NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 — THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business–
Enochian BioSciences Inc., (“Enochian”, or “Registrant”, and together with its subsidiaries, the “Company”,
“we” or “us”) is a pre-clinical stage biotechnology company committed to using our genetically modified
cellular and immune-therapy technologies to prevent or potentially cure HIV, Hepatitis B (HBV), and to provide potentially life-long
cancer remission of some of the deadliest cancers.
Basis
of Presentation- The Company prepares consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) and follows the rules and regulations of the U.S. Securities
and Exchange Commission (“SEC”). The accompanying financial statements are unaudited. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results
of operations and cash flows at September 30, 2020 and 2019 and for the periods then ended have been made. Certain information
and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or
omitted. The accompanying unaudited condensed financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company’s June 30, 2020 audited financial statements. The results of operations for the
periods ended September 30, 2020 and 2019 are not necessarily indicative of the operating results for the full year.
Consolidation
- For the three months ended September 30, 2020 and 2019, 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.
Reclassification–Certain
amounts in the prior period financial statements have been reclassified to conform to the current presentation. For the three
months ended September 30, 2019, we reclassified consulting expense of $31,850, to general and administrative 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-
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of
a novel strain of coronavirus (COVID-19). The pandemic has significantly affected the economic conditions in the U.S. A number
of states, counties and municipalities issued orders requiring persons who were not engaged in essential activities and businesses
to remain at home. On March 27, 2020, the US enacted the Coronavirus Aid, Relief and Economic Security Aid (“CARES Act”)
to help stimulate an economic recovery; however, there are no reliable estimates of how long the pandemic will last or how many
people are likely to be affected by it. No one knows what over-all effects the COVID-19 pandemic will have on economic conditions
during the remainder of the fiscal year.
Our
senior management team is monitoring COVID-19’s impact daily and will continue to adjust our operations as necessary. However,
the impact of this event on the Company’s results of operations, financial position, and liquidity or capital resources
cannot be reasonably estimated at this time.
Functional
Currency & Foreign currency translation - The functional currency of Enochian Denmark is the Danish Kroner (“DKK”).
The Company’s reporting currency is the U.S. Dollar for the purpose of these financial statements. The Company’s balance
sheet accounts are translated into U.S. dollars at the period-end exchange rates and all revenue and expenses are translated into
U.S. dollars at the average exchange rates prevailing during the periods ended September 30, 2020, and June 30, 2020, and September
30, 2019. Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders’
equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other
than the functional currency are included in the statement of operations as incurred.
ENOCHIAN
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash
and Cash Equivalents —The Company considers all highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents. The Company had balances held in financial institutions in Denmark and in the United States in
excess of federally insured States amounts at September 30, 2020 and June 30, 2020 of $5,965,661 and $8,696,361, respectively.
Property
and Equipment — Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend
the useful lives of property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs
are charged to expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the
estimated useful lives of the assets, which range from four to ten years (See Note 3).
Intangible
Assets - The Company has both Definite and Indefinite life intangible assets.
Definite
life intangible assets include patents. The Company accounts for definite life intangible assets in accordance with Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, “Goodwill
and Other Intangible Assets”. Intangible assets are recorded at cost. Patent costs consist of costs incurred to acquire
the underlying patent. If it is determined that a patent will not be issued, the related remaining capitalized patent costs are
charged to expense. Intangible assets are amortized on a straight-line basis over their estimated useful life. The estimated useful
life of patents is twenty years from the date of application.
Indefinite
life intangible assets include license agreements and goodwill. The Company accounts for indefinite life intangible assets in
accordance with ASC 350, “Goodwill and Other Intangible Assets”. License agreement costs represent the Fair Value
of the license agreement on the date acquired and are tested annually for impairment. The fair value analysis performed on the
license agreements, and the fair value analysis performed on goodwill supported that both indefinite life intangible assets are
not impaired as of June 30, 2020, and no impairment is deemed necessary as of September 30, 2020. (See Note 4)
Goodwill
—Goodwill is not amortized but is evaluated for impairment annually as of June 30th or whenever events or
changes in circumstances indicate the carrying value may not be recoverable.
We
test for goodwill impairment at the reporting unit level, which is one level below the operating segment level. Our detailed impairment
testing involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects
the price a market participant would be willing to pay in a potential sale of the reporting unit and is based on discounted cash
flows or relative market-based approaches. If the fair value exceeds carrying value, then it is concluded that no goodwill impairment
has occurred. If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure possible
goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of
the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting
unit’s goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit’s
goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not
to exceed the carrying value.
The
carrying value of goodwill at September 30, 2020, was $11,640,000. We do not believe there is a reasonable likelihood that there
will be a material change in the future estimates or assumptions we use to test for impairment losses on goodwill. However, if
actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.
