, 2022, which consisted of $9,397,884 in proceeds from the sale of common stock and warrants and $958,038 in proceeds from the sale of redeemable non-controlling interest.

Critical Accounting Policies and Significant Judgments and Estimates

The Company’s accounting policies are fundamental to understanding its management’s discussion and analysis. The Company’s significant accounting policies are presented in Note 2 to its financial statements for the year ended December 31, 2022, and included in ~~annual~~the Annual Report. The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP. However, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of the financial position and operating results have been ~~omitted pursuant to those rules and regulations, although we believe that~~included in the ~~disclosures made are adequate to ensure the information presented is not misleading.~~

~~The accompanying~~Company’s unaudited condensed consolidated financial ~~statements reflect all adjustments (which were of a normal, recurring nature) that, in the opinion of management, are necessary to present fairly our financial position, results of operations~~statements.

Item 3. Quantitative and ~~cash flows as of and for the interim periods presented. All intercompany transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements.~~

~~Our comprehensive income (loss) consists of net income (loss) plus or minus any periodic currency translation adjustments.~~

~~The Company’s year-end is December 31. Ameri and Partners Inc,~~Qualitative Disclosures About Market Risk

From inception through June 30, 2023, the Company’s ~~wholly-owned operating subsidiary that was~~reporting currency is the ~~accounting acquirer in connection with~~United States dollar while the ~~Company’s May 2015 reverse merger, changed its fiscal year end from March 31 to December 31 pursuant to the merger, so that all~~functional currency of certain of the Company’s ~~subsidiaries’ year-ends are consistent with~~subsidiaries were the ~~year-end of~~Canadian dollar and Australian dollar. For the ~~Company.~~

~~During the first quarter of 2016,~~reporting periods ended June 30, 2023 and June 30, 2022, the Company ~~erroneously classified approximately $1.9 million~~engaged in a number of ~~expenses as general~~transactions denominated in Canadian dollars and administrative expenses which should have been classified as cost of revenue. The Company has corrected this error in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2017. The reclassification did not change the Company’s net income or loss for the period reported.

The results for the interim periods presented are not necessarily indicative of the results expected for any future period. The following information should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

~~Recent Accounting Pronouncements~~

~~New Standards to Be Implemented~~

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605).” This ASU requires an entity to recognize revenue when goods are transferred or services are provided to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU also requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606), deferral of the Effective Date.” With the issuance of ASU 2015-14, the new revenue guidance ASU 2014-09 will be effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, using one of two prescribed retrospective methods. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customer (Topic 606), Identifying Performance Obligations and Licensing.” The guidance is applicable from the date of applicability of ASU 2014-09. This ASU finalizes the amendments to the guidance on the new revenue standard on the identification of performance obligations and accounting for licenses of intellectual property. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements (Topic 606)” which is applicable from the date of applicability of ASU 2014-09. This guidance provides optional exemptions from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue. In May 2016, FASB issued ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients”. This amendment clarified certain aspects of Topic 606 and will be applicable from the date of applicability of ASU 2014-09. The Company is in process of evaluating the impact of the foregoing updates.

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In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. This new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2018. Upon adoption, entities will be required to use a modified retrospective transition which provides for certain practical expedients. Entities are required to apply the new standard at the beginning of the earliest comparative period presented. Early adoption of this new standard is permitted. The Company is currently evaluating the effect this new standard will have on its consolidated financial statements and related disclosures. The Company does not expect the requirement to recognize a right-of-use asset and a lease liability for operating leases to have a material impact on the presentation of its consolidated statements of financial position.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Based on its current assessment, the Company does not expect the adoption of this update to have a material impact on its consolidated financial statements.

On November 17, 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which is intended to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. This new standard requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows.Australian dollars. As a result, ~~entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents~~the Company is subject to exposure from changes in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017 including interim periods within those fiscal years, but earlier adoption is permitted. The Company does not believe the adoption of this new standard will have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, simplifying the Test for Goodwill Impairment. Under this new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment test performed on testing dates after January 1, 2017. The Company is in process of evaluating the impact of these updates.

In January 2017, the FASB issued ASU No. 2017-01, clarifying the Definition of a Business, which clarifies and provides a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this update should be applied prospectively on or after the effective date. This update is effective for annual periods beginning after December 15, 2017 and interim periods within those periods. Early adoption is permitted for acquisition or deconsolidation transactions occurring before the issuance date or effective date and only when the transactions have not been reported in issued or made available for issuance financial statements. The Company does not believe the adoption of this new standard will have a material impact on its consolidated financial statements.

~~Standards Implemented~~

In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments”. The guidance eliminates the requirement that an acquirer in a business combination account for a measurement period adjustment retrospectively. Instead, an acquirer will recognize a measurement period adjustment during the period in which the amountexchange rates of the ~~adjustment is determined. In addition,~~Canadian dollar and Australian dollar against the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date should be presented separately on the face of the income statement or disclosed in the notes. This guidance was effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. This guidance did not have a material impact on the Company’s consolidated financial results.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation”. The new guidance changes the accounting for share based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification in the Consolidated Statement of Cash Flows. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. This guidance did not have a material impact on the Company’s consolidated financial results.

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~~NOTE 3.~~

~~BUSINESS COMBINATIONS:~~

~~Acquisition of Ameri Georgia~~

On November 20, 2015, we completed the acquisition of Bellsoft, Inc., a consulting company based in Lawrenceville, Georgia with over 175 consultants specialized in the areas of SAP software, business intelligence, data warehousing and other enterprise resource planning services. Following the acquisition, the name of Bellsoft, Inc. was changed to Ameri100 Georgia Inc. (“Ameri Georgia”). Ameri Georgia has operations in the United States, Canada and India. For financial accounting purposes, we recognized September 1, 2015 as the effective date of the acquisition. The total consideration for the acquisition of Ameri Georgia was $9,910,817, consisting of:

~~(a)~~

~~A cash payment in the amount of $3,000,000, which was paid at closing;~~

~~(b)~~

~~235,295 shares of our common stock issued at closing;~~

~~(c)~~

~~$250,000 quarterly cash payments paid on the last day of each calendar quarter of 2016;~~

~~(d)~~

~~A $1,000,000 cash reimbursement paid 5 days following closing to compensate Ameri Georgia for a portion of its approximate cash balance as of September 1, 2015;~~

~~(e)~~

~~Approximately $2,910,817 paid within 30 days of closing in connection with the excess of Ameri Georgia’s accounts receivable over its accounts payable as of September 1, 2015; and~~

~~(f)~~

Earn-out payments of approximately $500,000 a year for 2016 and 2017, if earned through the achievement of annual revenue and earnings before interest taxes, depreciation and amortization (“EBITDA”) targets specified in the purchase agreement, subject to downward or upward adjustment depending on actual results.

The earn-out for 2016 was 30% higher than the previously agreed targets, resulting in a higher than anticipated earn-out payment, and the excess of the 2016 earn-out payment over what was planned was made as an adjustment to our income statement.

The valuation of Ameri Georgia was made on the basis of its projected revenues. The accounting acquisition date for Ameri Georgia was determined on the basis of the date when the Company acquired control of Ameri Georgia, in accordance with FASB codification ASU 805-10-25-6 for business combinations. That ASU provides that the date on which the acquirer obtains control of the acquiree generally is the date on which the acquirer legally transfers the consideration, acquires the assets, and assumes the liabilities of the acquiree—the closing date. However, the acquirer might obtain control on a date that is either earlier or later than the closing date. For example, the acquisition date precedes the closing date if a written agreement provides that the acquirer obtains control of the acquiree on a date before the closing date. An acquirer shall consider all pertinent facts and circumstances in identifying the acquisition date. The term sheet and the Share Purchase Agreement that were entered into by the Company and Ameri Georgia contained agreements by the parties that the Company acquired control of Ameri Georgia’s accounts payable, accounts receivable and business decisions as of September 1, 2015. In addition, on that date, the Company became responsible for performance of Ameri Georgia’s existing contracts. Accordingly, the Company has recognized September 1, 2015 as the accounting acquisition date.

The total purchase price of $9,910,817 was allocated to net working capital of $4.6 million, intangibles of $1.8 million, taking into consideration projected revenue from the acquired list of Ameri Georgia customers over a period of three years, and goodwill. The excess of total purchase price over the net working capital and intangibles allocations has been allocated to goodwill.

~~The Company paid $261,876 in cash to the former shareholders of Ameri Georgia as earn-out payments during the nine months ended September 30, 2017.~~

~~Acquisition of Bigtech Software Private Limited~~

On June 23, 2016, we entered into a definitive agreement to acquire Bigtech Software Private Limited (“Bigtech”), a pure-play SAP services company providing a complete range of SAP services including turnkey implementations, application management, training and basis ABAP support. Based in Bangalore, India, Bigtech offers SAP services to improve business operations at companies of all sizes and verticals. The acquisition of Bigtech was effective as of July 1, 2016, and the total consideration for the acquisition of Bigtech was $850,000, consisting of:

~~(a)~~

~~A cash payment in the amount of $340,000, which was due within 90 days of closing and was paid on September 22, 2016;~~

~~(b)~~

Warrants for the purchase of 51,000 shares of our common stock (valued at approximately $250,000 based on the $6.51 closing price of our common stock on the closing date of the acquisition), with such warrants exercisable for two years; and

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~~(c)~~

$255,000, which may become payable in cash earn-outs to the sellers of Bigtech, if Bigtech achieves certain pre-determined revenue and EBITDA targets in 2017 and 2018. We estimate the earn-out payments to be earned at 100% of the targets set forth in the purchase agreement.

Bigtech’s financial results are included in our condensed consolidated financial results starting July 1, 2016. The Bigtech acquisition did not constitute a significant acquisition for the Company. The valuation of Bigtech was made on the basis of its projected revenues.

The total purchase price of $850,000 was allocated to intangibles of $595,000, taking into consideration projected revenue from the acquired list of Bigtech customers over a period of three years, and goodwill. The excess of total purchase price over the intangibles allocation has been allocated to goodwill. The Bigtech acquisition did not constitute a significant acquisition for the Company.

~~Acquisition of Virtuoso~~

On July 22, 2016, we, through wholly-owned acquisition subsidiaries, acquired all of the outstanding membership interests of Virtuoso, L.L.C. (“Virtuoso”), a Kansas limited liability company, pursuant to the terms of an Agreement of Merger and Plan of Reorganization, by and among us, Virtuoso Acquisition Inc., Ameri100 Virtuoso Inc., Virtuoso and the sole member of Virtuoso (the “Sole Member”). Virtuoso is a SAP consulting firm specialized in providing services on SAP S/4 HANA finance, enterprise mobility and cloud migration and is based in Leawood, Kansas. In connection with the merger, Virtuoso’s name was changed to Ameri100 Virtuoso Inc. The Virtuoso acquisition did not constitute a significant acquisition for the Company.

~~The total purchase price paid to the Sole Member for the acquisition of Virtuoso was $1,831,881 consisting of:~~

~~(a)~~

~~A cash payment in the amount of $675,000, which was due within 90 days of closing and was paid on October 21, 2016;~~

~~(b)~~

~~101,250 shares of our common stock at closing, valued at approximately $700,000 based on the $6.51 closing price of our common stock on the closing date of the acquisition; and~~

~~(c)~~

Earn-out payments in cash and stock of $450,000 and approximately $560,807, respectively, to be paid, if earned, through the achievement of annual revenue and gross margin targets in 2017, 2018 and 2019. Out of the total contingent consideration of approximately $1,000,000, we only considered 50% of the earn-out in the purchase price, mainly due to the reorganization of Virtuoso.

