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 treatment
of Cancer, HIV, and HBV with the intent to manufacture said products.
Going Concern - These financial
statements have been prepared on a going concern basis, which assumes that the Company will continue to realize its assets and discharge
its liabilities in the normal course of business. The Company has not generated any revenue, has incurred substantial recurring losses
from continuing operations and has an accumulated deficit of $216,502,705 as of December 31, 2022. The continuation of the Company as
a going concern is dependent upon (i) its ability to successfully obtain FDA approval of its product candidates, (ii) its ability to
obtain any necessary debt and/or equity financing, and (iii) its ability to generate profits from the Company’s future operations.
These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from
the issuance of these financial statements. These financial statements do not include any adjustments to the recoverability and classification
of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going
concern.
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 December 31, 2022, and 2021
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 consolidated financial statements
should be read in conjunction with the financial statements and notes thereto included in the Company’s June 30, 2022, audited
financial statements. The results of operations for the periods ended December 31, 2022, and 2021 are not necessarily indicative of the
operating results for the full year.
Consolidation – For
the three and six months ended December 31, 2022, and 2021, the condensed 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.
Reclassification – Certain
amounts in the prior period financial statements, have been reclassified to conform to the current presentation. For the three and six
months ended December 31, 2021, we reclassified lab expenses of $193,137 and $242,330, respectively from general and administrative expenses
to research and development expenses.
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 Update – The COVID-19 pandemic
continues to evolve. COVID-19 may cause delays in our research activities. To date, the COVID-19 pandemic has not materially
affected our operations. However, it has caused delays in the conduct of experiments due to limitations in resources and supply
chain issues, in particular for those third-parties conducting experiments. 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. 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 December 31, 2022, and 2021. 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 December
31, 2022, and June 30, 2022, of $3,830,530 and $8,805,495, 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 4.)
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, as well as whenever events or changes in circumstances indicate the carrying value may not be recoverable.
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 annual fair value analysis performed on goodwill supported that goodwill
was not impaired as of June 30, 2022, and no impairment is deemed necessary as of December 31, 2022 (see Note 5.)
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. For the year ended June 30, 2022, the carrying value
of the licenses acquired as an IPR&D asset exceeded its fair value. Therefore, the Company recorded an impairment loss of $93,253,000
during the year ended June 30, 2022. No additional impairment is deemed necessary as of December 31, 2022 (see Note 5.)
The carrying value of IPR&D
and goodwill at December 31, 2022, was $61,571,000 and $11,640,000, respectively.
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, definite and indefinite 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 expectations 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 expenses in the condensed consolidated statements 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 6.)
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 Oncology, HIV and HBV therapies and technologies for use in the prevention,
treatment, amelioration of and/or therapy for Oncology, HIV and HBV. Research and development expenses for the three and six months ended
December 31, 2022, amounted to $325,959 and $2,931,334, respectively. Research and development expenses for the three and six months
ended December 31, 2021, amounted to $2,337,222, and $5,392,658, 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 ASC Topic 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 and six months ended December 31, 2022, and 2021, 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 4,833,436 and 7,125,894 potential shares of Common Stock excluded from the Diluted EPS calculation as of December 31,
2022, and December 31, 2021, 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, 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
3.)
Stock Options and Restricted
Share Units – The Company has granted stock options, restricted share units (“RSUs”) and warrants. The Company
accounts for stock-based awards 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 for the three and six months
ended December 31, 2022, were $819,955 and $1,845,963, respectively. Stock-based compensation costs for the vesting of the options and
RSUs granted for the three and six months ended December 31, 2021, were $2,043,292 and $4,771,267, respectively. (See Note 8.)
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 – GOING CONCERN
The Company’s consolidated
financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has incurred substantial
recurring losses from continuing operations, has used cash in the Company’s continuing operations, and is dependent on additional
financing to fund operations. The Company incurred a net loss of approximately $4,457,748 and $12,157,508 for the three and six months
ended December 31, 2022, respectively. As of December 31, 2022, the Company had cash and cash equivalents of $4,118,896 and an accumulated
deficit of $216,502,705. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for
one year after the date the financial statements are issued. The condensed consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence. Management intends to raise additional funds for (a) research and development,
(b) increases in personnel, and (c) the purchase of equipment, specifically to advance the Company’s potential products through
the regulatory process. The Company may raise such funds from time to time through public or private sales of equity or debt securities.
