See accompanying notes to the unaudited
condensed consolidated financial statement.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 — THE BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Business–
Enochian BioSciences Inc., (“Enochian”, or “Registrant”, and together with its subsidiaries, the “Company”,
“we” or “us”) is a pre-clinical stage biotechnology company committed to using our genetically modified
cellular and immune-therapy technologies to prevent or potentially cure HIV, Hepatitis B (HBV), and to provide potentially life-long
cancer remission of some of the deadliest cancers.
Basis of Presentation-
The Company prepares consolidated financial statements in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) and follows the rules and regulations of the U.S. Securities and Exchange Commission
(“SEC”). The accompanying financial statements are unaudited. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows
at March 31, 2021 and 2020 and for the periods then ended have been made. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying unaudited
condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s
June 30, 2020 audited financial statements. The results of operations for the periods ended March 31, 2021 and 2020 are not necessarily
indicative of the operating results for the full year.
Consolidation
- For the three and nine months ended March 31, 2021 and 2020, the consolidated financial statements include the accounts and
operations of the Registrant, and its subsidiaries. All material inter-company transactions and accounts have been eliminated in
the consolidation.
Accounting Estimates
- The preparation of financial statements in conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimated. Significant estimates include the fair value and potential impairment of intangible
assets, and fair value of equity instruments issued.
COVID-19-
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a
novel strain of coronavirus (COVID-19). The pandemic has significantly affected the economic conditions in the U.S. A number of
states, counties and municipalities issued orders requiring persons who were not engaged in essential activities and businesses
to remain at home. On March 27, 2020, the US enacted the Coronavirus Aid, Relief and Economic Security Aid (“CARES Act”)
to help stimulate an economic recovery; however, there are no reliable estimates of how long the pandemic will last or how many
people are likely to be affected by it. No one knows what over-all effects the COVID-19 pandemic will have on economic conditions
during the remainder of the fiscal year.
Our senior management
team is monitoring COVID-19’s impact and will continue to adjust our operations as necessary. However, the impact of
this event on the Company’s results of operations, financial position, and liquidity or capital resources cannot be reasonably
estimated at this time.
Functional Currency
& Foreign currency translation - The functional currency of Enochian Denmark is the Danish Kroner (“DKK”).
The Company’s reporting currency is the U.S. Dollar for the purpose of these financial statements. The Company’s balance
sheet accounts are translated into U.S. dollars at the period-end exchange rates and all revenue and expenses are translated into
U.S. dollars at the average exchange rates prevailing during the periods ended March 31, 2021, and June 30, 2020, and March 31,
2020. Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders’
equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other
than the functional currency are included in the statement of operations as incurred.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Cash and Cash
Equivalents —The Company considers all highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. The Company had balances held in financial institutions in Denmark and in the United States in excess of
federally insured States amounts at March 31, 2021 and June 30, 2020 of $4,232,336 and $8,160,270, respectively.
Property and
Equipment — Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the
useful lives of property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs
are charged to expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the
estimated useful lives of the assets, which range from four to ten years (See Note 3).
Intangible Assets
- The Company has both definite and indefinite life intangible assets.
Definite life intangible
assets include patents. The Company accounts for definite life intangible assets in accordance with Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, “Goodwill and Other Intangible
Assets”. Intangible assets are recorded at cost. Patent costs consist of costs incurred to acquire the underlying patent.
If it is determined that a patent will not be issued, the related remaining capitalized patent costs are charged to expense. Intangible
assets are amortized on a straight-line basis over their estimated useful life. The estimated useful life of patents is twenty
years from the date of application.
Indefinite life
intangible assets include license agreements and goodwill. The Company accounts for indefinite life intangible assets in accordance
with ASC 350, “Goodwill and Other Intangible Assets”. License agreement costs represent the Fair Value of the license
agreement on the date acquired and are tested annually for impairment. The fair value analysis performed on the license agreements,
and the fair value analysis performed on goodwill supported that both indefinite life intangible assets are not impaired as of
June 30, 2020, and no impairment is deemed necessary as of March 31, 2021. (See Note 4)
Goodwill —Goodwill
is not amortized but is evaluated for impairment annually as of June 30th of each fiscal year or whenever events or
changes in circumstances indicate the carrying value may not be recoverable.
We test for goodwill
impairment at the reporting unit level, which is one level below the operating segment level. Our detailed impairment testing involves
comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market
participant would be willing to pay in a potential sale of the reporting unit and is based on discounted cash flows or relative
market-based approaches. If the fair value exceeds carrying value, then it is concluded that no goodwill impairment has occurred.
If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure possible goodwill impairment
loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit
as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit’s
goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit’s goodwill exceeds
the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying
value.
The carrying value
of goodwill at March 31, 2021, was $11,640,000. We do not believe there is a reasonable likelihood that there will be a material
change in the future estimates or assumptions we use to test for impairment losses on goodwill. However, if actual results are
not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Impairment of
Long-Lived Assets — Long-lived assets, such as property, plant, and equipment, patents and licenses are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances
which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; current period cash flow or operating losses combined with a history
of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will
more likely than not be sold or disposed of significantly before the end of its estimated useful life.
Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash
flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash
flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount
or fair value less costs to sell and would no longer be depreciated. The depreciable basis of assets that are impaired and continue
in use is their respective fair values.
Leases —
In accordance with ASC Topic 842, the Company determined the initial classification and measurement of its right-of-use assets
and lease liabilities at the lease commencement date and thereafter. The lease terms include any renewal options and termination
options that the Company is reasonably assured to exercise, if applicable. The present value of lease payments is determined by
using the implicit interest rate in the lease, if that rate is readily determinable; otherwise, the Company develops an incremental
borrowing rate based on the information available at the commencement date in determining the present value of the future payments.