ENOCHIAN
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment
of Long-Lived Assets — Long-lived assets, such as property, plant, and equipment, patents and licenses are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset;
significant adverse changes in the business climate or legal factors; current period cash flow or operating losses combined with
a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the
asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.
Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future
cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value
of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying
amount or fair value less costs to sell and would no longer be depreciated. The depreciable basis of assets that are impaired
and continue in use is their respective fair values.
Leases
— In accordance with ASC Topic 842, the Company determined the initial classification and measurement of its right-of-use
assets and lease liabilities at the lease commencement date and thereafter. The lease terms include any renewal options and termination
options that the Company is reasonably assured to exercise, if applicable. The present value of lease payments is determined by
using the implicit interest rate in the lease, if that rate is readily determinable; otherwise, the Company develops an incremental
borrowing rate based on the information available at the commencement date in determining the present value of the future payments.
Rent
expense for operating leases is recognized on a straight-line basis, unless the operating lease right of use assets have been
impaired, over the reasonably assured lease term based on the total lease payments and is included in operating expense in the
consolidated statement of operations. For operating leases that reflect impairment, the Company will recognize the amortization
of the operating lease right-of-use assets on a straight-line basis over the remaining lease term with rent expense still included
in general and administrative expenses in the unaudited condensed consolidated statements of operations.
The
Company has elected the practical expedient to not separate lease and non-lease components. The Company’s non-lease components
are primarily related to property maintenance, insurance and taxes, which vary based on future outcomes, and thus are recognized
in general and administrative expenses when incurred. (See Note 5).
Research
and Development Expenses — The Company expenses research and development costs incurred in formulating, improving, validating
and creating alternative or modified processes related to and expanding the use of the HIV, HBV, and Cancer therapies and technologies
for use in the prevention, treatment, amelioration of and/or therapy for HIV, HBV, and Cancer. Research and development expenses
for the three months ended September 30, 2020 and 2019, amounted to $1,050,376, and $520,192, 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. During the quarter ended September 30, 2020, the Company’s
Danish subsidiary received a payment for an R&D tax credit owed under Danish statutory tax laws in the amount of $122,831.
Loss
Per Share — The Company calculates earnings/(loss) per share in accordance with FASB ASC 260 Earnings Per Share. Basic
earnings per common share (EPS) are based on the weighted average number of shares of Common Stock, par value 0.0001 per share
(“Common Stock”) outstanding during each period. Diluted earnings per common share are based on shares outstanding
(computed as under basic EPS) and potentially dilutive shares of Common Stock. Potential shares of Common Stock included in the
diluted earnings per share calculation include in-the-money stock options that have been granted but have not been exercised.
Because of the net loss for the three ended September 30, 2020 and 2019, 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 4,115,883
and 3,441,375 potential shares of Common Stock excluded from the Diluted EPS calculation as of September 30, 2020 and September
30, 2019.
ENOCHIAN
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair
Value of Financial Instruments — The Company accounts for fair value measurements for financial assets and financial
liabilities in accordance with FASB ASC Topic 820, “Fair Value Measurements”. The authoritative guidance, which, among
other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each
major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as
the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an
orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based
on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions,
the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
●
|
Level
1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
|
|
●
|
Level
2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
●
|
Level
3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
The
Company adopted ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements
for Fair Value Measurements, which amends certain disclosures requirements over fair value measurements. Under the new guidance,
entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair
value hierarchy or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose
the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related
changes in unrealized gains and losses included in other comprehensive income. The Company adopted this guidance on July 1, 2020,
and there was no material impact to its condensed consolidated financial statement disclosures (See Note 2-Fair Value of Financial
Instruments for more information about the Company’s fair value classifications.)
Stock
Options and Restricted Share Units - The Company has granted stock options, restricted share units (“RSU’s) and
warrants. The Company accounts for options in accordance with the provisions of FASB ASC Topic 718, Compensation - Stock
Compensation. Stock based compensation costs for the vesting of options and RSU’s granted to officers, board members,
employees and consultants for the three months ended September 30, 2020 and 2019 were $326,156 and $234,010, respectively.
Stock-Based
Compensation -The Company records stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation.
All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted
for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever
is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are
measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required
service period, which is generally the vesting period. No shares were issued for services for the three months ended September
30, 2020 and 2019.
Recent
Adopted Accounting Pronouncements
The
Company adopted ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements
for Fair Value Measurements, as of July 1, 2020 (Note 2).
Other
recent accounting pronouncements issued by the FASB do not or are not believed by management to have a material impact on the
Company’s present or future financial statements.