Such financing may not be available on acceptable terms, or at all, and the failure to raise capital when needed could materially adversely
affect the Company’s growth plans and its financial condition and results of operations.
NOTE 3 — 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 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, 2 or 3 liabilities measured at fair value on a recurring basis as of December 31, 2022.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 — PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Summary of property and equipment | |
| | | |
| | | |
| | |
| |
Useful Life | |
December 31, 2022 | |
June 30, 2022 |
Lab Equipment and Instruments | |
| 4-7 | | |
$ | 570,157 | | |
$ | 546,524 | |
Leasehold Improvements | |
| 10 | | |
| 224,629 | | |
| 224,629 | |
Furniture, Fixtures and Equipment | |
| 4-7 | | |
| 172,861 | | |
| 172,861 | |
Total | |
| | | |
| 967,647 | | |
| 944,014 | |
Less Accumulated Depreciation | |
| | | |
| (411,731 | ) | |
| (357,478 | ) |
Net Property and Equipment | |
| | | |
$ | 555,916 | | |
$ | 586,536 | |
Depreciation expense amounted
to $27,338, and $54,253 for the three and six months ended December 31, 2022, respectively, and $27,990 and $55,796 for the three and
six months ended December 31, 2021, respectively.
NOTE 5 —INTANGIBLE ASSETS
At December 31, 2022, and June
30, 2022, definite-life intangible assets, net of accumulated amortization, consisted of patents on the Company’s products and
processes of $42,084 and $44,268, respectively. The patents are recorded at cost and amortized over twenty years from the date of application.
Amortization expense for the three and six months ended December 31, 2022, was $1,507 and $2,993, respectively. Amortization expense
for the three and six months ended December 31, 2021, was $3,814 and $7,741, respectively.
At December 31, 2022, and 2021,
indefinite life intangible assets consisted of a license agreement classified as In-Process Research and Development (“IPR&D”)
intangible assets, which are not amortizable until the intangible asset provides economic benefit, and goodwill.
At December 31, 2022, and June
30, 2022, definite and indefinite-life intangible assets consisted of the following:
Schedule of life intangible assets | |
| |
| | | |
| | | |
| | | |
| | |
| |
Useful Life | |
June 30, 2022 | |
Period Change | |
Effect of Currency Translation | |
December 31, 2022 |
Definite Life Intangible Assets | |
| |
| | | |
| | | |
| | | |
| | |
Patents | |
20 Years | |
$ | 279,257 | | |
$ | — | | |
$ | 6,163 | | |
$ | 285,420 | |
Less Accumulated Amortization | |
| |
| (234,989 | ) | |
| (2,993 | ) | |
| (5,354 | ) | |
| (243,336 | ) |
Net Definite-Life Intangible Assets | |
| |
$ | 44,268 | | |
$ | (2,993 | ) | |
$ | 809 | | |
$ | 42,084 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Indefinite Life Intangible Assets | |
| |
| | | |
| | | |
| | | |
| | |
License Agreement | |
| |
$ | 61,571,000 | | |
| — | | |
| — | | |
$ | 61,571,000 | |
Goodwill | |
| |
| 11,640,000 | | |
| — | | |
| — | | |
| 11,640,000 | |
Total Indefinite Life Intangible Assets | |
| |
$ | 73,211,000 | | |
| — | | |
| — | | |
$ | 73,211,000 | |
Expected future amortization
expense is as follows:
| Schedule of expected future amortization expense | | |
| | |
Year ending June 30, | |
|
| 2023 | | |
$ | 8,883 | |
| 2024 | | |
| 11,067 | |
| 2025 | | |
| 11,067 | |
| 2026 | | |
| 11,067 | |
| Total | | |
$ | 42,084 | |
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 indicated that the carrying value of the licenses acquired as an IPR&D asset exceeded
its fair value, due to the sublicensing of ENOB HV-01, which required a different valuation approach and changes in other factors impacting
the fair value of the asset. Therefore, an impairment adjustment of $93,253,000 was recorded in the year ended June 30, 2022. No additional
impairment is deemed necessary as of December 31, 2022.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 6 — LEASES
Operating
Leases — On November 13, 2017, the Company 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, as landlord, (the “Landlord”),
pursuant to which the Company agreed to lease from the Landlord approximately 2,325 rentable square feet. The base rent increased by
3% each year, and ranged from approximately $8,719 per month for the first year to $10,107 per month for the two months of the sixth
year. The lease was terminated early without penalties or additional costs as of September 30, 2022, that released an accrual of $70,800
related to leasehold improvements that was not utilized.