Rent expense for
operating leases is recognized on a straight-line basis, unless the operating lease right of use assets have been impaired, over
the reasonably assured lease term based on the total lease payments and is included in operating expense in the consolidated statement
of operations. For operating leases that reflect impairment, the Company will recognize the amortization of the operating lease
right-of-use assets on a straight-line basis over the remaining lease term with rent expense still included in general and administrative
expenses in the unaudited condensed consolidated statements of operations.
The Company has
elected the practical expedient to not separate lease and non-lease components. The Company’s non-lease components are primarily
related to property maintenance, insurance and taxes, which vary based on future outcomes, and thus are recognized in general and
administrative expenses when incurred. (See Note 5).
Research and
Development Expenses — The Company expenses research and development costs incurred in formulating, improving, validating
and creating alternative or modified processes related to and expanding the use of the HIV, HBV, and Cancer therapies and technologies
for use in the prevention, treatment, amelioration of and/or therapy for HIV, HBV, and Cancer. Research and development expenses
for the three and nine months ended March 31, 2021 amounted to $1,079,607, and $3,464,451, respectively. Research and development
expenses for the three and nine months ended March 31, 2020 amounted to $ 2,307,336, and $3,388,996.
Income Taxes
— The Company accounts for income taxes in accordance with FASB ASC Topic 740 Accounting for Income Taxes, which requires
an asset and liability approach for accounting for income taxes. During the quarter ended December 31, 2020, the Company’s
Danish subsidiary received a payment for an R&D tax credit owed under Danish statutory tax laws for $122,831.
Loss Per Share
— The Company calculates earnings/(loss) per share in accordance with FASB ASC 260 Earnings Per Share. Basic earnings
per common share (EPS) are based on the weighted average number of shares of Common Stock, par value 0.0001 per share (“Common
Stock”) outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as under
basic EPS) and potentially dilutive shares of Common Stock. Potential shares of Common Stock included in the diluted earnings per
share calculation include in-the-money stock options that have been granted but have not been exercised. Because of the net loss
for the three and nine months ended March 31, 2021 and 2020, the dilutive shares for both periods were excluded from the Diluted
EPS calculation as the effect of these potential shares of Common Stock is anti-dilutive. The Company had 3,967,275 and 3,554,185
potential shares of Common Stock excluded from the Diluted EPS calculation as of March 31, 2021 and March 31, 2020.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Fair Value of
Financial Instruments — The Company accounts for fair value measurements for financial assets and financial liabilities
in accordance with FASB ASC Topic 820, “Fair Value Measurements”. The authoritative guidance, which, among other things,
defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and
liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price,
representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes
a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
●
|
Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
|
|
●
|
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
●
|
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
The Company adopted
ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair
Value Measurements, which amends certain disclosures requirements over fair value measurements. Under the new guidance, entities
will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy
or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose the range and
weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized
gains and losses included in other comprehensive income. The Company adopted this guidance on July 1, 2020, and there was no material
impact to its condensed consolidated financial statement disclosures (See Note 2-Fair Value of Financial Instruments for more information
about the Company’s fair value classifications.)
Stock Options
and Restricted Share Units - The Company has granted stock options, restricted share units (“RSUs”) and warrants.
The Company accounts for options in accordance with the provisions of FASB ASC Topic 718, Compensation - Stock Compensation.
Stock based compensation costs for the vesting of options and RSUs granted to officers, board members, employees, and consultants
for the three and nine months ended March 31, 2021 were $499,428 and $1,184,975, respectively. For the three and nine months ended
March 31, 2020 were $(28,094) and $895,976, respectively.
Stock-Based Compensation
-The Company records stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. All transactions
in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on
the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably
measurable. Equity instruments issued to consultants and the cost of the services received as consideration are measured and recognized
based on the fair value of the equity instruments issued and are recognized over the employees required service period, which
is generally the vesting period. The Company issued zero and 15,000 options with immediate vesting for services rendered with a
Black-Sholes value of zero and $27,990 during the three and nine months ended March 31, 2021, respectively. The Company issued
zero and 30,000 restricted units shares with immediate vesting in exchange for consulting services valued at $144,000 for services
for the three and nine months ended March 31, 2020, respectively (see Note 7).
Recent Adopted
Accounting Pronouncements
The Company adopted
ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair
Value Measurements, as of July 1, 2020 (Note 2).
Other recent accounting pronouncements
issued by the FASB do not or are not believed by management to have a material impact on the Company’s present or future
financial statements.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 —
FAIR VALUE MEASUREMENT — The Company accounts for fair value measurements for financial assets and financial liabilities
in accordance with FASB ASC Topic 820, “Fair Value Measurements”. The authoritative guidance, which, among other things,
defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and
liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price,
representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes
a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
●
|
Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
|
|
●
|
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
●
|
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
The were no Level
1, 2 or 3 assets, nor any Level 1 or 2 liabilities as of March 31, 2021.
Level 3 liabilities
held as of March 31, 2021 consisted of a contingent consideration liability related to the February 16, 2018 acquisition of Enochian
BioPharma Inc. (the “Acquisition”). As consideration for the Acquisition, the stockholders of Enochian Biopharma
received (i) 18,081,962 shares of Common Stock, and (ii) the right to receive contingent shares pro rata upon the exercise of
warrants, which were outstanding at closing. The contingent consideration liability was recorded at fair value of $21,516,000 at the
time of acquisition and is subsequently remeasured to fair value at each reporting period. At March 31, 2021, 1,350,000 contingent
shares are issuable in connection with the Acquisition of Enochian Biopharma.