The total purchase price of $1,831,881 was allocated to intangibles of $0.9 million, taking into consideration projected revenue from the acquired list of Virtuoso customers over a period of three years, and the balance was allocated to goodwill. The Virtuoso earn-out payments for 2016 amounted to $64,736 in cash and 12,408 shares of common stock, which were delivered to the Sole Member during the nine months ended September 30, 2017.

~~Acquisition of Ameri Arizona~~

On July 29, 2016, we acquired 100% of the membership interests of DC&M Partners, L.L.C. (“Ameri Arizona”), an Arizona limited liability company, pursuant to the terms of a Membership Interest Purchase Agreement by and among us, Ameri Arizona, all of the members of Ameri Arizona, Giri Devanur and Srinidhi “Dev” Devanur, our President and Chief Executive Officer and Executive Vice Chairman, respectively. In July 2017, the name of DC&M Partners, L.L.C. was changed to Ameri100 Arizona LLC. Ameri Arizona is a SAP consulting company headquartered in Chandler, Arizona. Ameri Arizona provides its clients with a wide range of information technology development, consultancy and management services with an emphasis on the design, build and rollout of SAP implementations and related products. Ameri Arizona is also a SAP-certified software partner, having launched its SAP reporting, extraction and distribution tool called “IRIS”. Ameri Arizona services clients in diverse industries, including retail, apparel/footwear, third-party logistics providers, chemicals, consumer goods, energy, high-tech electronics, media/entertainment and aerospace.

~~The aggregate purchase price for the acquisition of Ameri Arizona was $15,816,000 consisting of:~~

~~(a)~~

~~A cash payment in the amount of $3,000,000 at closing;~~

~~(b)~~

1,600,000 shares of our common stock (valued at approximately $10.4 million based on the $6.51 closing price of our common stock on the closing date of the acquisition), which are to be issued on July 29, 2018 or upon a change of control of our company (whichever occurs earlier); and

~~(c)~~

~~Earn-out payments of $1,500,000 payable in cash each year to be paid, if earned, through the achievement of annual revenue and gross margin in 2017 and 2018.~~

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The total purchase price of $15,816,000 was allocated to intangibles of $5.4 million, taking into consideration projected revenue from the acquired list of Ameri Arizona customers over a period of three years, and the balance was allocated to goodwill. Based on the Company’s current estimates of the consideration payable under the purchase agreement, the Company does not believe the Ameri Arizona will achieve its earn-out for 2017 and reduced the consideration payable estimates by $400,000 in its income statement for the quarter ended June 30, 2017. The Company is also currently negotiating with the former members of Ameri Arizona regarding the Company’s earn-out payment obligations. The Company paid $300,000 in earn-out payments during the nine months ended September 30, 2017 for earn-out amounts earned prior to such date.

~~Acquisition of Ameri California~~

On March 10, 2017, we acquired 100% of the shares of ATCG Technology Solutions, Inc. (“Ameri California”), a Delaware corporation, pursuant to the terms of a Share Purchase Agreement among the Company, ATCG, all of the stockholders of Ameri California (the “Stockholders”), and the Stockholders’ representative. In July 2017, the name of ATCG Technology Solutions, Inc. was changed to Ameri100 California Inc. Ameri California provides U.S. domestic, offshore and onsite SAP consulting services and has its main office in Folsom, California. Ameri California specializes in providing SAP Hybris, SAP Success Factors and business intelligence services.

~~The aggregate purchase price for the acquisition of Ameri California was $8,784,533, consisting of:~~

~~(a)~~

~~576,923 shares of our common stock, valued at approximately $3.8 million based on the closing price of our Common Stock on the closing date of the acquisition;~~

~~(b)~~

Unsecured promissory notes issued to certain of Ameri California’s selling Stockholders for the aggregate amount of $3,750,000 (which notes bear interest at a rate of 6% per annum and mature on June 30, 2018);

~~(c)~~

Earn-out payments in shares of our common stock (up to an aggregate value of $1,200,000 worth of shares) to be paid, if earned, in each of 2018 and 2019 based on certain revenue and EBITDA targets as specified in the purchase agreement. We estimate those targets will be fully achieved; and

~~(d)~~

~~An additional cash payment of $55,687 for cash that was left in Ameri California at closing.~~

The total purchase price of $8,784,533 was allocated to intangibles of $3.75 million, taking into consideration projected revenue from the acquired list of Ameri California customers over a period of three years, and goodwill. The excess of total purchase price over the intangibles allocation has been allocated to goodwill.

~~For this acquisition, the net cash outflow in 2017 was $ 55,687.~~

~~Presented below is the summary of the foregoing acquisitions:~~

~~Allocation of purchase price in millions of U.S. dollars~~

Asset Component
Ameri
Georgia
Bigtech Virtuoso
Ameri
Arizona

Ameri
California

Intangible Assets 1.8 0.6 0.9 5.4 3.8
Goodwill 3.5 0.3 0.9 10.4 5.0
Working Capital

Current Assets
Cash 1.4 - - - -
Accounts Receivable 5.6 - - - -
Other Assets 0.2 - - - -
7.3 - - - -
Current Liabilities
Accounts Payable 1.3 - - - -
Accrued Expenses & Other Current Liabilities 1.3 - - - -
2.7 - - - -
Net Working Capital Acquired 4.6 - - - -

Total Purchase Price 9.9 0.9 1.8 15.8 8.8

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The Company has $19,319,211, in total towards consideration payable including contingent consideration payable for its acquisitions, consisting of $7,129,238 in cash obligations and $12,189,973 worth of common stock to be issued (assuming a per share price of $6.51). Out of $19,319,211, $5,346,688 is towards contingent consideration payable on earn-outs.

~~NOTE 4.~~

~~REVENUE RECOGNITION:~~

The Company recognizes revenue primarily through the provision of consulting services. We generate revenue by providing consulting services under written service contracts with our customers. The service contracts we enter generally fall into two categories: (1) time-and-materials contracts and (2) fixed-price contracts.

We consider amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable and collectability is reasonably assured. We establish billing terms at the time at which the project deliverables and milestones are agreed. Our standard payment terms are 60 days from invoice date.

When a customer enters into a time-and-materials or fixed-price (or a periodic retainer-based) contract, the Company recognizes revenue in accordance with its evaluation of the deliverables in each contract. If the deliverables represent separate units of accounting, the Company then measures and allocates the consideration from the arrangement to the separate units, based on vendor specific objective evidence of the value for each deliverable.

The revenue under time and materials contracts is recognized as services are rendered and performed at contractually agreed upon rates. Revenue pursuant to fixed-price contracts is recognized under the proportional performance method of accounting. We routinely evaluate whether revenue and profitability should be recognized in the current period. We estimate the proportional performance on our fixed-price contracts on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours to complete the project. This method is used because reasonably dependable estimates of costs and revenue earned can be made, based on historical experience and milestones identified in any particular contract. If we do not have a sufficient basis to measure progress toward completion, revenue is recognized upon completion of performance, subject to any warranty provisions or other project management assessments as to the status of work performed.

Estimates of total project costs are continuously monitored during the term of an engagement. There are situations where the number of hours to complete projects may exceed our original estimate, as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. Accordingly, recorded revenues and costs are subject to revision throughout the life of a project based on current information and historical trends. Such revisions may result in increases or decreases to revenue and income and are reflected in the consolidated financial statements in the periods in which they are first identified.

If our initial estimates of the resources required or the scope of work to be performed on a contract are inaccurate, or we do not manage the project properly within the planned time period, a provision for estimated losses on incomplete projects may be made. Any known or probable losses on projects are charged to operations in the period in which such losses are determined. A formal project review process takes place quarterly, although projects are continuously evaluated throughout the period. Management reviews the estimated total direct costs on each contract to determine if the estimated amounts are accurate, and estimates are adjusted as needed in the period identified. No losses were recognized on contracts during the quarter ended September 30, 2017.

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~~NOTE 5.~~

~~SHARE-BASED COMPENSATION:~~

On April 20, 2015, our Board of Directors and the holder of a majority of our outstanding shares of common stock approved the adoption of our 2015 Equity Incentive Award Plan (the "Plan"). The Plan allows for the issuance of up to 2,000,000 shares of our common stock for award grants. The Plan provides equity-based compensation through the grant of cash-based awards, nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock-based awards. We believe that an adequate reserve of shares available for issuance under the Plan is necessary to enable us to attract, motivate and retain key employees and directors and to provide an additional incentive for such individuals through stock ownership and other rights that promote and recognize the financial success and growth of our Company. We granted options to purchase 185,000 shares of our common stock and 98,669 restricted stock units pursuant to the Plan during the nine months ended September 30, 2017. Share based compensation expense for nine months ended September 30, 2017 was $5,167,354. During the quarter ended September 30, 2017, Lone Star Value ~~Investors, LP~~ ~~exercised on a cashless basis~~ ~~a warrant~~ ~~which resulted in~~ ~~the~~ ~~issuance of 1,205,837~~ ~~shares of our~~ ~~common~~ ~~stock~~ ~~and~~ we ~~recorded a corresponding charge to stock based compensation expense of $2,170,506.~~

~~During quarter ended June 30, 2017~~, 174,680 restricted stock units were cancelled and an accelerated cost of $792,764 due to such cancellation has been accounted for as stock based compensation expense. As of September 30, 2017, out of the 2,000,000 shares available under the Plan, aggregate grants of 1,607,758 shares of our common stock had been granted as options and restricted stock units.

~~NOTE 6.~~

~~INTANGIBLE ASSETS:~~

We amortize our intangible assets that have finite lives using the straight-line method. Amortization expense was $2,264,247 during the nine months ended September 30, 2017. This amortization expense relates to customer lists and products capitalized on our balance sheet, which expire through 2020.

~~As of September 30, 2017, and December 31, 2016, capitalized intangible assets were as follows:~~

September 30,
2017

December 31,
2016

Capitalized intangible assets $ 12,517,628 $ 10,074,546
Accumulated amortization 2,264,247 1,309,842
Total intangible assets $ 10,253,381 $ 8,764,704

~~Our amortization schedule is as follows:~~

Years ending December 31,
Amount
2017 $ 665,859
2018 2,955,873
2019 2,727,968
2020 2,652,000
2021 1,251,681
Total $ 10,253,381

The Company’s intangible assets consist of the customer lists acquired from the Company’s acquisition of WinHire Inc, Ameri Georgia, Ameri Arizona, Virtuoso, Bigtech and Ameri California. The products acquired from the acquisition of Linear Logics. Corp. and the amount spent on improving those products are also categorized as intangible assets and are being amortized over the useful life of those products.