On June 19, 2018, the Company
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 Company 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 expense for the term of the lease is $20,050. The Company
subleased the space as of June 25, 2022 (see subsection below “Sublease Agreement” for details.)
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 lease has a remaining lease term of 56 months. As of December
31, 2022, the weighted-average remaining term is 4.67 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 December 31, 2022, the weighted-average
discount rate is 4.03%.
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.
Below are the lease commitments
for the next 5 years:
Lease commitments |
|
|
|
|
Year Ending June 30th |
|
Lease Expense |
2023 |
|
$ |
120,002 |
|
2024 |
|
|
246,004 |
|
2025 |
|
|
253,384 |
|
2026 |
|
|
260,985 |
|
2027 |
|
|
313,836 |
|
Less imputed interest |
|
|
(109,538 |
) |
Total |
|
$ |
1,084,673 |
|
Sublease Agreement
On June 20, 2022, the Company
entered into a sublease Agreement with One Health Labs (the “Subtenant”), whereby the Subtenant agreed to lease 3,554 square
feet of space currently rented by the Company in Century City Medical Plaza as of June 25, 2022, for a period of 3.5 years with an option
to renew for the remaining term of the lease that ends as of June 19, 2028. The base rent is $17,770 per month plus $750 towards utility
fees that are part of the original lease agreement and will increase by 3% each year over the term of the sub-lease. The Company received
a total of $57,022 on July 1, 2022 after execution of the sublease to cover the first month rent, utility fee and deposit. The first
sublease payment began on August 1, 2022.
In accordance with ASC Topic 842,
the Company treats the sublease as a separate lease, as the Company was not relieved of the primary obligation under the original lease.
The Company continues to account for the Century City Medical Plaza lease as a lessee and in the same manner as prior to the commencement
date of the sublease. The Company accounts for the sublease as a lessor of the lease. The sublease is classified as an operating lease,
as it does not meet the criteria of a sales-type or direct financing lease.
The Company will recognize operating
income from the sublease on a straight-line basis in its statements of operations over the sublease term.
During the three and six months
ended December 31, 2022 and 2021, the net operating lease expenses were as follows:
Schedule of net operating lease expenses | |
| | | |
| | | |
| | | |
| | |
| |
For the Three Months Ended | |
For the Six Months Ended |
| |
December 31, | |
December 31, |
| |
2022 | |
2021 | |
2022 | |
2021 |
| |
| |
| |
| |
|
Operating Lease Expense | |
$ | 96,730 | | |
$ | 84,113 | | |
$ | 140,660 | | |
$ | 168,196 | |
Sub lease Income | |
| (53,310 | ) | |
| — | | |
| (106,620 | ) | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Total Net Lease Expense | |
$ | 43,420 | | |
$ | 84,113 | | |
$ | 34,040 | | |
$ | 168,196 | |
Lease expense charged to
general and administrative expenses for the three and six months ended December 31, 2022, amounted to $43,420 and $34,040, respectively.
Lease expense charged to general and administrative expenses for the three and six months ended December 31, 2021, amounted to $84,113
and $168,196, respectively.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — NOTES PAYABLE
Convertible Notes Payable —
On February 6, 2020, the Company issued two Convertible Notes (the “Convertible Notes”) to Paseco APS (the “Holder”),
a Danish limited company and an existing stockholder of the Company each with a face value amount of $600,000, convertible into shares
of Common Stock, $0.0001 par value per share. The outstanding principal amount of the Convertible Notes was 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 was 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 was 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 December 31,
2022 and 2021, was $1,200,000.
Effective December 30, 2022
(the “Effective Date”), the Company amended and restated the Convertible Notes (the “Amended and Restated Secured
Notes”). Pursuant to the Amended and Restated Secured Notes, the due date was extended to February
28, 2024, and the interest was increased to twelve percent (12%)
per annum, which was prepaid by the Company in full on the date of amendment through the issuance of 198,439
shares of the Company’s Common Stock which is comprised of 29,419
shares for accrued interest up to the Effective Date and 169,020
shares related to the prepayment of interest through the extension date of the Amended and Restated Secured Notes using the closing
market price on that date, of $1.03.
