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”) engages in the research and development of pharmaceutical and biological products for the
human treatment of HIV, HBV, influenza and coronavirus infections, and cancer with the intent to manufacture and commercialize
said products.
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 September 30, 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, 2021 audited financial statements. The results of operations for the periods ended September 30, 2021 and 2020 are not
necessarily indicative of the operating results for the full year.
Consolidation - For
the three months ended September 30, 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 The pandemic
continues to evolve, and to date has led to the implementation of various mitigation responses, including government-imposed quarantines,
travel restrictions and other public health safety measures, as well as leading to reported adverse impacts on healthcare resources,
facilities and providers across the United States and in other countries. COVID-19 may cause delays in our research activities.
To date, it has not materially affected our operations; however, it has caused delays in the conduct of experiments due to limitations
of various organizations, in particular those conducting experiments related to COVID-19. There have also been increases in the
cost to conduct animal studies due to staffing and other limitations.
The full extent to which
the COVID-19 pandemic may impact our business and operations is subject to future developments, which are uncertain and difficult
to predict. Further quarantines, shelter-in-place or similar restrictions and other actions taken or imposed by foreign, federal,
state and local governments could adversely impact our or our partners’ clinical, research and development, regulatory and
manufacturing operations or timelines.
We continue to monitor the
impact of the COVID-19 pandemic on our business and operations and will seek to adjust our activities as appropriate. In addition,
the pandemic could result in significant and prolonged disruption of global financial markets, reducing our ability to access capital,
which could in the future negatively affect the financial resources available to us.
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 September 30, 2021, and September 30, 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 — THE BUSINESS AND 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 amounts at September 30, 2021 and June 30, 2021 of $15,086,062 and $20,287,212, 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, and depreciated 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,
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.
Impairment of Goodwill and Indefinite Lived
Intangible Assets – 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 carrying value of the reporting unit exceeds
its fair value, we record an impairment loss for such excess. The carrying value of in-process research and development (“IPR&D”)
and goodwill at September 30, 2021, were $154,824,000 and $11,640,000, respectively.
For indefinite-lived intangible assets, such
as licenses acquired as an IPR&D asset, on an annual basis we determine the fair value of the asset and record an impairment
loss, if any, for the excess of the carrying value of the asset over its fair value. The fair value analysis performed on the license
agreement, and the annual fair value analysis performed on goodwill supported that both indefinite life intangible assets are not
impaired as of June 30, 2021, and no impairment is deemed necessary as of September 30, 2021 (see Note 4.)
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Impairment of Long-Lived
Assets - Long-lived assets, such as property and equipment and definite life intangible assets 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 for 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 are 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 condensed 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, Coronaviruses and Oncology therapies and technologies
for use in the prevention, treatment, amelioration of and/or therapy for HIV, HBV, Coronaviruses and Oncology. Research and development
expenses for the three months ended September 30, 2021 and 2020 amounted to $3,006,243 and $1,050,376, respectively.
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.
Loss Per Share —
The Company calculates earnings/ (loss) per share in accordance with FASB Topic ASC 260, “Earnings Per Share”. Basic
earnings per common share (EPS) are based on the weighted average number of shares of 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 months ended September 30, 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 7,116,667 and 4,115,883 potential shares of Common Stock excluded from
the Diluted EPS calculation as of September 30, 2021 and September 30, 2020, respectively.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — THE BUSINESS AND 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 (see Note 2.)
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—The
Company records stock-based compensation in accordance with ASC Topic 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 required service
period, which is generally the vesting period. Stock based compensation costs for the vesting of options and RSUs granted to officers,
board members, employees, and consultants for the three months ended September 30, 2021, and September 30, 2020 were $2,727,975
and $326,156, respectively (see Note 7.)
Recently Adopted Accounting
Pronouncements— 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
MEASUREMENTS — 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 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.
|
There were no Level 1, 2
or 3 assets, nor any Level 1 or 2 liabilities as of September 30, 2021.