~~NOTE 7.~~

~~GOODWILL:~~

~~Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations. Goodwill was comprised of the following amounts:~~

September 30,
2017

December 31,
2016

Virtuoso $ 939,881 $ 939,881
Ameri Arizona 10,416,000 10,416,000
Bigtech 299,803 314,555
Ameri Consulting Service Pvt. Ltd. 1,948,118 1,948,118
Ameri Georgia 3,470,522 3,470,522
Ameri California 4,812,243 -
Total $ 21,886,567 $ 17,089,076

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~~As per Company policy, goodwill impairment tests will be conducted on an annual basis and any impairment will be reflected in the Company’s statements of operations.~~

~~NOTE 8.~~

~~EARNINGS (LOSS) PER SHARE:~~

~~A reconciliation of net income and weighted average shares used in computing basic and diluted net income per share is as follows:~~

Nine Months
Ended
September 30,
2017

Nine Months
Ended
September 30,
2016

Net income (loss) attributable to common stock holders $ (9,615,628 ) $ (4,082,006 )
Weighted average common shares outstanding 14,472,322 12,794,149
Basic net income (loss) per share of common stock $ (0.66 ) $ (0.32 )
Diluted net income (loss) per share of common stock $ (0.66 ) $ (0.32 )

Share based awards, inclusive of all grants made under the Plan, for which either the stock option exercise price or the fair value of the restricted share award exceeds the average market price over the period, have an anti- dilutive effect on earnings per share, and accordingly, are excluded from the diluted computations for all periods presented.

~~NOTE 9.~~

~~OTHER ITEMS:~~

The Company paid an in-kind dividend on its Series A Preferred Stock for the quarter ended September 30, 2017 by issuing 10,277 shares of Series A Preferred Stock to the sole holder of the Company’s Series A Preferred Stock. The Company has yet to make the dividend payment on its Series A Preferred Stock which was payable on September 30, 2017. The Company will pay the sole holder of the Series A Preferred Stock the accrued dividend in-kind pursuant to the terms of the Certificate of Designation contemporaneously with the filing of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.

~~NOTE 10.~~

~~BANK DEBT:~~

On July 1, 2016, the Company entered into a Loan and Security Agreement (the “Loan Agreement”), with its wholly-owned subsidiaries Ameri and Partners Inc and Ameri Georgia, as borrowers (the “Borrowers”), the Company and its wholly-owned subsidiary Linear Logics, Corp. serving as guarantors, the Company’s Chief Executive Officer, Giri Devanur, serving as a validity guarantor, and Sterling National Bank, N.A. (as lender and as agent, “Sterling”). The Company joined Ameri Arizona, Virtuoso and Ameri California as borrowers under the Loan Agreement following their respective acquisition.

Under the Loan Agreement, the Borrowers can borrow up to an aggregate of $10 million, which includes up to $8 million in principal for revolving loans (the “Revolving Loans”) for general working capital purposes, up to $2 million in principal pursuant to a term loan (the “Term Loan”) for the purpose of a permitted business acquisition and up to $200,000 for letters of credit. A portion of the proceeds of the Loan Agreement were also used to repay the November 20, 2015 credit facility that was entered into between the Company, its wholly-owned subsidiary Ameri Georgia and Federal National Payables, Inc.

~~The maturity of the loans under the Loan Agreement are as follows:~~

Revolving Loan Maturity Date: July 1, 2019; provided, however, that the Revolving Loan Maturity Date will extend and renew automatically for successive one-year terms on each anniversary of the initial Revolving Loan Maturity Date (each an “Anniversary Date”) thereafter, unless not less than sixty (60) days prior to any such Anniversary Date, written notice of non-renewal is given by either party to the other, in which case the Revolving Loan Maturity Date will be such next Anniversary Date.

~~Term Loan Maturity Date: The earliest of (a) the date following acceleration of the Term Loan and/or the Revolving Loans; (b) the Revolving Loan Maturity Date; or (c) July 1, 2019.~~

~~Interest under the Loan Agreement is payable monthly in arrears and accrues as follows:~~

~~(a)~~

~~in the case of Revolving Loans, a rate per annum equal to the sum of (i) the Wall Street Journal Prime Rate plus (ii) 2.00%;~~

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~~(b)~~

~~in the case of the Term Loan, a rate per annum equal to the sum of (i) the Wall Street Journal Prime Rate plus (ii) 3.75%; and~~

~~(c)~~

~~in the case of other obligations of the Borrowers, a rate per annum equal to the sum of (i) the greater of (A) 3.25% or (B) Wall Street Journal Prime Rate plus (ii) 3.75%.~~

~~The Loan Agreement also requires the payment of certain fees, including, but not limited to letter of credit fees and an unused Revolving Loans fee.~~

The Loan Agreement contains financial and other covenant requirements, including, but not limited to, financial covenants that require the Borrowers to not permit capital expenditures above $150,000 in any fiscal year, maintain a fixed charge coverage ratio of not less than 2.00 to 1.00 and maintain certain debt to EBITDA ratios. The Loan Agreement also requires the Company and Borrowers to obtain Sterling’s consent before making any permitted acquisitions. The amounts borrowed by the Borrowers under the Loan Agreement are guaranteed by the guarantors, and the Loan Agreement is secured by substantially all of the Borrowers’ assets.

The principal amount of the Term Loan will be repaid as follows: (i) equal consecutive monthly installments in the amount of $33,333.33 each, paid on the first day of each calendar month and (ii) one final payment of the entire remaining principal balance, together with all accrued unpaid interest on the Term Loan maturity date.

On August 28, 2017, the Company and certain of its subsidiaries obtained an incremental term loan from Sterling National Bank in the amount of $343,200.58, which amount shall be an addition to and comprise a part of the existing term loan under the existing Loan Agreement.

dollar.

The Company has not ~~been in compliance with~~entered into any financial derivative instruments that expose it to material market risk, including any instruments designed to hedge the ~~financial covenants contained in its Loan Agreement with Sterling National Bank.~~impact of foreign currency exposures. The Company ~~received waivers from Sterling National Bank for its non-compliance with the Loan Agreement for the quarters ended March 31, 2017, June 30, 2017 and September 30, 2017 in~~may, however, hedge such exposure to foreign currency exchange for the payment of a fee of $5,000 for each quarterly waiver. The Company does not expect to be in compliance with the terms of the Loan Agreement following the conclusion of the terms of the waivers granted by Sterling National Bank. The Company is continuing to work with Sterling National Bank to address its non-compliance.

If we are unable to obtain future waivers from Sterling National Bank, the bank could declare our loans with it to be in default and elect to claim all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If we are unable to repay the outstanding amounts, Sterling National Bank could proceed against the collateral granted to it to secure our indebtedness to it. We pledged substantially all of our assets as collateral under the Loan Agreement. The Loan Agreement is also supported by a limited guaranty from Giri Devanur, our President and Chief Executive Officer. If Sterling National Bank accelerates the repayment of our loans, there is no assurance that we will have sufficient assets to repay the loans. A default under the Loan Agreement may also result in an event of default under the Company’s outstanding convertible notes. We are currently looking for additional sources of financing, however there is no guarantee that we will have additional financing available to us.

Interest paid on the Term Loan during the nine months ended September 30, 2017 amounted to $108,206. Principal repaid on the Term Loan during the nine months ended September 30, 2017 was $304,144. The short term and long-term outstanding balances on the Term Loan as of September 30, 2017 was $406,156 and $1,575,206, respectively. The outstanding balance of the Revolving Loans as of September 30, 2017 was $3,765,391.

Bigtech, which was acquired as of July 1, 2016, had a term loan of $14,695 and a line of credit for $305,282 as of September 30, 2017. The Bigtech line of credit is with an Indian bank, HDFC Bank Limited, and was entered into on September 3, 2015 for Bigtech’s working capital requirements. The line of credit is for up to $416,667 with an interest rate of 11.85% per annum and maturity in June 2020. The Bigtech term loan accrues interest at the rate of 10.30% per annum and matures in 2020. Both the term loan and the line of credit were already in place when the Company acquired Bigtech. Interest paid during the nine months ended September 30, 2017 amounted to $1,486 for the term loan and $28,560 line of credit held by Bigtech.

~~NOTE 11.~~

~~CONVERTIBLE NOTES:~~

On March 7, 2017, we completed the sale and issuance of 8% Convertible Unsecured Promissory Notes (the “2017 Notes”) for aggregate proceeds to us of $1,250,000 from four accredited investors, including one of the Company’s directors, Dhruwa N. Rai. The 2017 Notes were issued pursuant to Securities Purchase Agreements between the Company and each investor. The 2017 Notes bear interest at 8% per annum until maturity in March 2020, with interest being paid annually on the first, second and third anniversaries of the issuance of the 2017 Notes beginning in March 2018. From and after an event of default and for so long as the event of default is continuing, the 2017 Notes will bear default interest at the rate of 10% per annum. The 2017 Notes can be prepaid by us at any time without penalty.

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~~The 2017 Notes are convertible into shares of our common stock at a conversion price of (i)~~fluctuations in the ~~event that any registration statement for the public offering~~future.

Item 4. Controls and Procedures

Evaluation of common stock filed by the Company with the Securities and Exchange Commission (the “SEC”) in connection with an uplisting to a national stock exchange is declared effective by the SEC on or prior to December 31, 2017, such price per share that is equal to 68% of the price per share of common stock offered and sold pursuant to such registration statement, or (ii) if no such registration statement is declared effective by December 31, 2017, such price per share that is equal to the weighted average closing price per share of the Company’s common stock for the 20 trading days immediately preceding December 31, 2017, subject to adjustment under certain circumstances. The 2017 Notes rank junior to our secured credit facility with Sterling National Bank. The 2017 Notes also include certain negative covenants including, without the investors’ approval, restrictions on dividends and other restricted payments and reclassification of its stock.

~~NOTE 12.~~

~~COMMITMENTS AND CONTINGENCIES:~~

~~Operating Leases~~

The Company’s principal facility is located in Princeton, New Jersey. The Company also leases office space in various locations with expiration dates between 2016 and 2020. The lease agreements often include leasehold improvement incentives, escalating lease payments, renewal provisions and other provisions which require the Company to pay taxes, insurance, maintenance costs, or defined rent increases. All of the Company’s leases are accounted for as operating leases. Rent expense is recorded over the lease terms on a straight-line basis. Rent expense was $232,022 and $125,883 for the nine months ended September 30, 2017 and 2016, respectively. The increase during the comparative periods is due to the addition of office space through the acquisition of Ameri Arizona, Virtuoso, Bigtech and Ameri California.

The Company has entered into an operating lease for its primary office facility in Princeton, New Jersey, which expires in July 2019. The future minimum rental payments under these lease agreements are as follows:

Year ending December 31, Amount
2017 $ 68,360
2018 189,428
2019 123,083
2020 70,333
2021 7,371
Total $ 458,575
~~NOTE 13.~~ ~~FAIR VALUE MEASUREMENT:~~

The group’s financial instruments consist primarily of cash and cash equivalent, accounts receivable, accounts payable, contingent consideration liability and accrued liabilities. The carrying amounts of accounts receivable, accounts payable, cash and cash equivalents and accrued liabilities are considered to be the same as their fair value, due to their short-term nature.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The current accounting guidance for fair value measurements defines a three-level valuation hierarchy for disclosures as follows:

~~Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;~~
Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and
~~Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.~~

~~A financial asset or liability’s classification within the hierarchy is determined based upon the lowest level input that is significant to the fair value measurement.~~
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~~The following table sets forth the financial assets, measured at fair value, by level within the fair value hierarchy as of September 30, 2017 and December 31, 2016:~~

September 30,
2017

December 31,
2016

Level 3
Contingent consideration $ 5,346,688 $ 5,266,488
~~The following table presents the change in level 3 instruments:~~

Three Months
Ended
September 30,
2017

Nine Months
Ended
September 30,
2017

Opening balance 5,346,688 5,266,488
Additions during the period $ - $ 1,200,000
Paid/settlements - (719,800 )
Total gains recognized in Statement of Operations - (400,000 )
Closing balance 5,346,688 5,346,688
Contingent consideration pertaining to the acquisitions referred to in note 3 above as of September 30, 2017 has been classified under level 3 as the fair valuation of such contingent consideration has been done using one or more of the significant inputs which are not based on observable market data.