ENOCHIAN
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 — FAIR VALUE MEASUREMENT — The Company accounts for fair value measurements for financial assets and financial
liabilities in accordance with FASB ASC Topic 820, “Fair Value Measurements”. The authoritative guidance, which, among
other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each
major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as
the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an
orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based
on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions,
the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
●
|
Level
1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
|
|
●
|
Level
2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
●
|
Level
3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
The
were no Level 1, 2 or 3 assets, nor and Level 1 or 2 liabilities as of September 30, 2020.
Level
3 liabilities held as of September 30, 2020 consisted of a contingent consideration liability related to the February 16, 2018
acquisition of Enochian BioPharma (the “Acquisition”). As consideration for the Acquisition, the stockholders of Enochian
Biopharma received (i) 18,081,962 shares of Common Stock, and (ii) the right to receive Contingent Shares pro rata upon the exercise
of warrants, which were outstanding at closing. The contingent consideration liability was recorded at fair value of $21,516,000
at the time of acquisition and is subsequently remeasured to fair value at each reporting period. At September 30, 2020, 1,438,122
Contingent Shares are issuable in connection with the Acquisition of Enochian Biopharma.
The
fair value of the contingent consideration liability is estimated using an option-pricing model. The key inputs to the model are
all contractual or observable with the exception being volatility, which is computed, based on the Company’s underlying
stock. The key inputs to valuing the contingent consideration liability on the date of acquisition and as of September 30, 2020,
include the Company’s stock price on the valuation date of $3.58; the exercise price of the warrants of $1.30, the risk-free
rate of .13% the expected volatility of the Company’s Common Stock of 99.3%, the digital call rate 54%, and the 1,438,122
of contingent shares remaining at the end of the period. Fair Value measurements are highly sensitive to changes in these inputs
and significant changes in these inputs could result in a significantly higher or lower fair value.
Unless
otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, prepaid
expenses, investments, accounts payable, accrued expenses, capital lease obligations and notes payable approximates their recorded
values due to their short-term maturities.
The
following table sets forth the Level 3 liability at September 30, 2020, which is recorded on the balance sheet at fair value on
a recurring basis. As required, these are classified based on the lowest level of input that is significant to the fair value
measurement:
|
|
Fair Value Measurements at
Reporting Date Using
|
|
|
|
Quoted Prices in
Active Markets
for Identical Assets Inputs
|
|
|
Significant Other
Observable Inputs
|
|
|
Significant Other Unobservable
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Contingent
Consideration Liability
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2,755,034
|
|
The roll forward of the contingent consideration liability
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2020
|
|
|
—
|
|
|
|
—
|
|
|
$
|
3,182,434
|
|
Contingent Shares issued pursuant to the Acquisition
Agreement
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Fair value adjustment
|
|
|
—
|
|
|
|
—
|
|
|
$
|
(427,400
|
)
|
Balance September 30, 2020
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2,755,034
|
|
ENOCHIAN
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 — PROPERTY AND EQUIPMENT
|
|
Useful Life
|
|
September 30, 2020
|
|
|
June
30,
2020
|
|
Lab Equipment and Instruments
|
|
4-7
|
|
$
|
534,527
|
|
|
$
|
534,527
|
|
Leasehold Improvements
|
|
10
|
|
$
|
224,629
|
|
|
|
224,629
|
|
Furniture Fixtures and Equipment
|
|
4-7
|
|
$
|
171,975
|
|
|
$
|
171,975
|
|
Total
|
|
|
|
$
|
931,131
|
|
|
$
|
931,131
|
|
Less Accumulated Depreciation
|
|
|
|
$
|
(179,558
|
)
|
|
$
|
(153,013
|
)
|
Net Property and Equipment
|
|
|
|
$
|
751,573
|
|
|
$
|
778,118
|
|
During
the three months ended September 30, 2020, and 2019, respectively, the Company had depreciation expense of $26,545, and $21,481,
respectively.
NOTE
4 —INTANGIBLE ASSETS
At
September 30, 2020 and June 30, 2020, definite-life intangible assets, net of accumulated amortization, consisted of patents on
the Company’s products and processes of $76,834 and $77,323, respectively. The patents are recorded at cost and amortized
over twenty years from the date of application. Amortization expense for the three months ended September 30, 2020 and 2019 was
$3,913 and zero, respectively.