Level 3 liabilities held
as of September 30, 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 the end of each reporting period. At September 30, 2021, 1,350,000
contingent shares were 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 September 30, 2021, include the Company’s stock
price on the valuation date of $6.73; the exercise price of the warrants of $1.30, the risk-free rate of 0.07% the expected volatility
of the Company’s Common Stock of 80.7%, the digital call rate of 97%, and the 1,350,000 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 approximate their recorded values due to their
short-term maturities.
The following table sets
forth the Level 3 liability at September 30, 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:
Summary of 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
Inputs
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The roll forward of the contingent consideration liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2021
|
|
|
—
|
|
|
|
—
|
|
|
$
|
6,037,945
|
|
Contingent Shares issued pursuant to the Acquisition Agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fair value adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
2,824,642
|
|
Contingent Consideration Liability at September 30, 2021
|
|
|
—
|
|
|
|
—
|
|
|
$
|
8,862,587
|
|
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — PROPERTY AND EQUIPMENT
Summary of property and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
September 30, 2021
|
|
June 30, 2021
|
Lab Equipment and Instruments
|
|
|
4-7
|
|
|
$
|
588,576
|
|
|
$
|
583,421
|
|
Leasehold Improvements
|
|
|
10
|
|
|
|
224,629
|
|
|
|
224,629
|
|
Furniture Fixtures and Equipment
|
|
|
4-7
|
|
|
|
171,975
|
|
|
|
171,975
|
|
Total
|
|
|
|
|
|
|
985,180
|
|
|
|
980,025
|
|
Less Accumulated Depreciation
|
|
|
|
|
|
|
(288,467
|
)
|
|
|
(260,661
|
)
|
Net Property and Equipment
|
|
|
|
|
|
$
|
696,713
|
|
|
$
|
719,364
|
|
Depreciation expense amounted
to $27,806, and $26,545 for the three months ended September 30, 2021 and 2020, respectively.
NOTE 4 —INTANGIBLE ASSETS
At September 30, 2021 and
June 30, 2021, definite-life intangible assets, net of accumulated amortization, consisted of patents on the Company’s products
and processes of $60,537 and $65,906, respectively. The patents are recorded at cost and amortized over twenty years from the date
of application. Amortization expense for the three months ended September 30, 2021 and September 30, 2020 was $3,927 and $3,913,
respectively.
At September 30, 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 September 30, 2021 and
June 30, 2021, definite and indefinite-life intangible assets consisted of the following:
Schedule of life intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
June 30,
2021
|
|
Period Change
|
|
Effect of Currency Translation
|
|
September 30,
2021
|
Definite Life Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
20 Years
|
|
$
|
316,115
|
|
|
$
|
—
|
|
|
$
|
(7,248
|
)
|
|
$
|
308,867
|
|
Less Accumulated Amortization
|
|
|
|
|
(250,209
|
)
|
|
|
(3,927
|
)
|
|
|
5,806
|
|
|
|
(248,330
|
)
|
Net Definite-Life Intangible Assets
|
|
|
|
$
|
65,906
|
|
|
$
|
(3,927
|
)
|
|
$
|
(1,442
|
)
|
|
$
|
60,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Expected future amortization
expense is as follows:
Schedule of expected future amortization expense
|
|
|
|
|
Year ending June 30,
|
|
|
2022
|
|
$
|
9,785
|
|
2023
|
|
|
15,154
|
|
2024
|
|
|
15,154
|
|
2025
|
|
|
15,154
|
|
2026
|
|
|
5,290
|
|
Thereafter
|
|
|
—
|
|
Total
|
|
$
|
60,537
|
|
During February 2018, the
Company acquired a License Agreement (as licensee) to an HIV therapy 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 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, 2021, and no impairment is deemed necessary as of September 30, 2021.
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 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
15 months and 71 months. As of September 30, 2021, the weighted-average remaining term is 5.46 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 September 30, 2021, the weighted-average discount rate is 4.00%.
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 months ended September 30, 2021 and 2020, amounted to $84,083 and $89,684, respectively.