The fair value of
the contingent consideration liability is estimated using an option-pricing model. The key inputs to the model are all contractual
or observable with the exception being volatility, which is computed, based on the Company’s underlying stock. The key inputs
to valuing the contingent consideration liability on the date of acquisition and as of March 31, 2021, include the Company’s
stock price on the valuation date of $3.54; the exercise price of the warrants of $1.30, the risk-free rate of .10% the expected
volatility of the Company’s Common Stock of 102.1%, the digital call rate 61%, and the 1,350,000 of contingent shares remaining
at the end of the period. Fair Value measurements are highly sensitive to changes in these inputs and significant changes in these
inputs could result in a significantly higher or lower fair value.
Unless otherwise
disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, prepaid expenses, investments,
accounts payable, accrued expenses, capital lease obligations and notes payable approximates their recorded values due to their
short-term maturities.
The following table
sets forth the Level 3 liability at March 31, 2021, which is recorded on the balance sheet at fair value on a recurring basis.
As required, these are classified based on the lowest level of input that is significant to the fair value measurement:
|
|
Fair Value Measurements at
Reporting Date Using
|
|
|
Quoted Prices in
Active Markets for Identical Assets Inputs
|
|
Significant Other
Observable Inputs
|
|
Significant Other Unobservable
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Contingent Consideration Liability
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2,951,599
|
|
The roll forward of the contingent consideration liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2020
|
|
|
—
|
|
|
|
—
|
|
|
$
|
3,182,434
|
|
Contingent Shares issued pursuant to the Acquisition Agreement
|
|
|
—
|
|
|
|
—
|
|
|
$
|
(192,522
|
)
|
Fair value adjustment
|
|
|
—
|
|
|
|
—
|
|
|
$
|
(38,312
|
)
|
Balance March 31, 2021
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2,951,599
|
|
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — PROPERTY AND EQUIPMENT
|
|
Useful Life
|
|
March 31, 2021
|
|
June 30, 2020
|
Lab Equipment and Instruments
|
|
|
4-7
|
|
|
$
|
545,248
|
|
|
$
|
534,527
|
|
Leasehold Improvements
|
|
|
10
|
|
|
$
|
224,629
|
|
|
|
224,629
|
|
Furniture Fixtures and Equipment
|
|
|
4-7
|
|
|
$
|
171,975
|
|
|
$
|
171,975
|
|
Total
|
|
|
|
|
|
$
|
941,852
|
|
|
$
|
931,131
|
|
Less Accumulated Depreciation
|
|
|
|
|
|
$
|
(233,185
|
)
|
|
$
|
(153,013
|
)
|
Net Property and Equipment
|
|
|
|
|
|
$
|
708,667
|
|
|
$
|
778,118
|
|
Depreciation expense
amount to $26,814, and $80,172 for the three and nine months ended March 31, 2021 respectively, and $35,764 and $78,912, for the
three and nine months ended March 31, 2020, respectively.
NOTE 4 —INTANGIBLE ASSETS
At March 31, 2021
and June 30, 2020, definite-life intangible assets, net of accumulated amortization, consisted of patents on the Company’s
products and processes of $69,225 and $77,323, respectively. The patents are recorded at cost and amortized over twenty years from
the date of application. Amortization expense for the three and nine months ended March 31, 2021 was $4,012 and $11,871, respectively.
At March 31, 2021
and 2020, indefinite life intangibles assets consisted of a license agreement classified In-Process Research and Development (“IPR&D”)
intangible assets, which are not amortizable until the intangible asset provides economic benefit, and goodwill.
At March 31, 2021
and June 30, 2020, definite and indefinite-life intangible assets consisted of the following:
|
|
Useful Life
|
|
June 30,
2020
|
|
Period Change
|
|
Effect of Currency Translation
|
|
March 31,
2021
|
Definite Life Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
20 Years
|
|
$
|
299,175
|
|
|
$
|
—
|
|
|
$
|
14,090
|
|
|
$
|
313,265
|
|
Less Accumulated Amortization
|
|
|
|
$
|
(221,852
|
)
|
|
$
|
(5,938
|
)
|
|
$
|
(16,250
|
)
|
|
|
(244,040
|
)
|
Net Definite-Life Intangible Assets
|
|
|
|
$
|
77,323
|
|
|
$
|
(5,938
|
)
|
|
$
|
(2,160
|
)
|
|
$
|
69,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite Life Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License Agreement
|
|
|
|
$
|
154,824,000
|
|
|
|
|
|
|
|
|
|
|
$
|
154,824,000
|
|
Goodwill
|
|
|
|
|
11,640,000
|
|
|
|
|
|
|
|
|
|
|
|
11,640,000
|
|
Total Indefinite Life Intangible Assets
|
|
|
|
$
|
166,464,000
|
|
|
|
|
|
|
|
|
|
|
$
|
166,464,000
|
|
Year ending June 30,
|
|
|
|
2021
|
|
|
$
|
381
|
|
|
2022
|
|
|
|
15,154
|
|
|
2023
|
|
|
|
15,154
|
|
|
2024
|
|
|
|
15,154
|
|
|
2025
|
|
|
|
15,154
|
|
|
Thereafter
|
|
|
|
8,228
|
|
|
Total
|
|
|
$
|
69,225
|
|
During February
2018, the Company acquired a License Agreement (as licensee) to the HIV therapy being developed as ENOB-HV-01 which consists of
a perpetual, fully paid-up, royalty-free, sub-licensable, and sole and exclusive worldwide license to research, develop, use, sell,
have sold, make, have made, offer for sale, import and otherwise commercialize certain intellectual property in cellular therapies
for the prevention, treatment, amelioration of and/or therapy exclusively for HIV in humans, and research and development exclusively
relating to HIV in humans. Because the HIV License Agreement is considered, an IPR&D intangible asset it is classified as an
indefinite life asset that is tested annually for impairment.