At
September 30, 2020 and 2019, indefinite life intangibles assets consisted of a licenses agreements 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
September 30, 2020 and June 30, 2020, definite and indefinite-life intangible assets consisted of the following:
|
|
Useful Life
|
|
June 30,
2020
|
|
|
Period Change
|
|
|
Effect of Currency Translation
|
|
|
September 30,
2020
|
|
Definite Life Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
20 Years
|
|
$
|
299,175
|
|
|
$
|
|
|
|
|
13,247
|
|
|
|
312,422
|
|
Less Accumulated Amortization
|
|
|
|
$
|
(221,852
|
)
|
|
$
|
(3,
913
|
)
|
|
|
(9,823
|
)
|
|
|
(235,588
|
)
|
Net Definite-Life
Intangible Assets
|
|
|
|
$
|
77,323
|
|
|
$
|
(3,913
|
)
|
|
|
3,424
|
|
|
|
76,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite Life Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License Agreement
|
|
|
|
$
|
154,824,000
|
|
|
|
|
|
|
|
|
|
|
$
|
154,824,000
|
|
Goodwill
|
|
|
|
$
|
11,640,000
|
|
|
|
|
|
|
|
|
|
|
$
|
11,640,000
|
|
Total
Indefinite Life Intangible Assets
|
|
|
|
$
|
166,464,000
|
|
|
|
|
|
|
|
|
|
|
$
|
166,464,000
|
|
Year ending
September 30,
|
|
|
|
2021
|
|
$
|
11,241
|
|
2022
|
|
$
|
15,154
|
|
2023
|
|
$
|
15,154
|
|
2024
|
|
$
|
15,154
|
|
2025
|
|
$
|
15,154
|
|
Thereafter
|
|
$
|
4,977
|
|
Total
|
|
$
|
76,834
|
|
During
February 2018, the Company acquired a License Agreement (as licensee) to the HIV therapy being developed as ENOB-HV-01 which consists
of a perpetual, fully paid-up, royalty-free, sub-licensable, and sole and exclusive worldwide license to research, develop, use,
sell, have sold, make, have made, offer for sale, import and otherwise commercialize certain intellectual property in cellular
therapies for the prevention, treatment, amelioration of and/or therapy exclusively for HIV in humans, and research and development
exclusively relating to HIV in humans. Because the HIV License Agreement is considered, an IPR&D intangible asset it is classified
as an indefinite life asset that is tested annually for impairment.
Impairment
– Following the fourth quarter of each year, management performs its annual test of impairment of intangible assets by performing
a quantitative assessment and determines if it is more than likely than not that, the fair value of the asset is greater than
or equal to the carrying value of the asset. The results of the quantitative assessment supported Management’s conclusion
that an impairment adjustment was not required as of June 30, 2020.
ENOCHIAN
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 — LEASES
Operating
Leases — On November 13, 2017, Enochian entered into a Lease Agreement for a term of five years and two months from
November 1, 2017 (the “Term”) with Plaza Medical Office Building, LLC, a California limited liability company (the
“Landlord”), as landlord, pursuant to which the Company agreed to lease from the Landlord approximately 2,325 rentable
square feet. The base rent increases by 3% each year, and ranges from approximately $8,719 per month for the first year to $10,107
per month for the two months of the sixth year. The Company received $70,800 in tenant improvement allowance in the form of free
rent applied over 10 months in equal installments beginning in January of 2018.
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 remainder of 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 27 months and 83 months. As of September 30, 2020, the weighted-average remaining term is 6.24 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, 2020, the weighted-average discount rate is 3.99%.
Lease
and non-lease components — In certain cases the Company is required to pay for certain additional charges for operating
costs, including insurance, maintenance, taxes, and other costs incurred, which are billed based on both usage and as a percentage
of the Company’s share of total square footage. The Company determined that these costs are non-lease components and they
are not included in the calculation of the lease liabilities because they are variable. Payments for these variable, non-lease
components are considered variable lease costs and are recognized in the period in which the costs are incurred.
For
the three months ended September 30, 2020, and September 30, 2019, lease expense charged to general and administrative expenses
amounted to $89,684 and $101,521, respectively.
Below
are the lease commitments for the next 5 years and thereafter:
Year
Ending June 30th
|
|
Lease Expense
|
|
2021
|
|
$
|
255,137
|
|
2022
|
|
$
|
348,495
|
|
2023
|
|
$
|
298,305
|
|
2024
|
|
$
|
246,004
|
|
2025
|
|
$
|
253,384
|
|
Thereafter
|
|
$
|
574,821
|
|
Less imputed interest
|
|
|
(238,535
|
)
|
Total
|
|
$
|
1,737,611
|
|
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 has the right at any time prior to the date that is twelve months from issuance to convert all
or any part of the outstanding and unpaid Principal and all unpaid Interest into shares of the Company’s Common Stock. The
conversion price is equal to $12.00 per share of Common Stock. The Company evaluated the Convertible Notes in accordance with
ASC 470-20 and identified that they each contain an embedded conversion feature that shall not be bifurcated from the host document
(i.e., the Convertible Notes) as they are not deemed to be readily convertible into cash. All proceeds received from the issuance
have been recognized as a liability on the balance sheet. The Convertible Notes balance as of September 30, 2020 and June 30,
2020, was $1,200,000.
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 will be 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 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 will
be accreted over the life of the Unsecured Note. The Note Payable balance, net of discount at September 30, 2020 is $4,654,765.