The fair value of the contingent consideration was estimated using a discounted cash flow technique with significant inputs that are not observable in the market. The significant inputs not supported by market activity included our probability assessments of expected future cash flows related to the acquisitions during the earn-out period, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the respective terms of the share purchase agreements.

The amount of total gains/(losses) included in our Statement of Operations and Comprehensive Income/(Loss) is attributable to change in fair value of contingent consideration arising from the acquisition of Ameri Arizona were $400,000 and $0 for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
~~Note 14.~~ ~~NON-CONTROLLING INTEREST:~~

The subsidiaries of the Company are all direct or indirect wholly-owned subsidiaries, except for Ameritas Technologies India Private Limited, of which the Company held 76% of the equity of the company, through September 30, 2017.

The Company attributes relevant gains and losses to such non-controlling interests for every financial year. During the three months ended September 30, 2017 and 2016 and the nine months ended September 30, 2017 and 2016 the profit/(loss) attributable to the holders of non-controlling interests amounted to $(6,632) and $0 and $(18,504) and $0, respectively.
~~NOTE 15.~~ ~~RESTRUCTURING AND STREAMLINING COSTS:~~

During the quarter ended September 30, 2017, the Company streamlined its operations by eliminating redundant positions across its acquired entities, which resulted in a restructuring charge of approximately $85,000 affecting approximately 20 employees. The Company anticipates that streamlining of its operations will result in annual savings of approximately $1.5 million, inclusive of payroll, benefits, office consolidations and other ancillary employee related costs.
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~~ITEM 2.~~
~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) included in our Annual Report on Form 10-K for the year ended December 31, 2016. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements” included elsewhere herein.

~~We use the terms “we,” “our,” “us,” “AMERI” and “the Company” in this report to refer to AMERI Holdings, Inc. and its wholly-owned subsidiaries.~~

~~Company History~~

We were incorporated under the laws of the State of Delaware in February 1994 as Spatializer Audio Laboratories, Inc., which was a shell company immediately prior to our completion of a “reverse merger” transaction on May 26, 2015, in which we caused Ameri100 Acquisition, Inc., a Delaware corporation and our newly created, wholly owned subsidiary, to be merged with and into Ameri and Partners Inc (“Ameri and Partners”), a Delaware corporation (the “Merger”). On May 26, 2015, we completed the Merger, in which we caused Ameri100 Acquisition, Inc., a Delaware corporation and our newly created, wholly owned subsidiary, to be merged with and into Ameri and Partners (doing business as Ameri100), a Delaware corporation. As a result of the Merger, Ameri and Partners became our wholly owned operating subsidiary. The Merger was consummated under Delaware law, pursuant to an Agreement of Merger and Plan of Reorganization, dated as of May 26, 2015 (the “Merger Agreement”), and in connection with the Merger we changed our name to AMERI Holdings, Inc. We are headquartered in Princeton, New Jersey.

~~Overview~~

~~We specialize in delivering SAP~~^TM cloud, digital and enterprise services to clients worldwide. Our SAP focus allows us to provide technological solutions to a broad and growing base of clients. We are headquartered in Princeton, NJ, and we have offices across the United States, which are supported by offices in India. Our model inverts the conventional global delivery model wherein offshore information technology (“IT”) service providers are based abroad and maintain a minimal presence in the United States. With a strong SAP focus, our client partnerships anchor around SAP cloud services, artificial intelligence, internet of things and robotic process automation. We pursue an acquisition strategy that seeks to disrupt the established business model of offshore IT service providers.

We partnered with NEC Corporation of America (NEC), in February 2017, to offer SAP HANA Migration services. Through this partnership, the Company will offer solutions to its clients aspiring to make the transition from SAP ECC (on-premise) applications to SAP HANA applications. NEC is a leading technology integrator providing integrated communications, analytics, security, biometrics and technology solutions.

We generate revenue by providing consulting services under written service contracts with our customers. The service contracts we enter into generally fall into two categories: (1) time-and-materials contracts and (2) fixed-price contracts.

When a customer enters into a time-and-materials or fixed-price (or a periodic retainer-based) contract, the revenue is recognized in accordance with the deliverables of each contract. If the deliverables involve separate units of accounting, the consideration from the arrangement is measured and allocated to the separate units, based on vendor specific objective evidence of the value for each deliverable.

The revenue under time and materials contracts is recognized as services are rendered and performed at contractually agreed upon rates. Revenue pursuant to fixed-price contracts is recognized under the proportional performance method of accounting. We routinely evaluate whether revenue and profitability should be recognized in the current period. We estimate the proportional performance on fixed-price contracts on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours to complete the project.

For the three months ended September 30, 2017 and September 30, 2016, sales to five major customers accounted for 43% and 45% of our total revenue, respectively. One of our customers contributed 14% of our revenue for the three months ended September 30, 2017. For the comparable period in 2016, two customers each contributed 15% and 12% of our revenue, respectively.

For the nine months ended September 30, 2017 and September 30, 2016, sales to five major customers accounted for 39% and 54% of our total revenue, respectively. One of our customers contributed 11% of our revenue for the nine months ended September 30, 2017. For the comparable period in 2016, two of our customers each contributed 19% and 14% of our revenue, respectively.

We continue to explore strategic alternatives to improve the market position and profitability of our product and service offerings in the marketplace, generate additional liquidity for the Company, and enhance our valuation. We expect to pursue our goals during the next twelve months through organic growth and through other strategic alternatives. Some of these alternatives have included, and could continue to include, selective acquisitions. The Company has obtained financing and additional capital from the sale of equity and incurrence of indebtedness in the past, and continues to consider capital raising and financing from the sale of various types of equity and incurrence of indebtedness to provide capital for our business plans and operations in the future. The Company has also provided, and may from time to time in the future provide, information to interested parties.
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~~Table of Contents~~

~~Matters that May or Are Currently Affecting Our Business~~

~~The main challenges and trends that could affect or are affecting our financial results include:~~

~~Our ability to enter into additional technology-management and consulting agreements, to diversify our client base and to expand the geographic areas we serve;~~

~~Our ability to attract competent, skilled professionals and on-demand technology partners for our operations at acceptable prices to manage our overhead;~~

~~Our ability to acquire other technology services companies and integrate them with our existing business;~~

~~Our ability to raise additional capital, if and when needed; and~~

~~Our ability to control our costs of operation as we expand our organization and capabilities.~~

~~RESULTS OF OPERATIONS~~

Results of Operations for the Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 2016 and for the Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016

Three Months
Ended
September 30,
2017

Three Months
Ended
September 30,
2016

Nine Months
Ended
September 30,
2017

Nine Months
Ended
September 30,
2016

Revenue $ 12,529,928 $ 10,058,558 $ 37,139,114 23,758,460
Cost of revenue 9,966,490 8,361,960 28,941,535 18,897,059
Gross profit 2,563,438 1,696,598 8,197,579 4,861,401

Operating expenses
Selling and marketing 402,846 137,024 1,170,051 401,487
General and administration 5,283,059 1,326,327 12,389,581 5,316,390
Acquisition related expenses 5,694 1,015,558 390,174 1,630,778
Depreciation and amortization 817,284 509,377 2,332,041 722,390
Operating expenses 6,508,883 2,988,286 16,281,847 8,071,045
Operating income (loss) (3,945,445 ) (1,291,688 ) (8,084,268 ) (3,209,644 )
Interest expenses (132,973 ) (290,423 ) (388,122 ) (674,683 )
Changes in estimates - - 400,000 -
Others, net 17,446 (195,518 ) 21,921 (197,679 )
Income (loss) before income taxes (4,060,972 ) (1,777,629 ) (8,050,469 ) (4,082,006 )
Tax benefit / (provision) - - - -
Income after income taxes (4,060,972 ) (1,777,629 ) (8,050,469 ) (4,082,006 )
Net income attributable to non-controlling interest (6,632 ) - (18,504 ) -
Net income (loss) attributable to the Company (4,067,604 ) (1,777,629 ) (8,068,973 ) (4,082,006 )
Dividend on preferred stock (541,864 ) - (1,546,655 ) -
Net loss attributable to common stock holders (4,609,468 ) (1,777,629 ) (9,615,628 ) (4,082,006 )
Other comprehensive income (loss), net of tax - - - -
Foreign exchange translation (14,234 ) 59,079 (11,084 ) (6,619 )
Comprehensive income/(loss) $ (4,623,702 ) $ (1,718,550 ) $ (9,626,712 ) $ (4,088,625 )
Comprehensive income/(loss) attributable to the Company (4,617,070 ) (1,718,550 ) (9,608,208 ) (4,088,625 )
Comprehensive income/(loss) attributable to the non-controlling interest (6,632 ) - (18,504 ) -
$ (4,623,702 ) $ (1,718,550 ) $ (9,626,712 ) $ (4,088,625 )

Basic income (loss) per share $ (0.31 ) $ (0.13 ) $ (0.66 ) $ (0.32 )
Diluted income (loss) per share $ (0.31 ) $ (0.13 ) $ (0.66 ) $ (0.32 )

Basic weighted average number of common shares outstanding 14,715,947 13,653,586 14,472,322 12,794,149
Diluted weighted average number of common shares outstanding 14,715,947 13,653,586 14,472,322 12,794,149

~~Table of Contents~~

~~Revenues~~

Revenues for the three months ended September 30, 2017 increased by approximately $2.47 million as compared to the three months ended September 30, 2016. This increase was primarily attributable to our acquisition of Ameri California. For changes in revenue by entity please refer to the table below.

~~Revenues by subsidiary of the Company~~

~~(in millions of U.S. dollars)~~

Three Months Ended
September 30, 2017

Three Months Ended
September 30, 2016
Increase (Decrease)
Ameri & Partners 1.41 2.07 (0.66)
Ameri Georgia 4.64 4.38 0.26
Bigtech 0.31 0.31 0.00
Ameri Arizona 3.09 3.28 (0.19)
Ameri California 3.07 - 3.07
Total 12.53 10.06 2.47

Revenues for the nine months ended September 30, 2017 increased by approximately $13.38 million as compared to the nine months ended September 30, 2016. Of this increase in revenue, $6.60 million was attributable to our acquisition of Ameri California and $7.35 million was attributable to increases of revenue from Ameri Arizona and Bigtech for which we had the benefit of a full nine months of revenue in 2017 while in 2016 each company was not acquired until July of 2016. Changes in revenue by entity were as follows.

~~Revenues by subsidiary of the Company~~

~~(in millions of U.S. dollars)~~

Nine Months Ended
September 30, 2017

Nine Months Ended
September 30, 2016
Increase (Decrease)
Ameri & Partners 4.77 5.53 (0.76)
Ameri Georgia 14.82 14.62 0.20
Bigtech 0.82 0.31 0.51
Ameri Arizona 10.12 3.28 6.84
Ameri California 6.60 - 6.60
Total 37.14 23.76 13.38

~~Gross Margin~~

~~Our gross margin was 20% for the three months ended September 30, 2017, as compared to 17% for the three months ended September 30, 2016. Gross margin from~~ ~~Ameri California, which was acquired~~ in ~~March 2017~~, ~~was 28%; without~~ ~~that acquisition~~ ~~our gross margin would have been 18%.~~

Our gross margin was 22% for the nine months ended September 30, 2017, as compared to 20% for the nine months ended September 30, 2016. Gross margin from Ameri California was 29%; without this acquisition our gross margin would have been 21%.