The obligations of the Company under the Amended and Restated Secured Notes were secured by a security agreement (the
“Security Agreement”). The Company evaluated the Secured Notes and conversion feature to determine
the appropriate accounting treatment based on the terms of the agreement. In accordance with ASC 480-Distinguising Liabilities from
Equity, the Company determined that the Secured Notes embody an obligation that may require the Company to settle with the issuance of
a variable number of shares, where the monetary value of the obligation is based predominantly on a fixed monetary amount $1,200,000 known
at inception. Accordingly, the Company recorded the Secured Note as share settled debt. The total value of the shares issued were $204,392
which included $174,090
as prepaid interest and $30,302
for accrued interest as of December 30, 2022.
As of December 31, 2022 and
2021, the Company recorded accrued interest in the amount of zero 0 and $24,181, which is included in accrued expenses. For the
three and six months ended December 31, 2022 the interest expense related to the Convertible Notes amounted to $18,272 and $36,453
respectively. For the three and six months ended December 31, 2021 the interest expense related to the Convertible Notes amounted to
$18,181 and $36,453 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 “Promissory
Note”) to the Holder. The principal amount of the Promissory Note was originally payable on November 30, 2021 (the “Maturity
Date”). The Promissory Note bore 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 is 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 will be accreted over the life of the Promissory Note.
On February 11, 2021, the Company
entered into an amendment to the Promissory Note that extended the Maturity Date to November 30, 2022. All other terms of the Promissory
Note remained 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.
On May 17, 2022, the Company entered
into a second amendment to the Promissory Note that extended the Maturity Date to November 30, 2023 and increased the interest rate from
6% to 12% per annum. All other terms of the Promissory Note remained the same. The change in Maturity Date required an additional year
of interest at the fixed rate of 12% per annum. Pursuant to the amendment, the Company prepaid interest for the period November 30, 2022
until May 30, 2023 on the date of the amendment through the issuance of 47,115 shares of the Company’s Common Stock based on the
closing market price on that date for a total value of $299,178. All other accrued interest payable from May 30, 2023 to the Maturity
Date shall be payable by the Company on May 30, 2023, at the option of the Holder either (i) in cash or (ii) in non-assessable shares
of the Company’s Common Stock, valued at the closing sale price of the Common Stock of the Nasdaq Capital Market on May 30, 2023.
Effective December 30, 2022, the
Company entered into a third amendment to the Promissory Note. Pursuant to the third amendment, the Company’s obligations under
the Promissory Note were secured by the Security Agreement. To secure the Company’s obligations under each of the Amended and Restated
Secured Notes and the Promissory Note, the Company entered into a Security Agreement with the Holder, pursuant to which the Company granted
a lien on all assets of the Company (the “Collateral”) for the benefit of the Holder. Upon an Event of Default (as defined
in the Amended and Restated Secured Notes and Promissory Note, respectively) the Holder may, among other things, collect or take possession
of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease, or dispose of the Collateral.
For the three and six months ended
December 31, 2022, discount amortization of $74,621 and $149,242 was charged to interest expense. For the three and six months ended
December 31, 2021, discount amortization of $74,274 and $148,548 was charged to interest expense. The Promissory Note balance, net of
discount at December 31, 2022 is $4,726,390.
Finance Agreement —
On November 30, 2022, the Company entered into a premium finance agreement (the “Agreement”) related to insurance, which
resulted into a prepaid expense with a principal amount of $1,139,875 at 6.69% interest per annum. The repayment of the Agreement
will be made in nine equal monthly installments of $96,220. For the three and six months ended December 31, 2022 and 2021, the
Company made repayments of $466,625 and $227,598 respectively.
For the three and six months ended
December 31, 2022, the Company recorded total interest expense in the amount of $2,782. This amount is reflected in other income and
expenses.
Total interest expense recorded
for the three and six months ended December 31, 2022, was $92,892 and $188,477, respectively. Interest expense recorded for the three
and six months ended December 31, 2021, was $93,382 and $183,121, respectively.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — STOCKHOLDERS’ EQUITY
Preferred Stock —The
Company has 10,000,000 authorized shares of Preferred Stock, par value $0.0001 per share. At December 31, 2022, and June 30, 2022, there
were zero 0 shares issued and outstanding.
Common Stock —The
Company has 100,000,000 authorized shares of Common Stock, par value $0.0001 per share. At December 31, 2022, and June 30, 2022, there
were 55,705,521 and 53,007,082 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 debts and liabilities,
the holders of Common Stock will be entitled to share ratably in the distribution of any of the 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 Common
Stock from time to time through August 1, 2023.