For
the three months ended September 30, 2020, the Company recorded accrued interest and interest expense in the amount of
$6,000, and $92,313, respectively. The interest expense includes $73,978 related to the amortization of the discount related to
the Unsecured Note. These amounts are reflected in accrued expenses and general and administrative expenses.
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,
2020, and June 30, 2020, there were zero shares issued and outstanding.
Common
Stock — The Company has 100,000,000 authorized shares of Common Stock, par value $0.0001 per share. At September 30,
2020, and June 30, 2020, there were 46,636,976 and 46,497,409 shares issued and outstanding, respectively.
Voting
— Holders of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote
of stockholders, including the election of directors, and do not have any right to cumulate votes in the election of directors.
Dividends
— Holders of Common Stock are entitled to receive ratably such dividends as the Board from time to time may declare
out of funds legally available.
Liquidation
Rights — In the event of any liquidation, dissolution or winding-up of affairs of the Company, after payment of all
of our debts and liabilities, the holders of Common Stock will be entitled to share ratably in the distribution of any of our
remaining assets.
ENOCHIAN
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 — STOCKHOLDERS’ EQUITY (Continued)
Purchase
Agreement with Lincoln Park Capital
On
July 8, 2020, we entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC
(“Lincoln Park”), pursuant to which the Company may sell and issue to Lincoln Park, and Lincoln Park is obligated
to purchase, up to $20,000,000 of shares of our Common Stock from time to time from 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 purchase the full amount allowed for a Regular
Purchase on any given business day, we may also direct Lincoln Park to purchase additional amounts as accelerated and additional
accelerated purchases. The purchase price of shares of Common Stock related to the future funding will be based on the then prevailing
market prices of such shares at the time of sales as described in the Purchase Agreement.
Our
sale of shares of Common Stock to Lincoln Park subsequent to the Amendment Date is limited to 12,016,457 shares of Common Stock,
representing 19.99% of the shares of the Common Stock outstanding on the Amendment Date unless (i) stockholder approval is obtained,
(ii) the average price of all applicable sales to Lincoln Park under the Purchase Agreement equals or exceeds the lower of (A)
the closing price of the Common Stock on the Nasdaq Capital Market immediately preceding the date of the Purchase Agreement or
(B) the average of the closing prices on the Nasdaq Capital Market for the five Business Days immediately preceding the date of
the Purchase Agreement or (ii) 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, 2020, we did not sell any shares of Common Stock to Lincoln Park under the Purchase Agreement.
Common
Stock Issuances —
As
of September 30, 2020, there were no other Common Stock issuances outside of the 139,567 shares of Common Stock issued to Lincoln
Park as a commitment fee.
On
July 3, 2019, the Registrant issued 500,000 shares of Common Stock valued at the price of $2.00 strike price per share pursuant
to the exercise of vested options for total proceeds of $1.0 million.
On July 3, 2019,
the Registrant issued 500,000 shares of Common Stock valued at the price of $4.42 per share in connection with the
acquisition of Enochian Biopharma. This non-cash transaction impacted shareholders’ equity in the amount of $2.2
million.
Acquisition
of Enochian Biopharma / 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, 2020, 1,438,122 Contingent Shares are issuable in connection with the Acquisition of Enochian Biopharma.
Acquisition
of Enochian Denmark — At September 30, 2020 and June 30, 2020, the Company maintained a reserve of 77,249
and 82,237 shares of Common Stock of the Registrant held in escrow according to Danish law (the “Escrow Shares”),
respectively, all of which are reflected as issued and outstanding in the accompanying financial statements. The Escrow Shares
are reserved to acquire the shares of Enochian Denmark held by non-consenting shareholders of Enochian Denmark on both September
30, 2020 and June 30, 2020, in accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit
Denmark. There have been 107,804 shares of Common Stock issued to non-consenting shareholders of Enochian Denmark as of September
30, 2020. During the three months ended September 30, 2020, the Company issued 4,988 shares of Common Stock to such non-consenting
shareholders of Enochian Denmark, respectively. There is no impact on outstanding shares as these shares are reflected as issued
and outstanding.
ENOCHIAN
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 — STOCKHOLDERS’ EQUITY (Continued)
Recognition
of Options
The
Company recognizes compensation costs for stock option awards to employees and directors based on their grant-date fair value.
The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average
assumptions used to estimate the fair values of the stock options granted using the Black-Scholes option-pricing model are as
follows:
|
|
Enochian
Biosciences Inc.
|
Expected term (in years)
|
|
5.5
|
Volatility
|
|
79.92%-80.03%
|
Risk free interest rate
|
|
0.26%-.34%
|
Dividend yield
|
|
0%
|
The Company recognized
stock-based compensation expense related to the options of $316,950 and $226,266 for the three months ended September 30, 2020
and year ended 2019, respectively. At September 30, 2020, the Company had approximately $836,754 of unrecognized compensation cost
related to non-vested options.