Our target gross margins in future periods are anticipated to be in the range of 20% to 25% based on a mix of project revenues and professional service revenues. However, there is no assurance that we will achieve such anticipated gross margins.

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~~Selling and Marketing Expenses~~

~~Selling and marketing expenses were $402,846 for the three months ended September 30, 2017, compared to $137,024 for the three months ended September 30, 2016.~~ ~~Our acquisition~~ ~~of Ameri California and Ameri Arizona added selling and marketing expenditures of $65,557 and $221,810, respectively.~~

~~Selling and marketing expenses were $1,170,051 for the nine months ended September 30, 2017, compared to $ 401,486 for the nine months ended September 30, 2016.~~ ~~Our acquisition~~ of Ameri California and Ameri Arizona added selling and marketing expenditures of $141,268 and 718,607, respectively. However, selling and marketing expenditures for Ameri Georgia decreased by $85,615 in the nine months ended September 30, 2017.

~~General and Administration Expenses~~

General and Administration (“G&A”) expenses include all costs, including rent costs, which are not directly associated with revenue-generating activities, as well as the non-cash expense for stock based compensation. These include employee costs, corporate costs and facilities costs. Employee costs include administrative salaries and related employee benefits, travel, recruiting and training costs. Corporate costs include reorganization costs, legal, accounting and outside consulting fees. Facility costs primarily include rent and communications costs.

G&A expenses for the three months ended September 30, 2017 were $5,283,059 as compared to $1,326,327 for the three months ended September 30, 2016. G&A expenses increased by $3,956,732 of which $2,194,121 was attributable to stock based compensation expenses. ~~our acquisition~~ ~~of Ameri California and Ameri Arizona added an additional $740,198 to our G&A expenses for the three months ended September 30, 2017 as compared to the same period in 2016.~~

G&A expenses for the nine months ended September 30, 2017 were $12,389,581 as compared to $5,316,389 for the nine months ended September 30, 2016. G&A expenses increased by $7,073,192, of which $4,221,395 was attributable to our stock based compensation expense due to grants made to our employees, accelerated expenses upon cancellation of restricted stock units in the second quarter of 2017 and a charge related to a warrant exercised by Lone star Value Investors, LP during the quarter ended September 30, 2017. Our acquisition of Ameri California and Ameri Arizona added an additional $2,477,041 to our G&A expenses for the nine months ended September 30, 2017 as compared to the same period in 2016.

~~Depreciation and Amortization~~

Depreciation and amortization expense amounted to $817,284 for the three months ended September 30, 2017, as compared to $509,377 for the three months ended September 30, 2016. We capitalized the customer lists acquired during various acquisitions, resulting in increased amortization costs. The customer lists from each acquisition are amortized over a period of 60 months.

Depreciation and amortization expense amounted to $2,332,041 for the nine months ended September 30, 2017, as compared to $722,390 for the nine months ended September 30, 2016. We capitalized the customer lists acquired during various acquisitions, resulting in increased amortization costs. The customer lists from each acquisition are amortized over a period of 60 months.

~~Operating Income/ (Loss)~~

Our operating income/(loss) was $(3,945,445) for the three months ended September 30, 2017, as compared to $(1,291,688) for the three months ended September 30, 2016. This increase in loss was mainly due to the increase in G&A expenses of our acquired entities.

Our operating income (loss) was $(8,084,268) for the nine months ended September 30, 2017, as compared to $(3,209,644) for the nine months ended September 30, 2016. This increase in loss was mainly due to the increase in G&A expenses of our acquired entities.

~~Interest Expense~~

Our interest expense for the three months ended September 30, 2017 was $132,973 as compared to $290,423 for the three months ended September 30, 2016. The decrease is mainly due to changes in interest rates charged by our lenders.

Our interest expense for the nine months ended September 30, 2017 was $388,122 as compared to $674,683 for the nine months ended September 30, 2016. The decrease is mainly due to changes in interest rates charged by our lenders.

~~Changes in Estimates~~

Based on our current estimates of consideration payable under the Ameri Arizona purchase agreement, we do not believe Ameri Arizona will achieve its 2017 earn-out and we have adjusted the consideration payable in connection therewith by reducing the estimates by $400,000 and reflecting the adjustment in our income statement for the quarter ended June 30, 2017.

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~~Income taxes~~

~~Our provision for income taxes for the three months ended September 30, 2017 and the three months period ended September 30, 2016 was $0 for each period.~~

~~Our provision for income taxes for the nine months ended September 30, 2017 and the nine months period ended September 30, 2016 was $0 for each period.~~

~~Acquisition Related Expenses~~

We had acquisition related expenditures of $390,174 and $1,630,778 during the nine months ended September 30, 2017 and September 30, 2016, respectively. These expenses included acquisition costs and legal, banking and other acquisition related fees incurred in connection with our acquisitions. The decrease is due to the decline in acquisition related activities in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.

~~Liquidity and Capital Resources~~

Our cash position was $844,104 as of September 30, 2017, as compared to $1,379,887 as of December 31, 2016, a decrease of $535,783 primarily due to the use of funds towards working capital and earn-out payments.

Cash used for operating activities was $1,799,568 during the nine months ended September 30, 2017 and was primarily a result of net changes in working capital requirements. Cash used in investing activities was $702,508 during the nine months ended September 30, 2017. Cash provided by financing activities was $1,966,296 during the nine months ended September 30, 2017 and was attributable to the increased borrowing under our line of credit with Sterling National Bank and the issuance of convertible notes.

Due to our current constraints in working capital, we have been unable to pay a few vendors and as a result some of them have threatened legal action against us. We are currently working with these vendors to negotiate longer payment terms until we are able to raise more capital; the Company is trying to mitigate these efforts by raising more capital and through streamlining its operations which will provide cash savings going forward, however there can be no assurance that the Company will be able to secure additional sources of capital. In case we are unable to pay these vendors, they can take legal action against us or stop doing business with us which may have an impact on our revenue.

~~The maturity of the loans under the Loan Agreement are as follows:~~

~~Term Loan Maturity Date: The earliest of (a) the date following acceleration of the Term Loan and/or the Revolving Loans; (b) the Revolving Loan Maturity Date; or (c) July 1, 2019.~~

~~Interest under the Loan Agreement is payable monthly in arrears and accrues as follows:~~

~~(a)~~

~~in the case of Revolving Loans, a rate per annum equal to the sum of (i) the Wall Street Journal Prime Rate plus (ii) 2.00%;~~

~~(b)~~

~~in the case of the Term Loan, a rate per annum equal to the sum of (i) the Wall Street Journal Prime Rate plus (ii) 3.75%; and~~

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~~(c)~~

~~in the case of other obligations of the Borrowers, a rate per annum equal to the sum of (i) the greater of (A) 3.25% or (B) Wall Street Journal Prime Rate plus (ii) 3.75%.~~

~~The Loan Agreement also requires the payment of certain fees, including, but not limited to letter of credit fees and an unused Revolving Loans fee.~~

The Company has not been in compliance with the financial covenants contained in its Loan Agreement with Sterling National Bank. The Company received waivers from Sterling National Bank for its non-compliance with the Loan Agreement for the quarters ended March 31, 2017, June 30, 2017 and September 30, 2017 in exchange for the payment of a fee of $5,000 for each quarterly waiver. The Company does not expect to be in compliance with the terms of the Loan Agreement following the conclusion of the terms of the waivers granted by Sterling National Bank. The Company is continuing to work with Sterling National Bank to address its non-compliance.

The 2017 Notes are convertible into shares of our common stock at a conversion price of (i) in the event that any registration statement for the public offering of common stock filed by the Company with the SEC in connection with an uplisting to a national stock exchange is declared effective by the SEC on or prior to December 31, 2017, such price per share that is equal to 68% of the price per share of common stock offered and sold pursuant to such registration statement, or (ii) if no such registration statement is declared effective by December 31, 2017, such price per share that is equal to the weighted average closing price per share of the Company’s common stock for the 20 trading days immediately preceding December 31, 2017, subject to adjustment under certain circumstances. The 2017 Notes rank junior to our secured credit facility with Sterling. The 2017 Notes also include certain negative covenants including, without the investors’ approval, restrictions on dividends and other restricted payments and reclassification of its stock.

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~~Accounts Receivable~~

~~Accounts receivable for the period ended September 30, 2017 were $9,167,088 as compared to $8,059,910 as on December 31, 2016. The increase was due to acquisition of Ameri California.~~

~~Accounts Payable~~

Accounts payable for the period ended September 30, 2017 were $4,126,323 as compared to $5,130,817 as on December 31, 2016. The decrease was primarily due to the payoff of accumulated accounts payable during the nine months ended September 30, 2017.

~~Accrued Expenses~~

Accrued expenses for the period ended September 30, 2017 were $3,947,294 as compared to $2,165,088 as on December 31, 2016. Our acquisition of Ameri California led to an increase of accrued expenses of $754,257 and the balance was attributable to our existing entities.

~~Operating Activities~~

Our largest source of operating cash flows is cash collections from our customers for different information technology services we render under various statements of work. Our primary uses of cash for operating activities are for personnel-related expenditures, leased facilities and taxes.

~~Off- Balance Sheet Arrangements~~

~~We do not have any off-balance sheet arrangements.~~

~~Impact of Inflation~~

We do not believe that inflation had a significant impact on our results of operations for the periods presented. On an ongoing basis, we attempt to minimize any effects of inflation on our operating results by controlling operating costs and, whenever possible, seeking to ensure that billing rates reflect increases in costs due to inflation.

For all significant foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated at the exchange rate in effect at each period end. Statements of Operations accounts are translated at the exchange rate prevailing as of the date of the transaction. The gains or losses resulting from such translation are reported under accumulated other comprehensive income (loss) as a separate component of equity. Realized gains and losses from foreign currency transactions are included in other income, net for the periods presented.

~~Recent Accounting Pronouncements~~

~~See Note 2 to our unaudited condensed consolidated financial statements for additional information.~~

~~Critical Accounting Estimates~~

~~Purchase Price Allocation.~~ We allocate the purchase price of our acquisitions to the assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Some of the items, including accounts receivable, property and equipment, other intangible assets, certain accrued liabilities and other reserves require a degree of management judgment. Certain estimates may change as additional information becomes available. Goodwill is assigned at the enterprise level and is deductible for tax purposes for certain types of acquisitions. Management finalizes the purchase price allocation within the defined measurement period of the acquisition date as certain initial accounting estimates are resolved.

~~Valuation of Contingent Earn-out Consideration.~~ Acquisitions may include contingent consideration payments based on the achievement of certain future financial performance measures of the acquired company. Contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. We believe our estimates and assumptions are reasonable, however, there is significant judgment involved. We evaluate, on a routine, periodic basis, the estimated fair value of the contingent consideration and changes in estimated fair value, subsequent to the initial fair value estimate at the time of the acquisition, will be reflected in income or expense in the consolidated statements of operations. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. Any changes in the estimated fair value of contingent consideration may have a material impact on our operating results.

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~~Revenue Recognition.~~ We recognize revenue in accordance with the Accounting Standard Codification 605 “Revenue Recognition.” Revenue is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to buyer is fixed and determinable, and (4) collectability is reasonably assured. We recognize revenue from information technology services as the services are provided. Service revenues are recognized based on contracted hourly rates, as services are rendered or upon completion of specified contracted services and acceptance by the customer.