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 six months ended December
31, 2022 and 2021, we did not sell any shares of Common Stock to Lincoln Park under the Purchase Agreement. As of October 17, 2022, we
no longer have access to this Purchase Agreement as we are no longer able to use the registration statement on Form S-3 that registered
the shares issuable to Lincoln Park under the Purchase Agreement.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — STOCKHOLDERS’ EQUITY (Continued)
Common Stock Issuances
On July 14, 2022, certain of our
warrant holders exercised warrants to purchase 1,250,000 shares of Common Stock for total proceeds to the Company of $1,625,000, with
corresponding earn-out distribution of the same number of shares in connection with the acquisition of Enochian BioPharma, Inc. This
non-cash earn-out distribution impacted stockholders’ equity in the amount of $2,762,500 based on the share price on July 14, 2022
of $2.21. In the three and six months ended December 31, 2022 there were 198,439 and 2,698,439 shares of Common Stock issued, respectively.
The Company recorded a loss on extinguishment of contingent consideration liability of $419,182 during the six months ended December
31, 2022 which reflects the difference between the fair value of the shares and the contingent consideration liability at the time of
extinguishment. As of December 31, 2022, all outstanding warrants have been exercised and there is no further contingent consideration
liability balance remaining as of the end of this period.
Acquisition of Enochian Biopharma
Inc. / Contingently issuable shares — On February 16, 2018, the acquisition of Enochian Biopharma was completed. As
part of the acquisition, the stockholders of Enochian Biopharma received (i) 18,081,962 shares of Common Stock, and (ii) the right to
receive Contingent Shares of Common Stock pro rata upon the exercise or conversion of warrants, which were outstanding at closing. As
of December 31, 2022, no further Contingent Shares are issuable.
Acquisition of Enochian
Denmark — At December 31, 2022, and June 30, 2022, 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”), 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 December 31, 2022, and June 30, 2022, 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 December 31, 2022. During the three and six
months ended December 31, 2022, the Company issued zero 0 shares of Common Stock to such non-consenting shareholders of Enochian
Denmark.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — 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 in the three months ended December 31, 2022:
Summary of weighted-average assumptions used to estimate the fair values of the stock options granted | |
| | |
| |
Enochian Biosciences Inc. |
Expected term (in years) | |
| 5.3 – 6.5 | |
Volatility | |
| 84.66%-90.75% | |
Risk free interest rate | |
| 2.70%-4.14% | |
Dividend yield | |
| 0% | |
The Company recognized stock-based compensation expense related to the
options of $819,955 and $1,845,963 for the three and six months ended December 31, 2022, respectively. The Company recognized stock-based
compensation expense related to the options of $2,043,292 and $4,771,267 for the three and six months ended December 31, 2021, respectively.
At December 31, 2022, the Company had approximately $4,990,165 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 “2014 Plan”), and the Company had reserved 1,206,000 shares of
Common Stock for issuance in accordance with the terms of the 2014 Plan.
On October 30, 2019, the
Board approved and on October 31, 2019, the Company’s stockholders 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, and (2) the number of shares available for the grant of awards as of the effective date under the 2014 Plan plus any options
related to awards that expire, are terminated, surrendered, or forfeited for any reason without issuance of shares under the 2014 Plan
after the effective date of the 2019 Plan.
Pursuant to the 2019 Plan, the
Company granted options to purchase 178,000 shares of Common Stock to employees with a three-year vesting period during the
three and six months ended December 31, 2022, respectively. For the three and six months ended December 31, 2021, the Company granted
options to purchase 120,900 and 3,130,200 shares of Common Stock to employees with a three-year vesting period, respectively.
During the three and six
months ended December 31, 2022, the Company granted options to purchase zero 0 and 184,800 shares of Common stock to employees with
a six-month vesting period, respectively. For the three and six months ended December 31, 2021, the Company did not grant options to
purchase shares of Common Stock to employees with a six-month vesting period.
During the three and six
months ended December 31, 2022, the Company granted options to purchase zero 0 and 73,200 shares of Common stock to employees with a
one-year vesting period, respectively. For the three and six months ended December 31, 2021, the Company did not grant options to
purchase shares of Common Stock to employees with a one-year vesting period.
During the three and six months
ended December 31, 2022, the Company granted options to purchase 159,959 and 210,917 shares of Common Stock, to the Board of Directors
and Scientific Advisory Board Members with a one-year vesting period, respectively. For the three and six months ended December 31, 2021,
the Company granted options to purchase 36,727 and 63,462 shares of Common Stock to members of the Board of Directors and Scientific
Advisory Board with a one-year vesting period, respectively.