Plan
Options
On
February 6, 2014, the Board adopted the Company’s 2014 Equity Incentive Plan (the “Plan”), and the Company had
reserved 1,206,000 shares of Common Stock for issuance in accordance with the terms of the Plan.
On
October 30, 2019, the Board approved and on October 31, 2019, the Company’s shareholders adopted the Enochian’s 2019
Equity Incentive Plan (the “2019 Plan”), which replaced the 2014 Plan. The 2019 Plan authorized options to be awarded
to not exceed the sum of (1) 6,000,000 new shares of Common Stock, and (2) the number of shares of Common Stock available for
the grant of awards as of the effective date under the 2014 Plan that, after the effective date of the 2019 Plan, expires, or
is terminated, surrendered, or forfeited for any reason without issuance of shares. The remaining shares of Common Stock available
for grant related to the 2014 Plan was of 655,769 as of the effective date, this amount along with the new 6,000,000 shares totals
6,655,769 shares of Common Stock available to grant immediately after the effective date of the 2019 Plan.
For
the three months ended September 30, 2020, the Company granted annual options to purchase 24,196 shares of Common Stock to members
of the Board of Directors and Scientific Advisory Board with a one-year vesting period. Options will be exercisable at the market
price of the Company’s Common Stock on the date of the grant.
For
the three months ended September 30, 2019, the Company granted annual options of 13,470 to members of the Board of Directors and
Scientific Advisory Board with a one-year vesting period pursuant to their contracts, and granted 20,000 fully vested options
to senior employees in pursuant to the 2014 Plan. Options will be exercisable at the market price of the Companys common stock
on the date of the grant.
To
date the Company has granted options under the 2019 Plan (“Plan Options”) to purchase 1,129,638 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, 2020 is presented below:
Options Outstanding
|
|
Options Exercisable
|
|
|
|
Exercise Prices
|
|
|
Number Outstanding
|
|
|
Weighted Average Remaining Contractual
Life (years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number Exercisable
|
|
|
Weighted Average Remaining Contractual
Life (years)
|
|
|
Weighted Average Exercise Price
|
|
|
|
$
|
2.69
|
|
|
|
55,762
|
|
|
|
9.44
|
|
|
$
|
2.69
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
$
|
3.26
|
|
|
|
23,006
|
|
|
|
9.42
|
|
|
$
|
3.26
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
$
|
3.84
|
|
|
|
11,719
|
|
|
|
9.84
|
|
|
$
|
3.84
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
$
|
3.85
|
|
|
|
5,195
|
|
|
|
9.84
|
|
|
$
|
3.85
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
$
|
3.95
|
|
|
|
5,063
|
|
|
|
7.84
|
|
|
$
|
3.95
|
|
|
|
5,063
|
|
|
|
7.84
|
|
|
$
|
3.95
|
|
|
|
$
|
4.12
|
|
|
|
7,282
|
|
|
|
9.80
|
|
|
$
|
4.12
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
$
|
4.63
|
|
|
|
10,000
|
|
|
|
8.90
|
|
|
$
|
4.63
|
|
|
|
10,000
|
|
|
|
8.90
|
|
|
$
|
4.63
|
|
|
|
$
|
4.80
|
|
|
|
50,749
|
|
|
|
9.25
|
|
|
$
|
4.80
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
$
|
4.85
|
|
|
|
4,124
|
|
|
|
8.90
|
|
|
$
|
5.00
|
|
|
|
4,124
|
|
|
|
8.90
|
|
|
$
|
5.00
|
|
|
|
$
|
4.90
|
|
|
|
9,183
|
|
|
|
8.86
|
|
|
$
|
4.90
|
|
|
|
9,183
|
|
|
|
8.86
|
|
|
$
|
4.90
|
|
|
|
$
|
5.00
|
|
|
|
6,000
|
|
|
|
8.90
|
|
|
$
|
5.00
|
|
|
|
6000
|
|
|
|
—
|
|
|
$
|
5.00
|
|
|
|
$
|
5.74
|
|
|
|
15,679
|
|
|
|
7.97
|
|
|
$
|
5.74
|
|
|
|
15,679
|
|
|
|
7.97
|
|
|
$
|
5.74
|
|
|
|
$
|
5.80
|
|
|
|
7,759
|
|
|
|
8.03
|
|
|
$
|
5.80