Impairment –
Following the fourth quarter of each year, management performs its annual test of impairment of intangible assets by performing
a quantitative assessment and determines if it is more than likely than not that, the fair value of the asset is greater than or
equal to the carrying value of the asset. The results of the quantitative assessment supported Management’s conclusion that
an impairment adjustment was not required as of June 30, 2020.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 5 — LEASES
Operating
Leases — On November 13, 2017, Enochian entered into a Lease Agreement for a term of five years and two months from November
1, 2017 (the “Term”) with Plaza Medical Office Building, LLC, a California limited liability company (the “Landlord”),
as landlord, pursuant to which the Company agreed to lease from the Landlord approximately 2,325 rentable square feet. The base
rent increases by 3% each year, and ranges from approximately $8,719 per month for the first year to $10,107 per month for the
two months of the sixth year.
On June 19, 2018,
the Registrant entered into a Lease Agreement for a term of ten years from September 1, 2018 with Century City Medical Plaza Land
Co., Inc., pursuant to which the Company agreed to lease approximately 2,453 rentable square feet. On February 20, 2019, the Registrant
entered into an Addendum to the original Lease Agreement with an effective date of December 1, 2019, where it expanded the lease
area to include another 1,101 square feet for a total rentable 3,554 square feet. The base rent increases by 3% each year, and
ranges from $17,770 per month for the first year to $23,186 per month for the tenth year. The equalized monthly lease payment for
the term of the lease is $20,050. The Company was entitled to $148,168 in contributions toward tenant improvements.
The Company identified
and assessed the following significant assumptions in recognizing the right-of-use asset and corresponding liabilities:
Expected lease
term — The expected lease term includes both contractual lease periods and, when applicable, cancelable option periods
when it is reasonably certain that the Company would exercise such options. The Company’s leases have remaining lease terms
between 21 months and 77 months. As of March 31, 2021, the weighted-average remaining term is 5.84 years.
Incremental
borrowing rate — The Company’s lease agreements do not provide an implicit rate. As the Company does not have
any external borrowings for comparable terms of its leases, the Company estimated the incremental borrowing rate based on the U.S.
Treasury Yield Curve rate that corresponds to the length of each lease. This rate is an estimate of what the Company would have
to pay if borrowing on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic
environment. As of March 31, 2021, the weighted-average discount rate is 3.99%.
Lease and
non-lease components — In certain cases the Company is required to pay for certain additional charges for operating
costs, including insurance, maintenance, taxes, and other costs incurred, which are billed based on both usage and as a percentage
of the Company’s share of total square footage. The Company determined that these costs are non-lease components and they
are not included in the calculation of the lease liabilities because they are variable. Payments for these variable, non-lease
components are considered variable lease costs and are recognized in the period in which the costs are incurred.
Lease expense charged to
general and administrative expenses for the three and nine months ended amounted to $77,345 and $255,719 March 31, 2021, respectively.
Lease expense charged to general and administrative expenses for the three and nine months ended amounted to $88,144 and
$270,198 March 31, 2020, respectively.
Below are the lease
commitments for the next 5 years and thereafter:
Year Ending June 30th
|
|
Lease Expense
|
2021
|
|
|
$
|
85,138
|
|
2022
|
|
|
|
348,495
|
|
2023
|
|
|
|
298,305
|
|
2024
|
|
|
|
246,004
|
|
2025
|
|
|
|
253,384
|
|
Thereafter
|
|
|
|
574,821
|
|
Less imputed interest
|
|
|
|
(204,993
|
)
|
Total
|
|
|
$
|
1,601,154
|
|
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — NOTES PAYABLE
Convertible Notes Payable
On February 6, 2020,
the Company issued two Convertible Notes (the “Convertible Notes”) to an existing stockholder of the Company each with
a face value amount of $600,000, convertible into shares of the Company’s Common Stock. The outstanding principal amount
of the Convertible Notes is due and payable on February 6, 2023. Interest on the Convertible Notes commenced accruing on the date
of issuance at six percent (6%) per annum, computed on the basis of twelve 30-day months, and is compounded monthly on the final
day of each calendar month based upon the Principal and all accrued and unpaid interest outstanding as of such compound date. The
interest is payable in cash on a semi-annual basis.
The holder of the
Convertible Notes had the right at any time prior to the date that is twelve months from issuance to convert all or any part of
the outstanding and unpaid Principal and all unpaid Interest into shares of the Company’s Common Stock. The conversion price
is equal to $12.00 per share of Common Stock. The Company evaluated the Convertible Notes in accordance with ASC 470-20 and identified
that they each contain an embedded conversion feature that shall not be bifurcated from the host document (i.e., the Convertible
Notes) as they are not deemed to be readily convertible into cash. All proceeds received from the issuance have been recognized
as a liability on the balance sheet. The holder did not exercise the conversion feature prior to expiration. The conversion expired
as of February 6, 2021. The Convertible Notes balance as of March 31, 2021 and June 30, 2020, was $1,200,000. For the three and
nine months ended March 31, 2021, the Company recorded accrued interest in the amount of $6,000, which is included in accrued expenses.
Note Payable
On March 31, 2020
(the “Issuance Date”), the Company issued a Promissory Note in the principal amount of $5,000,000 (the “Unsecured
Note”) to Paseco APS, a Danish limited company and an existing stockholder of the Company. The principal amount of the Note
was originally payable on November 30, 2021 (the “Maturity Date”) and bears interest at a fixed rate of 6% per annum,
computed based on the number of days between the Issuance Date and the Maturity Date, which was prepaid by the Company in full
on the Issuance Date through the issuance of 188,485 shares of the Company’s Common Stock based on the closing market price
on that date for a total value of $501,370. The Company evaluated the Unsecured Note in accordance with ASC 470-Debt Pursuant to
ASC 470-20, proceeds received from the issuance are to be recognized at their relative fair value, thus the liability is shown
net of the corresponding discount of $493,192. The discount will be accreted over the life of the Unsecured Note.