During the three and six months
ended December 31, 2022, the Company did not grant options to purchase shares of Common stock for consulting services. For the three
and six months ended December 2021, the Company granted options to purchase 21,979 shares of Common Stock with immediate vesting, issued
options to purchase 17,500 shares of Common Stock with a one-year vesting period, and issued options to purchase 60,000 shares
of Common Stock with a three-year vesting period for consulting services.
All of the above options are exercisable
at the market price of the Company’s Common Stock on the date of the grant.
To date the Company has granted
options under the 2014 Plan and 2019 Plan (“Plan Options”) to purchase 5,475,559 shares of Common Stock. At December 31,
2022 the Company has 2,310,289 options available to be issued under the 2019 Plan.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — STOCKHOLDERS’ EQUITY (Continued)
A summary of the status of the
Plan Options outstanding at December 31, 2022, 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 |
| | | |
$ |
1.00–4.50 | |
| 860,273 | | |
| 8.97 | | |
$ | 2.40 | | |
| 217,064 | | |
| 6.83 | | |
$ | 3.21 | |
| | | |
$ |
4.51–6.50 | |
| 3,169,769 | | |
| 8.20 | | |
$ | 4.83 | | |
| 1,153,876 | | |
| 7.59 | | |
$ | 5.26 | |
| | | |
$ |
6.51–8.00 | |
| 803,393 | | |
| 7.70 | | |
$ | 8.02 | | |
| 604,414 | | |
| 7.24 | | |
$ | 7.94 | |
| Total | | |
| |
| 4,833,436 | | |
| 8.26 | | |
$ | 4.93 | | |
| 1,975,354 | | |
| 7.40 | | |
$ | 5.85 | |
A summary of the status of the
Plan Options at December 31, 2022, and changes since July 1, 2022, 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 | | |
| 4,307,820 | | |
$ | 5.37 | | |
| 8.55 | | |
$ | — | |
| Granted | | |
| 646,917 | | |
$ | 2.07 | | |
| | | |
| | |
| Exercised | | |
| — | | |
$ | — | | |
| | | |
| | |
| Forfeited | | |
| (121,300 | ) | |
$ | 5.30 | | |
| | | |
| | |
| Expired/Canceled | | |
| — | | |
$ | — | | |
| | | |
| | |
| Outstanding
at end of period | | |
| 4,833,436 | | |
$ | 4.93 | | |
| 8.26 | | |
$ | — | |
| Exercisable
at end of period | | |
| 1,975,354 | | |
$ | 5.85 | | |
| 7.40 | | |
$ | — | |
At December 31, 2022, the
Company had 1,975,354
exercisable Plan Options outstanding. The total intrinsic value of options exercisable at December 31, 2022, was 0 zero. Intrinsic
value is measured using the fair market value at the date of exercise (for shares exercised) and at December 31, 2022 (for
outstanding options), less the applicable exercise price.
Common Stock Purchase Warrants
A summary of the warrants outstanding
at December 31, 2022, and changes since July 1, 2022, are presented below:
Summary of common stock purchase warrants outstanding | |
| | | |
| | | |
| | |
| |
Shares | |
Weighted Average Exercise Price | |
Weighted Average Remaining Life |
| |
| |
| |
|
Outstanding at beginning of period | |
| 1,250,000 | | |
$ | 1.30 | | |
| 1.02 | |
Granted | |
| — | | |
$ | — | | |
| — | |
Exercised | |
| (1,250,000 | ) | |
$ | 1.30 | | |
| — | |
Cancelled/Expired | |
| — | | |
$ | — | | |
| — | |
Outstanding and exercisable at end of period | |
| — | | |
$ | — | | |
| — | |
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — STOCKHOLDERS’ EQUITY (Continued)
Restricted Stock Units (RSUs)
The Company recognized
stock-based compensation expense related to RSUs of zero 0 for both the three and six months ended December 31, 2022. The Company
recognized stock-based compensation expense related to the RSUs of $255,340 and $258,331 for the three and six months ended December
31, 2021, respectively.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — COMMITMENTS AND CONTINGENCIES
Commitments
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 until the services were no longer
being rendered or the G-Tech Agreement is terminated. As of May 25, 2022, the consultant was no longer able to render services, therefore
no expense was incurred for the three and six months ended December 31, 2022. For the three and six months ended December 31, 2021, $75,000
and $150,000 was charged to research and development expenses in our Condensed Consolidated Statements of Operations related to this
consulting agreement.