Below are the lease commitments
for the next 5 years and thereafter:
Lease commitments
|
|
|
|
|
|
Year Ending June 30th
|
|
Lease Expense
|
2021
|
|
|
$
|
262,791
|
|
2022
|
|
|
|
298,305
|
|
2023
|
|
|
|
246,004
|
|
2024
|
|
|
|
253,384
|
|
2025
|
|
|
|
260,985
|
|
Thereafter
|
|
|
|
313,836
|
|
Less imputed interest
|
|
|
|
(174,150
|
)
|
Total
|
|
|
$
|
1,461,155
|
|
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 holder did not exercise the conversion feature that expired on February 6, 2021. 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 Convertible Notes
balance as of September 30, 2021 and 2020 was $1,200,000. As of September 30, 2021 and 2020, the Company recorded accrued interest
in the amount of $6,000, which is included in accrued expenses for each period. For the three months ended September 30, 2021 and
2020, the interest expense related to the Convertible Notes amounted to $18,272 and $18,334, respectively.
Note Payable — On March 30, 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 and PIK interest in accordance with ASC 470-Debt
and ASC 835-Interest, respectively. Pursuant to ASC 470-20, proceeds received from the issuance are to be recognized at their relative
fair value, thus the liability was shown net of the corresponding discount of $493,192, which is the relative fair value of the
shares issued for the PIK interest on the closing date using the effective interest method. The discount of $493,192 is being 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 extends the Maturity Date out
to November 30, 2022. All other terms of the Unsecured Note remain the same. The change in Maturity Date required 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. For the three months ended September 30, 2021 and 2020, discount amortization of $74,274 and $73,978 was charged to
interest expense. The Unsecured Note balance, net of discount at September 30, 2021 was $4,653,388.
Finance Agreement — On December
4, 2020, the Company entered into a premium finance agreement (the “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. At September
30, 2021, the premium finance agreement has been paid in full.
For the three months ended
September 30, 2021, the Company recorded total interest expense in the amount of $1,267. This amount is reflected in other income
and expenses.
Total interest expense
recorded for the three months ended September 30, 2021 and 2020, was $93,813 and $92,313, respectively.
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 September 30, 2021, and June 30, 2021,
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 September 30, 2021, and June 30, 2021,
there were 52,219,661 shares issued and outstanding.
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.
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 Lincoln Park 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 lesser 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 months
ended September 30, 2021 and 2020, we did not sell any shares of Common Stock to Lincoln Park under the Purchase Agreement.
ENOCHIAN BIOSCIENCES
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — STOCKHOLDERS’ EQUITY
(Continued)
Private Placement
Pursuant to a private placement
offering, the Company issued 1,275,719 shares of Common Stock resulting in proceeds of $5,000,800. The Company effected the issuances
of the shares of Common Stock from March 15, 2021 to June 9, 2021. The private placement was made directly by the Company. No underwriter
or placement agent was engaged by the Company for this private placement.
Purchase Agreement Pursuant to
Registered Direct Offering
On June 14, 2021, the Company
and certain institutional investors entered into a securities purchase agreement (the “Registered Direct Purchase Agreement”),
pursuant to which the Company agreed to sell to such investors an aggregate of 3,866,668 shares of Common Stock, in a registered
direct offering, for gross proceeds of approximately $29 million (the “Financing”). The purchase price for each share
of Common Stock was $7.50. Pursuant to the Registered Direct Purchase Agreement, the Company agreed not to issue or enter into
any agreement to issue Common Stock from June 14, 2021 until ninety (90) days after the closing of the Financing. H.C. Wainwright
& Co., LLC acted as the exclusive placement agent (the “Placement Agent”.) The Financing closed on June 16, 2021.
The Company agreed to pay
the Placement Agent an aggregate fee equal to 7.0% of the gross proceeds raised in the Financing. The Company also agreed to pay
the Placement Agent certain expenses. The Company paid $2,090,000 in commissions and incurred offering expenses, and issuance costs
of $66,011, resulting in net proceeds of $26,843,998 in connection with the Financing.
Common Stock Issuances
— In the three months ended September 30, 2021, there were no Common Stock issuances. In the three months ended September
30, 2020, there were no Common Stock issuances outside of the 139,567 shares of Common Stock issued to Lincoln Park as a commitment
fee.
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 September 30, 2021, 1,350,000
contingent shares are issuable in connection with the Acquisition of Enochian Biopharma.