On February 11,
2021, the Company entered into an amendment to the Unsecured Note in the principal amount of $5,000,000 that will extend the Maturity
Date out to November 30, 2022. All other terms of the Unsecured Note remain the same. The change in Maturity Date requires an additional
year of interest at the fixed rate of 6% per annum, which was prepaid by the Company in full on the date of the amendment through
the issuance of 74,054 shares of the Company’s Common Stock based on the closing market price on that date for a total value
of $298,178. The Note Payable balance, net of discount at March 31, 2021 was $4,504,840. The amortization of the discount was $74,274
and $148,253 for the three and nine months ended March 31, 2021, respectively. The amortization for the periods are included in
total interest expense.
Finance Agreement
On December 4, 2020,
the Company entered into a premium finance agreement (“Agreement”) with a principal amount of $607,250 at 4.99% interest
per annum. The repayment of the Agreement will be made in nine equal monthly installments of $62,077. The remaining balance at
March 31, 2021 is $302,992. The amount is reflected in other current liabilities.
For the three and
nine months ended March 31, 2021, the Company recorded total interest expense in the amount of $96,347 and $282,086, respectively.
These amounts are reflected in other income and expenses.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — STOCKHOLDERS’
EQUITY
Preferred Stock
— The Company has 10,000,000 authorized shares of Preferred Stock, par value $0.0001 per share. At March 31, 2021, and
June 30, 2020, there were zero shares issued and outstanding.
Common Stock
— The Company has 100,000,000 authorized shares of Common Stock, par value $0.0001 per share. At March 31, 2021, and
June 30, 2020, there were 47,795,952 and 46,497,409 shares issued and outstanding, respectively.
Voting —
Holders of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders,
including the election of directors, and do not have any right to cumulate votes in the election of directors.
Dividends —
Holders of Common Stock are entitled to receive ratably such dividends as the Board from time to time may declare out of funds
legally available.
Liquidation Rights
— In the event of any liquidation, dissolution or winding-up of affairs of the Company, after payment of all of our debts
and liabilities, the holders of Common Stock will be entitled to share ratably in the distribution of any of our remaining assets.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — STOCKHOLDERS’ EQUITY (Continued)
Purchase Agreement
with Lincoln Park Capital
On July 8, 2020,
we entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln
Park”), pursuant to which the Company may sell and issue to Lincoln Park, and Lincoln Park is obligated to purchase, up to
$20,000,000 of shares of our Common Stock from time to time through August 1, 2023.
Under the Purchase
Agreement, we may direct Lincoln Park, at our sole discretion subject to certain conditions, to purchase up to 200,000 shares of
Common Stock on any business day (a “Regular Purchase”). The amount of a Regular Purchase may be increased under certain
circumstances up to 125,000 shares of Common Stock, provided that Lincoln Park’s committed obligation for Regular Purchases on
any business day shall not exceed $1,000,000. In the event we direct to purchase the full amount allowed for a Regular Purchase on any
given business day, we may also direct Lincoln Park to purchase additional amounts as accelerated and additional accelerated
purchases. The purchase price of shares of Common Stock related to the future funding will be based on the then prevailing market
prices of such shares at the time of sales as described in the Purchase Agreement.
Our sale of shares
of Common Stock to Lincoln Park subsequent to the Amendment Date is limited to 12,016,457 shares of Common Stock, representing
19.99% of the shares of the Common Stock outstanding on the Amendment Date unless (i) stockholder approval is obtained, (ii) the
average price of all applicable sales to Lincoln Park under the Purchase Agreement equals or exceeds the lower of (A) the closing
price of the Common Stock on the Nasdaq Capital Market immediately preceding the date of the Purchase Agreement or (B) the average
of the closing prices on the Nasdaq Capital Market for the five Business Days immediately preceding the date of the Purchase Agreement
or (iii) to the extent it would cause Lincoln Park to beneficially own more than 9.99% of the Company’s outstanding shares
of Common Stock at any given time.
In consideration
for entering into the Purchase Agreement, we issued 139,567 shares of Common Stock to Lincoln Park as a commitment fee on July
21, 2020.
During the three
and nine months ended March 31, 2021, we did not sell any shares of Common Stock to Lincoln Park under the Purchase Agreement.
Common Stock
Issuances —
On March 31, 2021,
the Registrant issued 56,123 shares of Common Stock at a price of $3.92 per share pursuant to a private placement for total proceeds
to the Registrant of $220,000.
On March 18, 2021,
the Registrant issued 867,555 shares of Common Stock at a price of $3.92 per share pursuant to a private placement for total proceeds
to the Registrant of $3,400,800.
On February 18,
2021, there were 35,000 restricted share units issued that immediately vested and were converted into shares of Common Stock in
exchange for consulting services valued at $147,000.
On December 14,
2020, the Registrant issued 63,122 shares of Common Stock valued at the price of $1.30 strike price per share pursuant to the exercise
of vested warrants for total proceeds of $82,056.
On December 14,
2020, the Registrant issued 63,122 shares of Common Stock valued at the price of $3.05 per share in connection with the acquisition
of Enochian Biopharma Inc. This non-cash transaction impacted shareholders’ equity in the amount of $192,522.
On December 27,
2019, there were 30,000 restricted share units issued that immediately vested and were converted into shares of Common Stock in
exchange for consulting services valued at $144,000.
On July 3, 2019,
the Registrant issued 500,000 shares of Common Stock valued at the price of $2.00 strike price per share pursuant to the exercise
of vested grant warrants for total proceeds of $1.0 million.