On January 31, 2020, the Company
entered into a Statement of Work and 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”) (collectively the “Licensors”), 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.
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 up-front payment. 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.
The cash funding for research
costs pursuant to the HBV License Agreement consisted of monthly payments amounting to $144,500 that covered scientific staffing
resources to complete the project as well as periodic payments for materials and equipment needed to complete the project. There
were no payments made after January 31, 2022. During the three and six months ended December 31, 2022 the Company paid a total of
zero 0
and during the three and six months ended December 31, 2021, the Company paid $433,500
and $867,000,
respectively, for scientific staffing resources, research and development and Investigational New Drug (IND) Enabling studies.
During the three and six months ended December 31, 2022, the Company paid zero 0
for any type of milestone. During the three and six months ended December 31, 2021 the Company paid zero 0 and $1,500,000,
respectively, for the milestone completion of a Pre-IND process following receipt of written comments in accordance the HBV License
Agreement. The Company has filed a claim against the Licensors, which includes certain payments it made related to this license (see
Contingencies sub-section below).
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
(collectively, the “Licensors”), 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. For both the three and six months ended December 31,
2022, the Company paid zero 0 related to this License Agreement. During the three and six months ended December 31, 2021 the Company
paid $75,000 and $150,000 related to the Prevention and Treatment research. The Company is no longer pursuing any product candidates
that relate to this license. The Company has filed a claim against the Licensors to recover all monies it paid related to this
license (see Contingencies sub-section below).
On August 25, 2021, the Company
entered into an ALC Patent License and Research Funding Agreement in the HIV Field (the “ALC License Agreement”) with Serhat
Gümrükcü and SRI (collectively, the “Licensors”) whereby the Licensors granted the Company an exclusive, worldwide,
perpetual, fully paid-up, royalty-free license, with the right to sublicense, proprietary technology subject to a U.S. patent application,
to make, use, offer to sell, sell or import products for use solely for the prevention, treatment, amelioration of or therapy exclusively
for HIV in humans, and research and development exclusively relating to HIV in humans; provided the Licensors retained the right to conduct
HIV research in the field. Pursuant to the ALC License Agreement, the Company granted a non-exclusive license back to the Licensors,
under any patents or other intellectual property owned or controlled by the Company, to the extent arising from the ALC License, to make,
use, offer to sell, sell or import products for use in the diagnosis, prevention, treatment, amelioration or therapy of any (i) HIV Comorbidities
and (ii) any other diseases or conditions outside the HIV Field. The Company made an initial payment to SRI of $600,000 and agreed to
fund future HIV research conducted by the Licensors, as mutually agreed to by the parties. On September 10, 2021, pursuant to the ALC
License Agreement, the Company paid the initial payment of $600,000.
G-Tech and SRI are controlled
by Serhat Gümrükcü and Anderson Wittekind, shareholders of the Company.
Shares held for
non-consenting shareholders – The 17,414
remaining shares of Common Stock related to the Acquisition of Enochian Denmark have been reflected as issued and outstanding in the
accompanying financial statements. There were zero 0 shares of Common Stock issued to such non-consenting shareholders
during the three and six months ended December 31, 2022 (see Note 8.)
Service Agreements –
The Company has a consulting agreement for services of a Senior Medical Advisor for up to $210,000 per year on a part-time basis.
This consulting agreement was terminated as of October 31, 2022. The Company maintains employment agreements with other staff in the
ordinary course of business.
Contingencies
Securities Class Action Litigation.
On July 26, 2022 and July 28, 2022, securities class action complaints were filed by purported stockholders of ours in the United States
District Court for the Central District of California against us and certain of our current and former officers and directors. The complaints
allege, among other things, that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended,
and Rule 10b-5 thereunder, by making false and misleading statements and omissions of material fact in connection with the Company’s
relationship with Serhat Gümrükcü and its commercial prospects. The complaints seek unspecified damages, interest, fees,
and costs. The defendants have not yet responded to the complaints.
Federal Derivative Litigation.
On September 22, 2022, Samuel E. Koenig filed a shareholder derivative action in the United States District Court for the Central District
of California. On January 19, 2023, John Solak filed a substantially similar shareholder derivative action in the United States District
Court for the District of Delaware. Both derivative actions recite similar underlying facts as those alleged in the Securities Class
Action Litigation. The actions, filed on behalf of the Company, name Serhat Gümrükcü and certain of the Company’s
current and former directors as defendants. The actions also name the Company as a nominal defendant. The actions allege violations of
Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and also set out claims for breach of fiduciary duty, contribution and
indemnification, aiding and abetting, and gross mismanagement. Plaintiffs do not quantify any alleged injury, but seek damages, disgorgement,
restitution, and other costs and expenses. On January 24, 2023, the United States District Court for the Central District of California
stayed the Koenig matter pending resolution of the defendants’ anticipated motion to dismiss in the Securities Class Action Litigation.