Acquisition of Enochian
Denmark — At September 30, 2021 and June 30, 2021, the Company maintained a reserve of 17,414 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 September 30, 2021 and June 30, 2021, 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 September 30, 2021. During the three months ended
September 30, 2021, the Company issued zero shares of Common Stock to such non-consenting shareholders of Enochian Denmark. 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)
Stock-based Compensation
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:
Summary of weighted-average assumptions used to estimate the fair values of the stock options granted
|
|
|
|
|
|
|
Enochian
Biosciences Inc.
|
Expected term (in years)
|
|
|
5.0 – 6.5
|
|
Volatility
|
|
|
82.39%-89.75%
|
|
Risk free interest rate
|
|
|
0.77%-1.05%
|
|
Dividend yield
|
|
|
0%
|
|
The Company recognized stock-based
compensation expense related to the options of $2,727,975 and $316,950 for the three months ended September 30, 2021 and 2020,
respectively. At September 30, 2021, the Company had approximately $9,102,698 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 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.
Pursuant to the 2019 Plan,
the Company granted options to purchase 3,009,300 shares to employees with a 3three-year vesting period during the quarter ended
September 30, 2021. For the year ended September 30, 2020, the Company did not grant options to employees with a three-year vesting
period under the 2019 Plan. Options are exercisable at the market price of the Company’s Common Stock on the date of the
grant.
During the quarters ended
September 30, 2021, and 2020 the Company granted options to purchase 26,735 and 24,196 shares, respectively, to the Board of Directors
and Scientific Advisory Board Members with a one-year vesting period. Options are exercisable at the market price of the Company’s
Common Stock on the date of the grant.
The Company issued options
to purchase 21,979 shares with immediate vesting and issued options to purchase 24,500 shares with a one-year vesting period for
consulting services during the three months ended September 30, 2021.
To date the Company has
granted options under the Plan (“Plan Options”) to purchase 4,411,667 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 September 30, 2021 is presented below:
Summary of stock options outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
288,543
|
|
|
|
8.95
|
|
|
$
|
3.24
|
|
|
|
131,136
|
|
|
|
8.53
|
|
|
$
|
3.15
|
|
|
$
|
4.51–6.50
|
|
|
|
3,538,330
|
|
|
|
9.44
|
|
|
$
|
4.80
|
|
|
|
451,999
|
|
|
|
7.34
|
|
|
$
|
6.18
|
|
|
$
|
6.51–8.00
|
|
|
|
584,794
|
|
|
|
8.53
|
|
|
$
|
7.88
|
|
|
|
556,094
|
|
|
|
8.45
|
|
|
$
|
7.93
|
Total
|
|
|
|
|
|
|
4,411,667
|
|
|
|
9.28
|
|
|
$
|
5.11
|
|
|
|
1,139,228
|
|
|
|
8.02
|
|
|
$
|
6.68
|
A summary of the status
of the Plan Options at September 30, 2021 and changes since July 1, 2021 are presented below:
Summary of stock option activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Exercise
Price
|
|
Average Remaining Life
|
|
Weighted Average Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
1,329,153
|
|
|
$
|
6.24
|
|
|
|
8.42
|
|
|
$
|
511,239
|
|
Granted
|
|
|
3,082,514
|
|
|
$
|
4.61
|
|
|
|
10.0
|
|
|
|
|
|
Exercised
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
|
|
Expired
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding at end of period
|
|
$
|
4,411,667
|
|
|
$
|
5.11
|
|
|
|
9.28
|
|
|
$
|
7,838,801
|
|
Exercisable end of period
|
|
$
|
1,139,228
|
|
|
$
|
6.68
|
|
|
|
8.02
|
|
|
$
|
767,631
|
|
At September 30, 2021, the
Company had 1,139,228 exercisable Plan Options outstanding. The total intrinsic value of options exercisable at September 30, 2021
was $767,631. Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at September
30, 2021 (for outstanding options), less the applicable exercise price.