|
|
|
|
7,759
|
|
|
|
8.03
|
|
|
$
|
5.80
|
|
|
|
$
|
6.15
|
|
|
|
60,000
|
|
|
|
8.69
|
|
|
$
|
6.15
|
|
|
|
20,000
|
|
|
|
8.69
|
|
|
$
|
6.15
|
|
|
|
$
|
6.25
|
|
|
|
24,001
|
|
|
|
8.44
|
|
|
$
|
6.25
|
|
|
|
24,001
|
|
|
|
8.44
|
|
|
$
|
6.25
|
|
|
|
$
|
6.50
|
|
|
|
300,000
|
|
|
|
8.15
|
|
|
$
|
6.50
|
|
|
|
300,000
|
|
|
|
8.15
|
|
|
$
|
6.50
|
|
|
|
$
|
6.95
|
|
|
|
4,317
|
|
|
|
8.53
|
|
|
$
|
6.95
|
|
|
|
4,317
|
|
|
|
8.53
|
|
|
$
|
6.95
|
|
|
|
$
|
7.10
|
|
|
|
10,563
|
|
|
|
8.42
|
|
|
$
|
7.10
|
|
|
|
10,563
|
|
|
|
8.42
|
|
|
$
|
7.10
|
|
|
|
$
|
8.00
|
|
|
|
519,235
|
|
|
|
9.42
|
|
|
$
|
8.00
|
|
|
|
55,695
|
|
|
|
7.60
|
|
|
$
|
8.00
|
|
Total
|
|
$
|
—
|
|
|
|
1,129,638
|
|
|
|
8.96
|
|
|
$
|
6.72
|
|
|
|
472,385
|
|
|
|
8.17
|
|
|
$
|
6.50
|
|
A
summary of the status of the Plan Options at September 30, 2020 and changes since July 1, 2020 are presented below:
|
|
|
|
|
Weighted
Average
|
|
|
Average
|
|
|
Weighted
Average
|
|
|
|
Shares
|
|
|
Exercise
Price
|
|
|
Remaining
Life
|
|
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
beginning of period
|
|
|
1,105,442
|
|
|
$
|
6.78
|
|
|
|
9.19
|
|
|
$
|
107,931
|
|
Granted
|
|
|
24,196
|
|
|
$
|
3.93
|
|
|
|
10.0
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at end of period
|
|
|
1,129,638
|
|
|
$
|
6.72
|
|
|
|
8.96
|
|
|
$
|
56,990
|
|
Vested
and expected to vest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Exercisable
end of period
|
|
|
472,385
|
|
|
$
|
6.50
|
|
|
|
8.17
|
|
|
$
|
-
|
|
At
September 30, 2020, the Company had 472,385 exercisable Plan Options. The total intrinsic value of options at September 30, 2020
is zero. Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) at September
30, 2020 (for outstanding options), less the applicable exercise price.
ENOCHIAN
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 — STOCKHOLDERS’ EQUITY (Continued)
Common
Stock Purchase Warrants
A
summary of the shares of Common Stock, which can be purchased related to the underlying the warrants outstanding for the three-month
period as of September 30, 2020, is presented below:
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise
Price
|
|
|
Remaining Life
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
1,438,122
|
|
|
$
|
1.42
|
|
|
|
1.74
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled/Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at end of period
|
|
|
1,438,122
|
|
|
$
|
1.42
|
|
|
|
1.74
|
|
Exercisable end of period
|
|
|
1,438,122
|
|
|
$
|
1.42
|
|
|
|
1.74
|
|
|
|
|
Equivalent Shares
|
|
|
Underlying Warrants
|
|
|
Outstanding
|
|
|
Equivalent Shares Exercisable
|
|
Exercise Prices
|
|
|
Equivalent Shares
|
|
|
Weight Average Remaining Contractual
Life (years)
|
|
|
Weight Average Exercise Price
|
|
|
Number Exercisable
|
|
|
Weighted Average Exercise Price
|
|
$
|
1.30
|
|
|
|
1,413,122
|
|
|
|
1.76
|
|
|
$
|
1.30
|
|
|
|
1,413,122
|
|
|
$
|
1.30
|
|
$
|
8.00
|
|
|
|
25,000
|
|
|
|
.37
|
|
|
$
|
8.00
|
|
|
|
25,000
|
|
|
$
|
8.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
1,438,122
|
|
|
|
1.74
|
|
|
$
|
1.42
|
|
|
|
1,438,122
|
|
|
$
|
1.42
|
|
The
exercise price of certain warrants and the number of shares underlying the warrants are subject to adjustment for stock dividends,
subdivisions of the outstanding shares of Common Stock and combinations of the outstanding shares of Common Stock. For so long
as the warrants remain outstanding, we are required to keep reserved from our authorized and unissued shares of Common Stock a
sufficient number of shares to provide for the issuance of the shares underlying the warrants.