On July 3, 2019,
the Registrant issued 500,000 shares of Common Stock valued at the price of $4.42 per share in connection with the acquisition
of Enochian Biopharma. This non-cash transaction impacted shareholders’ equity in the amount of $2.2 million.
Acquisition of
Enochian Biopharma Inc. / Contingently issuable shares — On February 16, 2018, the Acquisition was completed when
the subsidiary merged with and into Enochian Biopharma, with Enochian Biopharma as the surviving corporation. As consideration for
the Acquisition, the stockholders of Enochian Biopharma received (i) 18,081,962 shares of Common Stock, and (ii) the right to
receive contingent shares pro rata upon the exercise or conversion of warrants, which were outstanding at closing. At March 31,
2021, 1,350,000 contingent shares are issuable in connection with the Acquisition of Enochian Biopharma.
Acquisition of
Enochian Denmark — At March 31, 2021 and June 30, 2020, the Company maintained a reserve of 17,414 and 82,237
shares of Common Stock of the Registrant held in escrow according to Danish law (the “Escrow Shares”), respectively,
all of which are reflected as issued and outstanding in the accompanying financial statements. The Escrow Shares are reserved to
acquire the shares of Enochian Denmark held by non-consenting shareholders of Enochian Denmark on both March 31, 2021 and June
30, 2020, in accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark. There have
been 167,639 shares of Common Stock issued to non-consenting shareholders of Enochian Denmark as of March 31, 2021. During the
three and nine months ended March 31, 2021, the Company issued zero and 64,823 shares of Common Stock to such non-consenting shareholders
of Enochian Denmark, respectively. There is no impact on outstanding shares as these shares are reflected as issued and outstanding.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — STOCKHOLDERS’
EQUITY (Continued)
Recognition of
Options
The Company recognizes
compensation costs for stock option awards to employees and directors based on their grant-date fair value. The value of each stock
option is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average assumptions used to
estimate the fair values of the stock options granted using the Black-Scholes option-pricing model are as follows:
|
|
Enochian
Biosciences Inc.
|
Expected term (in years)
|
|
|
5.5
|
|
Volatility
|
|
|
79.77%-82.85%
|
|
Risk free interest rate
|
|
|
0.26%-.88%
|
|
Dividend yield
|
|
|
0
|
%
|
The Company recognized
stock-based compensation expense related to the options of $499,428 and $1,184,975 for the three and nine months ended March 31,
2021, respectively. The Company recognized stock-based compensation expense related to the options of $(28,094) and $895,976 for
the three and nine months ended March 31, 2020, respectively. At March 31, 2021, the Company had approximately $429,620 of unrecognized
compensation cost related to non-vested options.
Plan Options
On February 6, 2014,
the Board adopted the Company’s 2014 Equity Incentive Plan (the “Plan”), and the Company had reserved 1,206,000
shares of Common Stock for issuance in accordance with the terms of the Plan.
On October 30, 2019,
the Board approved and on October 31, 2019, the Company’s shareholders adopted the Enochian’s 2019 Equity Incentive
Plan (the “2019 Plan”), which replaced the 2014 Plan. The 2019 Plan authorized options to be awarded to not exceed
the sum of (1) 6,000,000 new shares of Common Stock, and (2) the number of shares of Common Stock available for the grant of awards
as of the effective date under the 2014 Plan that, after the effective date of the 2019 Plan, expires, or is terminated, surrendered,
or forfeited for any reason without issuance of shares. The remaining shares of Common Stock available for grant related to the
2014 Plan was 655,769 as of the effective date; this amount along with the new 6,000,000 shares totals 6,655,769 shares of Common
Stock available to grant immediately after the effective date of the 2019 Plan.
For the three and
nine months ended March 31, 2021, the Company granted annual options to purchase 52,500 and 140,131 shares of Common Stock to members
of the Board of Directors and Scientific Advisory Board with a one-year vesting period. Options will be exercisable at the market
price of the Company’s Common Stock on the date of the grant.
For the three and
nine months ended March 31, 2020, the Company granted annual options of 92,576 and 123,826 to members of the Board of Directors
and Scientific Advisory Board with a one-year vesting period pursuant to their contracts.
For three and nine
months ended March 31, 2021, the Company granted options of zero and 9,201 to employees with a three year vesting period. For the
three and nine months ended March 31, 2020, the Company granted options of zero and 21,999, to employees with a three year vesting
period, respectively. Options will be exercisable at the market price of the Company’s common stock on the date of grant.
Options will be exercisable at the market price of the Company’s common stock on the date of the grant.
The Company issued
zero and 15,000 options with immediate vesting for services rendered with a Black-Sholes value of $27,990, during the three and
nine months ended March 31, 2021. The Company issued 35,000 restricted units shares with immediate vesting in exchange for consulting
services valued at $147,000 for services for the three and nine months ended March 31, 2021.