~~Accounts Receivable.~~ We extend credit to clients based upon management’s assessment of their credit-worthiness on an unsecured basis. We provide an allowance for uncollectible accounts based on historical experience and management evaluation of trend analysis. We include any balances that are determined to be uncollectible in allowance for doubtful accounts.

~~Property and Equipment.~~ Property and equipment is stated at cost. We provide for depreciation of property and equipment using the straight-line method over the estimated useful lives of the related assets ranging from 3 to 7 years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease terms or the useful lives of the improvements. We charge repairs and maintenance costs that do not extend the lives of the assets to expenses as incurred.

~~Intangible assets.~~ We account for computer software costs developed for internal use in accordance with U.S. GAAP, which requires companies to capitalize certain qualifying costs during the application development stage of the related software development project and to exclude the initial planning phase that determines performance requirements, most data conversion, general and administrative costs related to payroll and training costs incurred. Whenever a software program is considered operational, we consider the project to be completed, place it into service and commence amortization of the development cost in the succeeding month.

~~Goodwill.~~ We capitalize the excess of capitalized intangible assets of an acquisition over the purchase consideration as goodwill in for each of our acquisitions. Impairment of goodwill is analyzed on an annual basis as per Company policy.

~~Special Note Regarding Forward-Looking Information~~

Some of the statements in this Quarterly Report on Form 10-Q and elsewhere constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties and other factors that may cause results, levels of activity, growth, performance, tax consequences or achievements to be materially different from any future results, levels of activity, growth, performance, tax consequences or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, those listed below.

The forward-looking statements included in this Form 10-Q and referred to elsewhere are related to future events or our strategies or future financial performance, including statements concerning our 2017 outlook, future revenue and growth, customer spending outlook, general economic trends, IT service demand, future revenue and revenue mix, utilization, new service offerings, significant customers, competitive and strategic initiatives, growth plans, potential stock repurchases, future results, tax consequences and liquidity needs. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “believe,” “anticipate,” “anticipated,” “expectation,” “continued,” “future,” “forward,” “potential,” “estimate,” “estimated,” “forecast,” “project,” “encourage,” “opportunity,” “goal,” “objective,” “could,” “expect,” “expected,” “intend,” “plan,” “planned,” or the negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on our current plans or assessments which are believed to be reasonable as of the date of this Form 10-Q. Factors that may cause actual results, goals, targets or objectives to differ materially from those contemplated, projected, forecasted, estimated, anticipated, planned or budgeted in such forward-looking statements include, among others, the following possibilities: (1) failure to obtain new customers or retain significant existing customers; (2) the loss of one or more key executives and/or employees; (3) changes in industry trends, such as a decline in the demand for Enterprise Resource Planning and Enterprise Performance Management solutions, custom development and system integration services and/or declines in industry-wide information technology spending, whether on a temporary or permanent basis and/or delays by customers in initiating new projects or existing project milestones; (4) inability to execute upon growth objectives, including new services and growth in entities acquired by our Company; (5) adverse developments and volatility involving geopolitical or technology market conditions; (6) unanticipated events or the occurrence of fluctuations or variability in the matters identified as delays in, or the failure of, our sales pipeline being converted to billable work and recorded as revenue; (8) termination by clients of their contracts with us or inability or unwillingness of clients to pay for our services, which may impact our accounting assumptions; (9) inability to recruit and retain professionals with the high level of information technology skills and experience needed to provide our services; (10) failure to expand outsourcing services to generate additional revenue; (11) any changes in ownership of the Company or otherwise that would result in a limitation of the net operating loss carry forward under applicable tax laws; (12) the failure of the marketplace to embrace advisory and product-based consulting services; (13) changes in our utilization levels; (14) competition in our markets; (15) our ability to grow and manage growth profitably; our ability to access additional capital; (16) changes in applicable laws or regulations; (17) the failure to fully integrate acquired businesses; and (18) poor performance of acquired businesses following the closing of the acquisition. In evaluating these statements, you should specifically consider various factors described above. These factors may cause our actual results to differ materially from those contemplated, projected, anticipated, planned or budgeted in any such forward-looking statements.

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Although we believe that the expectations in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, growth, earnings per share or achievements. However, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Except as otherwise required, we undertake no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results.

~~ITEM 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

~~Not applicable.~~

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES~~

~~Management’s Report on~~ Disclosure Controls and Procedures

We maintain disclosure controls and procedures ~~that are~~ designed to ensure that the information we are required to ~~be disclosed~~disclose in ~~our~~ reports ~~filed~~we file or submit under the ~~Securities~~ Exchange Act ~~of 1934~~ , ~~as amended,~~ is recorded, processed, summarized, and reported within the time periods specified inunder the ~~SEC’s~~ rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow ~~for~~ timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurancedisclosures. A material weakness is a deficiency, or combination of ~~achieving the desired control objectives, and our management is required to apply its judgment~~deficiencies, in ~~evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations,~~ internal control over financial reporting, ~~may~~such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not ~~prevent~~be prevented or ~~detect misstatements. Therefore, even those systems determined~~detected on a timely basis. The matters that management identified in our Annual Report for the year ended December 31, 2022, continued to ~~be effective can provide only reasonable assurance with respect to~~exist and were still considered material weaknesses in our internal control over financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

reporting at June 30, 2023.

As required by ~~Rule~~paragraph (b) of Rules 13a-15 and 15d-15 under the ~~Securities~~ Exchange Act, ~~of 1934, as of the end of the period covered by this Quarterly Report on Form 10-Q, we have~~our Chief Executive Officer (our principal executive) and Chief Financial Officer (our principal financial officer and principal accounting officer) carried out an evaluation of the effectiveness of the design and operation of our ~~Company's~~ disclosure controls and ~~procedures. This~~procedures as of June 30, 2023. Based on this evaluation, ~~was carried out under~~and in light of the ~~supervision and with the participation of~~material weaknesses found in our ~~Company's management, including~~internal controls over financial reporting, our ~~Company's Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our company's~~ Chief Executive Officer and Chief Financial Officer concluded that our ~~company's~~ disclosure controls and procedures ~~are~~(as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) were not ~~yet~~ effective as of June 30, 2023.

Management’s Remediation Plan

As previously discussed in our Annual Report for the ~~end~~year ended December 31, 2022, management had concluded that our internal control over financial reporting was not effective as of December 31, 2022, because management identified inadequate segregation of duties to ensure the ~~period covered by this report as noted below~~processing, review, and authorization of all transactions, including non-routine transactions resulting in ~~management's report on~~deficiencies, which, in aggregate, amounted to a material weakness in the Company’s internal control over financial reporting. ~~This~~

As of June 30, 2023, there were control deficiencies that constituted a material weakness in our internal control over financial reporting. Management has taken, and is ~~largely due~~taking steps to strengthen our internal control over financial reporting: we have conducted evaluation of the ~~fact that~~material weakness to determine the appropriate remedy and have established procedures for documenting disclosures and disclosure controls.

While we ~~are acquiring privately held companies~~have taken certain actions to address the material weaknesses identified, additional measures may be necessary as ~~part~~we work to improve the overall effectiveness of our ~~growth strategy and our control procedures~~internal controls over ~~all acquired subsidiaries will not be effective until such time as we are able to fully integrate~~financial reporting.

Changes in Internal Control over Financial Reporting

Other than the ~~acquisition with our company and set processes and procedures for~~changes discussed above in the ~~acquired entities. We are working to improve and harmonize our financial reporting controls and procedures across all of our companies. There~~Remediation Plan, there have been no other changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-(f) of the Exchange Act) that occurred during ~~the period covered by this report~~quarter ending June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal ~~controls~~control over financial reporting.

~~Disclosure controls~~

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is periodically involved in legal proceedings, legal actions and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specifiedclaims arising in the ~~SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure~~ordinary course of business. Other than as described below, we do not have any pending litigation that, ~~information required to be disclosed~~separately or in ~~our reports filed under~~ the Securities Exchange Act of 1934 is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. Further,aggregate, would, in the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

~~Management’s Report on Internal Control Over Financial Reporting~~

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Our management has assessed the effectiveness of our internal control over financial reporting as of September 30, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles; providing reasonable assurance that receipts and expenditures are made in accordance with authorizationsopinion of management, ~~and our directors; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could~~ have a material adverse effect on our financial ~~statements would be prevented~~position, results of operations or ~~detected on a timely basis. As a result of this assessment,~~cash flows.

Item 1A. Risk Factors

Factors that could cause our management concluded that, as of September 30, 2017, our internal control over financial reporting was not yet effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. This is largely dueactual results to the fact that we are acquiring privately held companies as part of our growth strategy and our control procedures over all acquired subsidiaries will not be effective until such time as we are able to fully integrate the acquisition with our company and set processes and procedures for the acquired entities. We are working to improve and harmonize our financial reporting controls and procedures across all of our companies.

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This Quarterly Report on Form 10-Q does not include an attestation report of our independent auditors regarding internal control over financial reporting. Management's report was not subject to attestation by our independent auditors pursuant to temporary rules of the SEC that permit our company to provide only management's reportdiffer materially from those in this Quarterly Report are any of the risks described below and in the Annual Report. Any of these factors could result in a significant or material adverse effect on our results of operations of financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-Q.

~~Inherent Limitations~~ The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

We may not realize the benefits we expect from our cost reduction plan or, as a result of the reduction in force, we may not be successful in attracting, motivating and retaining highly qualified personnel in the future.

In May 2023, the Company entered into a cost reduction plan, including a reduction in force of approximately 35% of its full-time employees. Additionally, contracts with seven consultants that were focused on ~~Effectiveness~~the Akos cannabinoid spin-out will be terminated. In addition, the Company entered into a separation agreement with Avani Kanubaddi, the Company’s President and Chief Operating Officer. The Company recorded a charge of ~~Controls~~

~~Internal control over financial reporting has inherent limitations which include but is~~approximately $918,000 in severance and benefits. The Company may not ~~limited~~realize, in full or in part, the anticipated benefits and savings from its cost reduction plan, and it cannot guarantee that it will not have to undertake additional reductions in force or restructuring activities in the future. Furthermore, the cost reduction plan may be disruptive to the ~~use of independent professionals~~Company’s operations. For example, the cost reduction plan could yield unanticipated consequences, such as attrition beyond planned staff reductions, increased difficulties in the Company’s day-to-day operations and reduced employee morale.

The reduction in force could also harm the Company’s ability to attract, motivate and retain qualified personnel who are critical to its business in the future. Recruiting and retaining qualified employees, consultants and advisors for ~~advice~~the Company’s business is and ~~guidance, interpretation of existing and/or changing rules~~will continue to be critical to its success. Competition for skilled personnel is intense and principles, segregation of management duties, scale of organization and personnel factors. Internal control over financial reporting is a process, which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting alsothe turnover rate can be ~~circumvented by collusion~~high. Any failure to attract or ~~improper management override. Because of its inherent limitations, internal control over financial reporting~~retain qualified personnel could prevent the Company from successfully developing the Company’s product candidates in the future.

Our reprioritization and the associated headcount reduction may not ~~prevent or detect misstatements~~result in anticipated savings, could result in total costs and expenses that are greater than expected and could disrupt our business.