Restricted
Stock Units (RSUs)
The
Company recognized stock-based compensation expense related to the RSUs of $9,206 and $7,744 for the three months ended September
30, 2020 and 2019, respectively
A
summary of the status of Restricted Stock Units outstanding at September 30, 2020 is presented below:
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Issuance
Price
|
|
|
Remaining Life
|
|
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
10,000
|
|
|
$
|
6.15
|
|
|
|
.77
|
|
|
$
|
—
|
|
Granted
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
—
|
|
Exercised
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Expired
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
—
|
|
Outstanding at end of period
|
|
|
10,000
|
|
|
$
|
6.15
|
|
|
|
.77
|
|
|
$
|
—
|
|
Exercisable end of period
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
Restricted Stock Units Outstanding
|
|
Grant Price
|
|
|
Stock Units
|
|
|
Weight Average Remaining Contractual
Life (years)
|
|
|
Weight Average Issuance Price
|
|
|
6.15
|
|
|
|
10,000
|
|
|
|
.77
|
|
|
$
|
6.15
|
|
Total
|
|
|
|
10,000
|
|
|
|
.77
|
|
|
$
|
6.15
|
|
ENOCHIAN
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 — COMMITMENTS AND CONTINGENCIES
Consulting
Agreements –
On
July 9, 2018, the Company entered into a consulting agreement with G-Tech Bio, LLC, a California limited liability company (“G-Tech”)
to assist the Company with the development of the gene therapy and cell therapy modalities for the prevention, treatment, 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, 2020 and 2019, $50,000 and $375,000 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 Bio, LLC, a California limited liability company (“G Tech”), and G Health Research
Foundation, a not for profit entity organized under the laws of California doing business as Seraph Research Institute (“SRI”),
whereby the Company acquired a perpetual, sublicensable, exclusive license (the “HBV License”) for a treatment under
development (the “Treatment”) aimed to treat Hepatitis B Virus (HBV) infections in accordance with its agreement in
principle with G-Tech and SRI.
The
HBV License Agreement states that in consideration for the HBV License, the Company shall provide cash funding for research costs
and equipment and certain other in-kind funding related to the Treatment over a 24 month period, and provides for an up-front
payment of $1.2 million within 7 days of January 31, 2020, along with additional payments upon the occurrence of certain benchmarks
in the development of the technology set forth in the HBV License Agreement, in each case subject to the terms of the HBV License
Agreement. Additionally, the HBV License Agreement provides for cooperation related to the development of intellectual property
related to the Treatment and for a 2% royalty to G Tech on any net sales that may occur under the HBV License. On February 6,
2020, the Company paid the $1.2 million aforementioned.
The
cash funding for research costs and equipment pursuant to the HBV License Agreement consist of monthly payments amounting to $144,500
that cover scientific staffing resources to complete the project as well as periodic payments for materials and equipment needed
to complete the project. During the three months ended September 30, 2020, the Company paid $433,500 for scientific staffing resources
and $400,000 for mouse studies conducted by a collaborating partner.
The
HBV License Agreement contains customary representations, warranties and covenants of the parties with respect to the development
of the Treatment and the HBV License. G Tech and SRI are each controlled by certain members of Weird Science, LLC, a shareholder
of the Company.
Shares
held for non-consenting shareholders – The 77,249 remaining shares of Common Stock have been reflected as
issued and outstanding in the accompanying financial statements. There were 4,988 shares of Common Stock issued to such non-consent
shareholders during the three months ended September 30, 2020. (See Note 7)
Employment and Service
Agreements - The Company has an agreement with the Executive Vice-Chair, where he fulfills the duties as
prescribed by the Company’s bylaws and receives annual compensation in the amount of $430,000, plus 300,000 options that
vested immediately. Dr. Dybul was given a one-time grant of options to purchase 450,000 shares of Common Stock at a strike price
of $8.00 per share on June 11, 2020. The Company executed a consulting agreement for services for a Senior Medical Advisor of $210,000
on a part-time basis. The Company maintains employment agreements with other staff in the ordinary course of business.
Contingencies
– From time to time, the Company is involved in routine legal and administrative proceedings and claims of various types.
While any proceedings or claim contains an element of uncertainty, management does not expect a material impact on our results
of operations or financial position.
ENOCHIAN
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 — RELATED PARTY TRANSACTIONS
On
July 9, 2018, the Company entered into a consulting agreement with G-Tech to assist the Company with the development of the gene
therapy and autologous and allogenic cell therapy modalities for the prevention, treatment, amelioration of HIV in humans, and
with the development of a genetically enhanced Allogenic Dendritic Cell for use as a wide spectrum platform for various diseases
(including but not limited to cancers and infectious diseases). (See Note 8)
On
January 31, 2020, the Company entered into the HBV License Agreement by and among the Company, G Tech and SRI, whereby the Company
acquired the HBV License for the Treatment. (See Note 8)
NOTE
10 — SUBSEQUENT EVENTS
In
accordance with ASC 855-10, Company management reviewed all material events through the date of this report. There have been no
subsequent events of a significant and reportable nature as of November 12, 2020.