To date the Company
has granted options under the 2019 Plan (“Plan Options”) to purchase 1,262,275 shares of Common Stock.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — STOCKHOLDERS’
EQUITY (Continued)
A summary of the
status of the Plan Options and Grant Warrants outstanding at March 31, 2021 is presented below:
Options Outstanding
|
|
Options Exercisable
|
|
|
Exercise Price Ranges
|
|
Number Outstanding
|
|
Weighted Average Remaining Contractual Life (years)
|
|
Weighted Average Exercise Price
|
|
Number Exercisable
|
|
Weighted Average Remaining Contractual Life (years)
|
|
Weighted Average Exercise Price
|
|
|
$
|
2.00–4.50
|
|
|
|
248,163
|
|
|
|
9.41
|
|
|
$
|
3.22
|
|
|
|
98,832
|
|
|
|
8.96
|
|
|
$
|
2.92
|
|
|
|
$
|
4.51–6.50
|
|
|
|
479.997
|
|
|
|
7.87
|
|
|
$
|
6.15
|
|
|
|
451,999
|
|
|
|
7.84
|
|
|
$
|
6.18
|
|
|
|
|
6.51–8.00
|
|
|
|
534,115
|
|
|
|
8.89
|
|
|
$
|
7.97
|
|
|
|
82,925
|
|
|
|
7.23
|
|
|
$
|
7.83
|
|
Total
|
|
$
|
—
|
|
|
|
1,262,275
|
|
|
|
8.60
|
|
|
$
|
6.35
|
|
|
|
633,755
|
|
|
|
7.93
|
|
|
$
|
5.88
|
|
A summary of the
status of the Plan Options at March 31, 2021 and changes since July 1, 2020 are presented below:
|
|
|
|
Weighted Average
|
|
Average
|
|
Weighted Average
|
|
|
Shares
|
|
Exercise
Price
|
|
Remaining Life
|
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
1,105,442
|
|
|
$
|
6.78
|
|
|
|
9.19
|
|
|
$
|
107,931
|
|
Granted
|
|
|
164,332
|
|
|
$
|
3.37
|
|
|
|
10.0
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Expired
|
|
|
(7,499
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at end of period
|
|
|
1,262,275
|
|
|
$
|
6.35
|
|
|
|
8.60
|
|
|
$
|
100,074
|
|
Vested and expected to vest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Exercisable end of period
|
|
|
633,755
|
|
|
$
|
5.88
|
|
|
|
7.93
|
|
|
$
|
63,589
|
|
At March 31, 2021,
the Company had 633,755 exercisable Plan Options. The total intrinsic value of options at March 31, 2021 is $100,074. Intrinsic
value is measured using the fair market value at the date of exercise (for shares exercised) at March 31, 2021 (for outstanding
options), less the applicable exercise price.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — STOCKHOLDERS’
EQUITY (Continued)
Common Stock Purchase Warrants
A summary of the
shares of Common Stock, which can be purchased, related to the underlying the warrants outstanding for the six-month period as
of March 31, 2021, is presented below:
|
|
|
|
Weighted Average
|
|
Weighted Average
|
|
|
Shares
|
|
Exercise
Price
|
|
Remaining
Life
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
|
1,438,122
|
|
|
$
|
1.42
|
|
|
|
1.99
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
(63,122
|
)
|
|
|
1.30
|
|
|
|
1.30
|
|
Cancelled/Expired
|
|
|
|
(25,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Outstanding at end of period
|
|
|
|
1,350,000
|
|
|
$
|
1.30
|
|
|
|
1.27
|
|
Exercisable end of period
|
|
|
|
1,350,000
|
|
|
$
|
1.30
|
|
|
|
1.27
|
|
|
|
Equivalent Shares
|
|
Underlying Warrants
|
|
Outstanding
|
|
Equivalent Shares Exercisable
|
Exercise Prices
|
|
Equivalent Shares
|
|
Weighted
Average Remaining Contractual Life (years)
|
|
Weighted Average Exercise Price
|
|
Number Exercisable
|
|
Weighted Average Exercise Price
|
$
|
1.30
|
|
|
|
1,350,000
|
|
|
1.27
|
|
$
|
1.30
|
|
|
|
1,350,000
|
|
|
$
|
1.30
|
|
The exercise price
of certain warrants and the number of shares underlying the warrants are subject to adjustment for stock dividends, subdivisions
of the outstanding shares of Common Stock and combinations of the outstanding shares of Common Stock. For so long as the warrants
remain outstanding, we are required to keep reserved from our authorized and unissued shares of Common Stock a sufficient number
of shares to provide for the issuance of the shares underlying the warrants.
Restricted Stock Units (RSUs)
The Company recognized stock-based compensation expense
related to the RSUs of $147,000 for the three and nine months ended March 31, 2021, respectively. The Company recognized stock-based
compensation expense related to RSUs of zero and $144,000 for the three and nine months ended March 31, 2020. At March 31, 2021,
the Company had approximately $9,166 of unrecognized compensation cost related to restricted units.
A summary of the status of Restricted
Stock Units outstanding at March 31, 2021 is presented below:
|
|
|
|
Weighted Average
|
|
Weighted Average
|
|
Weighted Average
|
|
|
Shares
|
|
Issuance
Price
|
|
Remaining
Life
|
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
|
10,000
|
|
|
$
|
6.15
|
|
|
|
.77
|
|
|
$
|
—
|
|
Granted
|
|
|
|
35,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
(40,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled/Expired
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at end of period
|
|
|
|
5,000
|
|
|
|
6.15
|
|
|
|
.77
|
|
|
$
|
—
|
|
Exercisable end of period
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
Restricted
Stock Units Outstanding
|
Grant
Price
|
|
Stock
Units
|
|
Weighted
Average Remaining Contractual Life (years)
|
|
Weighted
Average Issuance Price
|
6.15
|
|
|
|
5,000
|
|
|
|
.77
|
|
|
$
|
6.15
|
|
Total
|
|
|
|
5,000
|
|
|
|
.77
|
|
|
$
|
6.15
|
|
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — COMMITMENTS AND CONTINGENCIES
Consulting Agreements –
On July 9, 2018, the
Company entered into a consulting agreement with G Tech Bio, LLC, a California limited liability company (“G Tech”) to
assist the Company with the development of the gene therapy and cell therapy modalities for the prevention, treatment, and
amelioration of HIV in humans, and with the development of a genetically enhanced Dendritic Cell for use as a wide spectrum platform
for various diseases (including but not limited to cancers and infectious diseases) (the “G Tech Agreement”). G Tech was
entitled to consulting fees for 20 months, with a monthly consulting fee of not greater than $130,000 per month. Upon the completion
of the 20 months, the monthly consulting fee of $25,000 continued for scientific consulting and knowledge transfer on existing HIV
experiments, and will continue until the services are no longer rendered or the agreement is terminated. G Tech is controlled by
certain members of Weird Science. For the three and nine months ended March 31, 2021 $75,000 and 200,000, was charged to research
and development expenses in our Condensed Consolidated Statements of Operations related to this consulting agreement, respectively.