Common Stock Purchase Warrants
A summary of the warrants
outstanding at September 30, 2021, are presented below:
Summary of common stock purchase warrants outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Exercise
Price
|
|
Weighted Average Remaining
Life
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
1,350,000
|
|
|
$
|
1.30
|
|
|
|
1.02
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Cancelled/Expired
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Outstanding and exercisable at end of period
|
|
|
1,350,000
|
|
|
$
|
1.30
|
|
|
|
.76
|
|
Summary of common stock purchase warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
.76
|
|
$
|
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.
NOTE 7 — STOCKHOLDERS’ EQUITY
(Continued)
Restricted Stock Units (RSUs)
The Company recognized stock-based
compensation expense related to RSUs of $2,991 for the three months ended September 30, 2021. At September 30, 2020, the Company
had approximately $3,218 of unrecognized compensation cost related to restricted stock units.
A summary of the status of Restricted Stock Units
outstanding at September 30, 2021 is presented below:
Summary of restricted stock units outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Issuance
Price
|
|
Weighted Average Remaining
Life
|
|
Weighted Average Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
5,000
|
|
|
$
|
6.15
|
|
|
|
.27
|
|
|
$
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled/Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at end of period
|
|
|
5,000
|
|
|
|
6.15
|
|
|
|
.27
|
|
|
$
|
—
|
|
Summary of restricted stock units activity
|
|
|
|
|
|
|
|
|
Restricted Stock Units Outstanding
|
Grant Price
|
|
Stock Units
|
|
Weighted Average Remaining Contractual Life (years)
|
|
Weighted Average Issuance Price
|
6.15
|
|
|
|
5,000
|
|
|
|
.27
|
|
|
$
|
6.15
|
|
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — COMMITMENTS AND CONTINGENCIES
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 months ended September 30, 2021 and 2020, $75,000 and 50,000, 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
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.
The cash funding for research
costs pursuant to the HBV License Agreement consists 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
months ended September 30, 2021 and 2020, the Company paid a total of $433,500 and $833,500, respectively for scientific staffing
resources, R&D and IND Enabling studies. During the three months ended September 30, 2021, the Company paid a $1,500,000 for
the milestone completion of a Pre-Investigational New Drug (IND) process following receipt of written comments in accordance with
the HBV License Agreement.
On April 18, 2021, the Company
entered into a Statement of Work and License Agreement (the “License Agreement”), by and among the Company, G-Tech
and SRI, whereby the Company acquired a perpetual sublicensable, exclusive license (the “Development License”) to research,
develop, and commercialize certain formulations which are aimed at preventing and treating pan-coronavirus or the potential combination
of the pan-coronavirus 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 Development 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. Additionally, the License Agreement
provides for an up-front payment of $10,000,000 and a $760,000 payment for expenditures to date prior to the effective date related
to research towards the Prevention and Treatment within 60 days of April 18, 2021. The License Agreement provides for 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.
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 Agreement. As of September 30, 2021, the Company paid $75,000 related
to the Prevention and Treatment research.
G-Tech is controlled by
Dr. Serhat Gümrükcü and Anderson Wittekind, shareholders of the Company, and SRI is controlled by Dr. Serhat Gümrükcü.
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 shares of Common Stock issued to such non-consenting shareholders
during the three months ended September 31, 2021 (see Note 7.)
Service Agreements
– As of July 1, 2021, Dr. Mark Dybul became the Company’s full-time CEO and is now compensated as an
employee of the Company. As a result, his previous Executive Vice Chair appointment and agreement were terminated effective immediately.
The Company has a consulting agreement for services of a Senior Medical Advisor for $210,000 per year on a part-time basis.
Contingencies –
The Company is from time to time 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 from such proceedings or claims.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — RELATED PARTY TRANSACTIONS
The Company paid G-Tech $2,218,500 and $883,500,which included payments
for consulting agreements related to HIV, contractual costs related to the HBV License Agreement, Flu-Cov License Agreement (See
Note 8), and security expenses, for the three months ended September 30, 2021 and September 20, 2020, respectively.
NOTE 10 — SUBSEQUENT EVENTS
In accordance with ASC 855-10,
the Company performed a review of levents subsequent to the balance sheet date and through the date of this report, and determined
that there were no such events requiring recognition or disclosure.