The Company may incur additional expenses not currently contemplated due to events associated with the reduction in force entered into by the Company in May 2023, for example, the reduction in force may have a future impact on ~~a timely basis, however these inherent limitations are known features~~other areas of the Company’s liabilities and obligations. The Company may not realize, in full or in part, the anticipated benefits and savings from the reduction in force due to unforeseen difficulties, delays or unexpected costs. If the Company is unable to realize the expected operational efficiencies and cost savings from the reduction in force, the Company’s operating results and financial ~~reporting process and it is possible~~condition would be adversely affected. In addition, the Company may need to ~~design into~~undertake restructuring activities or workforce reductions in the ~~process safeguards~~future. Furthermore, the Company’s initiatives to ~~reduce, though not eliminate, this risk. Therefore, even those systems determined to~~re-balance its cost structure, including the reduction in force, may be ~~effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject~~disruptive to the ~~risk that controls may become inadequate because~~Company’s operations. If employees who were not affected by the reduction in force seek alternative employment, this could result in the Company seeking contractor support at unplanned additional expense or harm its productivity. Any disruption in the Company’s business as a result of ~~changes~~the reduction in ~~conditions, or that~~force could prevent the ~~degree~~Company from successfully developing the Company’s product candidates in the future.

Item 2. Unregistered Sales of ~~compliance with the policies or procedures may deteriorate.~~

~~Changes in Internal Control Over Financial Reporting~~

~~There were changes to correct certain internal control inadequacies, due~~Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

In May 2023, pursuant to the ~~privately held nature~~Akos Series A Preferred Certificate of ~~acquired subsidiaries in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under~~Designations, the ~~Exchange Act, during the period covered by this report that have not materially affected, or are not reasonably likely to materially affect, our internal control over financial reporting.~~

~~PART II - OTHER INFORMATION~~

~~ITEM 1.~~

~~LEGAL PROCEEDINGS~~

~~None.~~

~~ITEM 1A.~~

~~RISK FACTORS~~

~~Not applicable.~~

~~ITEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

~~None.~~

~~ITEM 3.~~

~~DEFAULTS UPON SENIOR SECURITIES~~

To date, the Company has not been in conformance with the financial covenants contained in its Loan Agreement with Sterling National Bank. The Company received waivers from Sterling National Bank for its non-compliance with the Loan Agreement for the quarters ended March 31, 2017, June 30, 2017 and September 30, 2017 in exchange for the payment of a fee of $5,000 for each quarterly waiver. The Company does not expect to be in compliance with the termsholders of the ~~Loan Agreement following the conclusion of the terms of the waivers granted by Sterling National Bank. The Company is continuing to work with Sterling National Bank to address its non-compliance.~~

~~Table of Contents~~

~~The Company has yet to make the dividend payment on its~~Akos Series A Preferred Stock ~~that was payable on September 30, 2017. The Company will pay~~exercised the ~~sole holder~~Put Right requiring Akos to force redemption of all of the Akos Series A Preferred Stock for $1,000 per share, plus accrued but unpaid dividends of approximately $50,000 for a total of approximately $1,052,057. The Company has 20 days following the ~~accrued dividend in-kind pursuant to the terms~~receipt of the ~~Certificate of Designation contemporaneously~~Put Exercise Notice to make the payment and made payment on May 19, 2023.

The Company, Akos, and the Akos Investor intend to terminate the Akos Purchase Agreement in connection with the ~~filing~~planned Spin-Off and that certain registration rights agreement in connection with the Akos Private Placement.

In May 2023, the Company entered into a cost reduction plan, including a reduction in force of ~~this Quarterly Report~~approximately 35% of its full-time employees to streamline its operations and conserve cash resources. Additionally, contracts with seven consultants that were focused on ~~Form 10-Q for~~ the ~~quarter ended September~~Akos cannabinoid spin-out will be terminated. The Company recognized severance charges of approximately $917,527 through June 30, ~~2017.~~

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

~~ITEM 5.~~

~~OTHER INFORMATION~~

~~None.~~

~~ITEM 6.~~

~~EXHIBITS~~

2023. The plan included a focus on progressing the Company’s existing non-cannabinoid pipeline while reducing the rate of spend and managing cash flow. As of June 30, 2023, the Company has completed the reduction in force, with such severance expenses recorded in salaries and wages and legal accounts.

Item 6. Exhibits

INDEX TO EXHIBITS

Exhibit No.		Description

~~2.1~~	Agreement of Merger and Plan of Reorganization, dated as of May 26, 2015, among Spatializer Audio Laboratories, Inc., Ameri100 Acquisition, Inc. and Ameri and Partners Inc. (filed as Exhibit 2.1 to AMERI Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on May 26, 2015 and incorporated herein by reference).
~~2.2~~31.1*	~~Stock Purchase Agreement by and between Ameri Holdings, Inc. and the shareholders of Ameri Consulting Service Private Limited. (filed as Exhibit 10.3~~	Certification pursuant to ~~Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on June 1, 2015 and incorporated herein by reference).~~
~~2.3~~	~~Share Purchase Agreement, dated as of November 20, 2015, by and among Ameri Holdings, Inc., Bellsoft, Inc., and all~~Section 302 of the ~~shareholders~~Sarbanes–Oxley Act of ~~Bellsoft, Inc. (filed as Exhibit 10.1 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on November 23, 2015 and incorporated herein by reference).~~
~~2.4~~	Agreement of Merger and Plan of Reorganization, dated as of July 22, 2016, by and among Ameri Holdings, Inc., Virtuoso Acquisition Inc., Ameri100 Virtuoso Inc., Virtuoso, L.L.C. and the sole member of Virtuoso, L.L.C. (filed as Exhibit 2.1 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on July 27, 2016 and incorporated herein by reference).
~~2.5~~	Membership Interest Purchase Agreement, dated as of July 29, 2016, by and among Ameri Holdings, Inc., DC&M Partners, L.L.C., all of the members of DC&M Partners, L.L.C., Giri Devanur and Srinidhi “Dev” Devanur (filed as Exhibit 2.1 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on August 1, 2016 and incorporated herein by reference).
~~2.6~~	Share Purchase Agreement, dated as of March 10, 2017, by and among Ameri Holdings, Inc., ATCG Technology Solutions, Inc., all of the stockholders of ATCG Technology Solutions, Inc., and the Stockholders’ representative (filed as Exhibit 2.1 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on March 13, 2017 and incorporated herein by reference).
~~3.1~~	Amended and Restated Certificate of Incorporation of Ameri Holdings, Inc. (filed as Exhibit 3.1 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on June 23, 2016 and incorporated herein by reference).
~~3.2~~	Certificate of Designation of Rights and Preferences of 9.00% Series A Cumulative Preferred Stock (filed as Exhibit 3.1 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on January 4, 2017 and incorporated herein by reference).
~~3.3~~	Corrected Certificate of Designation of Rights and Preferences of 9.00% Series A Cumulative Preferred Stock (filed as Exhibit 3.3 to Ameri Holdings, Inc.’s Registration Statement on Form S-1, Amendment No. 1, filed with the SEC on April 18, 2017 and incorporated herein by reference).
~~3.4~~	Amended and Restated Bylaws of Ameri Holdings, Inc. (filed as Exhibit 3.2 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on June 23, 2016 and incorporated herein by reference).
~~4.1~~	Form of Certificate Representing Shares of common stock of Registrant (filed as Exhibit 4.1 to Ameri Holdings, Inc.’s Registration Statement on Form S-8 filed with the SEC on December 17, 2015 and incorporated herein by reference).
~~4.2~~	Form of common stock Purchase Warrant issued by Ameri Holdings, Inc. to Lone Star Value Investors, LP, dated May 26, 2015 (filed as Exhibit 4.1 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on June 1, 2015 and incorporated herein by reference).

~~Table of Contents~~

~~4.3~~	Common Stock Purchase Warrant, dated May 12, 2016, issued by Ameri Holdings, Inc. to Lone Star Value Investors, LP, dated May 12, 2016 (filed as Exhibit 4.3 to Ameri Holdings, Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 16, 2016 and incorporated herein by reference).
~~4.4~~	Amended and Restated Registration Rights Agreement, dated May 12, 2016, by and between Ameri Holdings, Inc. and Lone Star Value Investors, LP (filed as Exhibit 10.3 to Ameri Holdings, Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 16, 2016 and incorporated herein by reference).
~~4.5~~	Form of 8% Convertible Unsecured Promissory Note due March 2020 (filed as Exhibit 10.2 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on March 8, 2017 and incorporated herein by reference).
~~4.6~~	Form of Registration Rights Agreement for 2017 Notes Investors (filed as Exhibit 10.3 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on March 8, 2017 and incorporated herein by reference).
~~4.7~~	~~Form of 6% Unsecured Promissory Note (filed as Exhibit 10.1 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on March 13, 2017 and incorporated herein by reference).~~
~~10.1~~	Employment Agreement, dated as of May 26, 2015, between Giri Devanur and Ameri Holdings, Inc. (filed as Exhibit 10.4 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on June 1, 2015 and incorporated herein by reference).

~~10.2~~	Employment Agreement, dated as of May 26, 2015, between Srinidhi “Dev” Devanur and Ameri Holdings, Inc. (filed as Exhibit 10.5 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on June 1, 2015 and incorporated herein by reference).
~~10.3~~	Employment Letter, dated April 24, 2016, between Ameri and Partners Inc and Viraj Patel (filed as Exhibit 10.1 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on April 25, 2017 and incorporated herein by reference).
~~10.4~~	Form of Securities Purchase Agreement for 2017 Notes Investors (filed as Exhibit 10.1 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on March 8, 2017 and incorporated herein by reference).
~~10.5~~	Exchange Agreement, dated as of December 30, 2016, between Ameri Holdings, Inc. and Lone Star Value Investors, LP (filed as Exhibit 10.1 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on January 4, 2017 and incorporated herein by reference).
~~10.6~~	Loan and Security Agreement, dated as of July 1, 2016, by and among Ameri and Partners Inc, Bellsoft, Inc., Ameri Holdings, Inc., Linear Logics, Corp., Winhire Inc, Giri Devanur, the lenders which become a party to the Loan and Security Agreement, and Sterling National Bank, N.A. (a lender and as agent for the lenders) (filed as Exhibit 10.1 to Ameri Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on July 7, 2016 and incorporated herein by reference).
31.1*	~~Section 302 Certification~~2002 of Principal Executive ~~Officer~~Officer*
31.2*		Certification pursuant to Section 302 ~~Certification~~of the Sarbanes–Oxley Act of 2002 of Principal Financial and Accounting ~~Officer~~Officer*
32.1**		Certification pursuant to Section 906 ~~Certification~~of the Sarbanes–Oxley Act of 2002 of Principal Executive Officer,
32.2**	~~Section 906 Certification of~~ Principal Financial and Accounting ~~Officer~~Officer**
101*101.INS	~~The following materials from Ameri Holdings, Inc.’s Quarterly Report on Form 10-Q for the three months ended September 30, 2017 are formatted~~	Inline XBRL Instance Document*
101.SCH*		Inline XBRL Taxonomy Extension Schema*
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB*		Inline XBRL Taxonomy Extension Labels Linkbase Document*
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104*		Cover Page Interactive Data File (formatted as Inline XBRL document and contained in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Stockholders’ Equity (Deficit), (iv) the Consolidated Statements of Cash Flow, and (iv) Notes to the Consolidated Financial Statements.Exhibit 101)

*		Filed herewith.
**		Furnished herewith.

In accordance with Item 601of Regulation S-K, this Exhibit is hereby furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933. 29

~~Table of Contents~~

SIGNATURES

Pursuant to the requirements ~~of the Section 13 or 15 or 15(d)~~ of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly ~~authorized on the~~ 13^th ~~day of November 2017~~.

authorized.