For the three and nine months ended March 31, 2020, $300,000 and $1,050,000, was charged to research and development expenses in our
Condensed Consolidated Statements of Operations related to this consulting agreement, respectively.
On January 31, 2020,
the Company entered into a Statement of Work & License Agreement (the “HBV License Agreement”) by and among the
Company, G Tech, and G Health Research Foundation, a not for profit entity organized under the laws of California doing business
as Seraph Research Institute (“SRI”), whereby the Company acquired a perpetual, sublicensable, exclusive license (the
“HBV License”) for a treatment under development (the “Treatment”) aimed to treat Hepatitis B Virus (HBV)
infections in accordance with its agreement in principle with G Tech and SRI.
The HBV License
Agreement states that in consideration for the HBV License, the Company shall provide cash funding for research costs and equipment
and certain other in-kind funding related to the Treatment over a 24 month period, and provides for an up-front payment of $1.2
million within 7 days of January 31, 2020, along with additional payments upon the occurrence of certain benchmarks in the development
of the technology set forth in the HBV License Agreement, in each case subject to the terms of the HBV License Agreement. Additionally,
the HBV License Agreement provides for cooperation related to the development of intellectual property related to the Treatment
and for a 2% royalty to G Tech on any net sales that may occur under the HBV License. On February 6, 2020, the Company paid the
$1.2 million aforementioned.
The cash funding
for research costs and equipment pursuant to the HBV License Agreement consist of monthly payments amounting to $144,500 that cover
scientific staffing resources to complete the project as well as periodic payments for materials and equipment needed to complete
the project. During the three and nine months ended March 31, 2021, the Company paid $433,500 and $1,300,500 for scientific staffing
resources, respectively. During the three and nine months ended March 31, 2021, the Company paid $275,000 and $675,000 for
costs related to research studies pursuant to the HBV agreement.
The HBV License
Agreement contains customary representations, warranties and covenants of the parties with respect to the development of the Treatment
and the HBV License. G Tech and SRI are each controlled by certain members of Weird Science, LLC, a shareholder of the Company.
Shares held
for non-consenting shareholders – The 17,414 remaining shares of Common Stock have been reflected as issued
and outstanding in the accompanying financial statements. There were zero and 64,823 shares of Common Stock issued to such non-consenting
shareholders during the three and nine months ended March 31, 2021, respectively. (See Note 7)
Employment and
Service Agreements - The Company has an agreement with the Executive Vice-Chair, where he fulfills the duties
as prescribed by the Company’s bylaws and receives annual compensation in the amount of $430,000, plus 300,000 options that
vested immediately. Dr. Dybul was given a one-time grant of options to purchase 450,000 shares of Common Stock at a strike price
of $8.00 per share on June 11, 2020. The Company executed a consulting agreement for services for a Senior Medical Advisor of $210,000
on a part-time basis. The Company maintains employment agreements with other staff in the ordinary course of business.
Contingencies
– From time to time, the Company is involved in routine legal and administrative proceedings and claims of various types.
While any proceedings or claim contains an element of uncertainty, management does not expect a material impact on our results
of operations or financial position.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — RELATED PARTY TRANSACTIONS
The Company paid
G-Tech $918,500 and $2,400,500 in related party transaction which included payments for consulting agreements, contractual costs
related to the HBV License Agreement (See Note 8), and security expenses, for the three and nine months ended March 31, 2021, respectively.
NOTE 10 — SUBSEQUENT EVENTS
On April 18, 2021,
Enochian Biosciences, Inc., a Delaware corporation (the “Company” or “Enochian”) entered into a Statement
of Work & License Agreement (the “License Agreement”), by and among the Company, G Tech Bio, LLC, a California
limited liability company (“G -Tech”) and G Health Research Foundation, a not for profit entity organized under the
laws of California doing business as Seraph Research Institute (“SRI”), whereby the Company acquired a sublicensable,
exclusive license (the “License”) to research, develop and commercialize certain formulations which are aimed at preventing
and treating pan-coronavirus or the potential combination of the pancoronavirus and pan-influenza, including the SARS-coronavirus
that causes COVID-19 and pan-influenza (the “Prevention and Treatment”).
The License Agreement
was entered into pursuant to the existing Framework Agreement between the parties dated November 15, 2019. The License Agreement
states that in consideration for the License, the Company shall provide cash funding for research costs and equipment and certain
other in-kind funding related to the Prevention and Treatment over a 24-month period, and provides for an up-front payment of $10
million within 60 days of April 18, 2021, along with additional payments upon the occurrence of certain benchmarks in the development
of the technology set forth in the License Agreement, in each case subject to the terms of the License Agreement. Under the License
Agreement, G Tech has the right to terminate the Licensing Agreement if the Company has not made the up-front payment of $10 million
within 60 days of April 18, 2021. Additionally, the License Agreement provides for cooperation related to the development of intellectual
property related to the Prevention and Treatment and for a 3% royalty to G Tech on any net sales that may occur under the License.
On April 23, 2021, the Registrant issued
89,286 shares of Common Stock at a price of $3.92 per share pursuant to a private placement for total proceeds to the Registrant
of $350,000.
In accordance with
ASC 855-10, Company management reviewed all material events through the date of this report.