The defendants have not yet responded to either complaint.
State Derivative Litigation.
On October 20, 2022, Susan Midler filed a shareholder derivative action in the Superior Court of California, Los Angeles County, reciting
similar underlying facts as those alleged in the Securities Class Action Litigation. The action, filed on behalf of the Company, names
Serhat Gümrükcü and certain of the Company’s current and former directors as defendants. The action also names the
Company as a nominal defendant. The action sets out claims for breaches of fiduciary duty, contribution, and indemnification, aiding
and abetting, and gross mismanagement. Plaintiff does not quantify any alleged injury, but seeks damages, disgorgement, restitution,
and other costs and expenses. The defendants have not yet responded to the complaint.
On October 21, 2022, the Company
filed a Complaint in the Superior Court of the State of California for the County of Los Angeles against Serhat Gümrükcü,
William Anderson Wittekind, G-Tech Bio LLC, SG & AW Holdings LLC, and Seraph Research Institute. The Complaint alleges that the defendants
engaged in a “concerted, deliberate scheme to alter, falsify, and misrepresent to the Company the results of multiple studies supporting
its [Hepatitis B] and SARS-CoV-2/influenza pipelines.” Specifically, “Defendants manipulated negative results to reflect
positive outcomes from various studies, and even fabricated studies out of whole cloth.” As a result of the defendants’ conduct,
the Company claims that it “paid approximately $25 million to Defendants and third-parties that it would not otherwise have paid.”
The defendants have not yet answered the allegations set forth in the Company’s complaint.
On December 28, 2022, the Company
received a demand letter on behalf of Weird Science LLC (“Weird Science”), William Anderson Wittekind, the William Anderson
Wittekind 2020 Annuity Trust, the William Anderson Wittekind 2021 Annuity Trust, the Dybul 2020 Angel Annuity Trust, and the Ty Mabry
2021 Annuity Trust alleging that the Company breached the February 16, 2018 Investor Rights Agreement between the Company, Weird Science,
and RS Group ApS. Specifically, the demand letter alleges that the Company “breached its obligations under the Investor Rights
Agreement to provide the requisite thirty days’ notice” to Holders of Registrable Securities in connection with SEC Form
S-3 filings on July 13, 2020 and February 11, 2022 and demands over $64 million in damages. The Company denies these allegations and
intends to vigorously defend against this claim.
On March 1, 2021, former Enochian
BioSciences Chief Financial Officer, Robert Wolfe and his company, Crossfield, Inc., filed a Complaint in the U.S. District Court for
the District of Vermont against the Company, Enochian BioSciences Denmark ApS, and certain directors and officers. In the Complaint,
Mr. Wolfe and Crossfield, Inc. asserted claims for abuse of process and malicious prosecution, alleging, inter alia, that the Company
lacked probable cause to file and prosecute an earlier action, and sought millions of dollars of compensatory damages, as well as punitive
damages. The allegations in the Complaint relate to an earlier action filed by the Company and Enochian BioSciences Denmark ApS in the
Vermont Superior Court, Orange Civil Division. On March 3, 2022, the court partially granted the Company’s motion to dismiss, dismissing
the abuse of process claim against all defendants and all claims against Mark Dybul and Henrik Grønfeldt-Sørensen. On November
29, 2022, the Company filed a motion for summary judgment with respect to the sole remaining claim of malicious prosecution. The Company
denies the allegations set forth in the Complaint and will continue to vigorously defend against the remaining claim.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 — RELATED PARTY TRANSACTIONS
There were no payments made
to G-Tech by the Company for the three and six months ended December 31, 2022. For the three and six months ended December 31, 2021,
the Company paid G-Tech $718,500 and 3,537,000, respectively, which included payments for consulting agreements related to HIV, and
contractual costs related to the HBV License, the Development License, the ALC License (see Note 9), and security expenses.
NOTE 11 — SUBSEQUENT EVENTS
In accordance with ASC 855-10,
the Company performed a review of events subsequent to the balance sheet date through the date of this report and determined that
there were no such events requiring recognition or disclosure.