	ENVERIC BIOSCIENCES, INC
August 11, 2023
	By:	/s/ Dr. Joseph Tucker
		Dr. Joseph Tucker
		Chief Executive Officer
		(Principal Executive Officer)

August 11, 2023

	By:	/s/ Kevin Coveney
		Kevin Coveney
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

	~~AMERI Holdings, Inc.~~
30
	~~By:~~	~~/s/ Giri Devanur~~
		~~Giri Devanur~~
		~~President and Chief Executive Officer (Principal Executive Officer)~~

	~~By:~~	~~/s/ Viraj Patel~~
		~~Viraj Patel~~
		~~Chief Financial Officer (Principal Accounting Officer)~~

~~100 Canal Pointe Boulevard,~~ 4851 Tamiami Trail N, Suite ~~108,~~ ~~Princeton, New Jersey~~ 200 Naples, FL		~~08540~~34103
(Address of principal executive offices)		(Zip ~~Code)~~code)

Title of Each Class		Trading Symbol(s)		Name of ~~Each Exchange~~each exchange on ~~Which Registered~~which registered
~~N/A~~Common Stock, $0.01 par value per share		~~N/A~~ENVB		The Nasdaq Stock Market LLC

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer☐ ☒	Smaller reporting company ☑ ☒

Emerging growth company ☑	☐

	September 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	844,104			$	1,379,887
Accounts receivable		9,167,088				8,059,910
Investments		82,908				82,908
Other current assets		1,321,334				542,237
Total current assets		11,415,434				10,064,942
Other assets:
Property and equipment, net		92,870				100,241
Intangible assets, net		10,253,381				8,764,704
Acquired goodwill		21,886,567				17,089,076
Deferred income tax assets, net		3,488,960				3,488,960
Total other assets		35,721,778				29,442,981
Total assets	$	47,137,212			$	39,507,923

Current liabilities:
Line of credit	$	3,765,391				3,088,890
Accounts payable		4,126,323				5,130,817
Other accrued expenses		3,947,293				2,165,088
Bank term loan		406,156				405,376
Consideration payable – cash		7,129,238				1,854,397
Consideration payable – equity		11,589,973				64,384
Dividend payable		527,979				-
Total current liabilities		31,492,353				12,708,952
Long- term Liabilities:
Convertible notes		1,250,000				-
Bank term loan		1,575,206				1,536,191
Consideration payable – cash		-				2,711,717
Consideration payable – equity		600,000				10,887,360
Total long-term liabilities		3,425,206				15,135,268
Total liabilities		34,917,559				27,844,220

Stockholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 authorized, 383,985 issued and outstanding as of September 30, 2017 and 363,611 as of December 31, 2016		3,840				3,636
Common stock, $0.01 par value; 100,000,000 shares authorized, 15,856,249 and 13,885,972 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		158,561				138,860
Additional paid-in capital		25,487,970				15,358,839
Accumulated deficit		(13,430,711	)			(3,833,588	)
Accumulated other comprehensive income (loss)		(18,511	)			(7,426	)
Non-controlling interest		18,504				3,382
Total stockholders’ equity		12,219,653				11,663,703
Total liabilities and stockholders’ equity	$	47,137,212			$	39,507,923

		Page
	PART I - FINANCIAL INFORMATION
Item 1.
~~Item 1 -~~ Financial Statements		3

	~~Unaudited~~ Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2023 (Unaudited) and December 31, ~~2016~~2022	31
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss for the ~~Three Months Ended September~~three and six months ended June 30, ~~2017~~2023 and ~~2016 and for the Nine Months Ended September 30, 2017 and 2016.~~2022	42
	Unaudited Condensed Consolidated Statements of Changes in Mezzanine Equity and Shareholders’ Equity for the three and six months ended June 30, 2023 and 2022	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Nine Months Ended September~~six months ended June 30, ~~2017~~2023 and 2022	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.
~~Item 2 -~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations		1720
Item 3.
~~Item 3 -~~ Quantitative and Qualitative Disclosures About Market Risk		2528
Item 4.	Controls and Procedures	28

~~Item 4 - Controls and Procedures~~		25

PART II - OTHER INFORMATION		26

Item ~~1 -~~ 1.	Legal Proceedings	2629
Item 1A.	Risk Factors	29
Item ~~1A - Risk Factors~~ 2.	26

~~Item 2 -~~ Unregistered Sales of Equity Securities and Use of Proceeds		2629
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
	Signatures	30


~~Item 4 - Mine Safety Disclosures~~		27
1
~~Item 5 – Other Information~~		27

~~Item 6 – Exhibits~~		27

~~Signatures~~		29

	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016

Revenue	$	12,529,928		$	10,058,558		$	37,139,114		$	23,758,460
Cost of revenue		9,966,490			8,361,960			28,941,535			18,897,059
Gross profit		2,563,438			1,696,598			8,197,579			4,861,401

Operating expenses
Selling and marketing		402,846			137,024			1,170,051			401,487
General and administration		5,283,059			1,326,327			12,389,581			5,316,390
Acquisition related expenses		5,694			1,015,558			390,174			1,630,778
Depreciation and amortization		817,284			509,377			2,332,041			722,390
Operating expenses		6,508,883			2,988,286			16,281,847			8,071,045
Operating income (loss)		(3,945,445	)		(1,291,688	)		(8,084,268	)		(3,209,644	)
Interest expenses		(132,973	)		(290,423	)		(388,122	)		(674,683	)
Changes in estimates		-			-			400,000			-
Others, net		17,446			(195,518	)		21,921			(197,679	)
Income (loss) before income taxes		(4,060,972	)		(1,777,629	)		(8,050,469	)		(4,082,006	)
Tax benefit / (provision)		-			-			-			-
Income after income taxes		(4,060,972	)		(1,777,629	)		(8,050,469	)		(4,082,006	)
Net income attributable to non-controlling interest		(6,632	)		-			(18,504	)		-
Net income (loss) attributable to the Company		(4,067,604	)		(1,777,629	)		(8,068,973	)		(4,082,006	)
Dividend on preferred stock		(541,864	)		-			(1,546,655	)		-
Net loss attributable to common stock holders		(4,609,468	)		(1,777,629	)		(9,615,628	)		(4,082,006	)
Other comprehensive income (loss), net of tax		-			-			-			-
Foreign exchange translation		(14,234	)		59,079			(11,084	)		(6,619	)
Comprehensive income/(loss)	$	(4,623,702	)	$	(1,718,550	)	$	(9,626,712	)	$	(4,088,625	)
Comprehensive income/(loss) attributable to the Company		(4,617,070	)		(1,718,550	)		(9,608,208	)		(4,088,625	)
Comprehensive income/(loss) attributable to the non-controlling interest		(6,632	)		-			(18,504	)		-
	$	(4,623,702	)	$	(1,718,550	)	$	(9,626,712	)	$	(4,088,625	)

Basic income (loss) per share	$	(0.31	)	$	(0.13	)	$	(0.66	)	$	(0.32	)
Diluted income (loss) per share	$	(0.31	)	$	(0.13	)	$	(0.66	)	$	(0.32	)

Basic weighted average number of common shares outstanding		14,715,947			13,653,586			14,472,322			12,794,149
Diluted weighted average number of common shares outstanding		14,715,947			13,653,586			14,472,322			12,794,149

	Nine Months Ended September 30,
	2017			2016

Cash flow from operating activities
Comprehensive income/(loss)	$	(9,626,712	)	$	(4,088,625	)
Adjustment to reconcile comprehensive income/(loss) to net cash used in operating activities
Depreciation and amortization		2,332,041			722,390
Provision for Preference dividend		1,546,655			-
Changes in estimate of contingent consideration		(400,000	)		-
Stock, option, restricted stock unit and warrant expense		5,167,358			945,959
Foreign exchange translation adjustment		11,085			-
Changes in assets and liabilities:
Increase (decrease) in:
Accounts receivable		(1,107,178	)		(2,852,778	)
Other current assets		(779,097	)		(285,831	)
Increase (decrease) in:
Accounts payable and accrued expenses		1,056,277			2,561,321
Net cash provided by (used in) operating activities		(1,799,571	)		(2,997,564	)
Cash flow from investing activities
Purchase of fixed assets		(7,797	)		3,261,617
Acquisition consideration		(694,711	)		(8,779,040	)
Investments		-			82,908
Net cash used in investing activities		(702,508	)		(5,434,515	)
Cash flow from financing activities
Proceeds from bank loan and convertible notes, net		1,966,296			4,467,879
Additional stock issued		-			5,000,000

Net cash provided by financing activities		1,966,296			9,467,879
Net increase (decrease) in cash and cash equivalents		(535,783	)		1,035,800
Cash and cash equivalents as at beginning of the period		1,379,887			1,878,034
Cash at the end of the period	$	844,104		$	2,913,834

Asset Component	Ameri Georgia		Bigtech		Virtuoso		Ameri Arizona		Ameri California
Intangible Assets		1.8		0.6		0.9		5.4		3.8
Goodwill		3.5		0.3		0.9		10.4		5.0
Working Capital
Current Assets
Cash		1.4		-		-		-		-
Accounts Receivable		5.6		-		-		-		-
Other Assets		0.2		-		-		-		-
		7.3		-		-		-		-
Current Liabilities
Accounts Payable		1.3		-		-		-		-
Accrued Expenses & Other Current Liabilities		1.3		-		-		-		-
		2.7		-		-		-		-
Net Working Capital Acquired		4.6		-		-		-		-

Total Purchase Price		9.9		0.9		1.8		15.8		8.8

	September 30, 2017			December 31, 2016

Capitalized intangible assets		$	12,517,628		$	10,074,546
Accumulated amortization			2,264,247			1,309,842
Total intangible assets		$	10,253,381		$	8,764,704

Years ending December 31,	Amount
2017	$	665,859
2018		2,955,873
2019		2,727,968
2020		2,652,000
2021		1,251,681
Total	$	10,253,381

	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
Net income (loss) attributable to common stock holders	$	(9,615,628	)	$	(4,082,006	)
Weighted average common shares outstanding		14,472,322			12,794,149
Basic net income (loss) per share of common stock	$	(0.66	)	$	(0.32	)
Diluted net income (loss) per share of common stock	$	(0.66	)	$	(0.32	)

Year ending December 31,	Amount
2017	$	68,360
2018		189,428
2019		123,083
2020		70,333
2021		7,371
Total	$	458,575

	September 30, 2017			December 31, 2016

Level 3
Contingent consideration		$	5,346,688		$	5,266,488

		~~Page~~

	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017

Opening balance		5,346,688		5,266,488
Additions during the period	$	-	$	1,200,000
Paid/settlements		-		(719,800	)
Total gains recognized in Statement of Operations		-		(400,000	)
Closing balance		5,346,688		5,346,688

	Three Months Ended September 30, 2017	Three Months Ended September 30, 2016	Increase (Decrease)
Ameri & Partners	1.41	2.07	(0.66)
Ameri Georgia	4.64	4.38	0.26
Bigtech	0.31	0.31	0.00
Ameri Arizona	3.09	3.28	(0.19)
Ameri California	3.07	-	3.07
Total	12.53	10.06	2.47

	Nine Months Ended September 30, 2017	Nine Months Ended September 30, 2016	Increase (Decrease)
Ameri & Partners	4.77	5.53	(0.76)
Ameri Georgia	14.82	14.62	0.20
Bigtech	0.82	0.31	0.51
Ameri Arizona	10.12	3.28	6.84
Ameri California	6.60	-	6.60
Total	37.14	23.76	13.38