RENOVARO BIOSCIENCES INC. - Quarter Report: 2019 December (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2019

OR

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number 000-54478

Enochian Biosciences, Inc.

(Exact name of registrant as specified in its charter)

Enochian Biosciences, Inc.

2080 Century Park East, Suite 906

Los Angeles, CA 90067

+1(786) 888-1685

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐.

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

As of February 10, 2020, the number of shares of the registrant’s common stock outstanding was 46,308,924.

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

- INDEX -

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, the financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.

The results for the period ended December 31, 2019 are not necessarily indicative of the results of operations for the full year. These financial statements and related footnotes should be read in conjunction with the financial statements and footnotes thereto included in the Company’s Form 10-K for the fiscal year ended June 30, 2019, filed with the Securities and Exchange Commission on September 30, 2019.

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to the unaudited condensed consolidated financial statements. 

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying notes to the unaudited condensed consolidated financial statements 

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS

(UNAUDITED)

See accompanying notes to the unaudited condensed consolidated financial statements.

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

See accompanying notes to the unaudited condensed consolidated financial statements.

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) 

See accompanying notes to the unaudited condensed consolidated financial statements. 

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARY 

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 Enochian Biopharma, Inc. (“Enochian Biopharma”), and Enochian Biosciences Denmark ApS (“Enochian Denmark”), the “Company”, “we” or “us”) engages in the research and development, manufacturing and clinical trials of pharmaceutical and biological products for the treatment of HIV and cancer in humans. The Registrant was originally incorporated in the State of Delaware on January 18, 2011.

Acquisition of Enochian Biopharma- On January 12, 2018, the Registrant, DanDrit Acquisition Sub, Inc., (“Acquisition Sub”), Enochian Biopharma and Weird Science, LLC (“Weird Science”) entered into an agreement to acquire Enochian Biopharma (the “Acquisition Agreement”), pursuant to which on February 16, 2018, Enochian Biopharma became a wholly owned subsidiary of the Registrant (the “Acquisition”).  As consideration for the Acquisition, the stockholders of Enochian Biopharma received (i) 18,081,962 shares of the Common Stock of the Registrant and (ii) the right to receive earn-out shares of Common Stock (“Contingent Shares”) pro rata upon the exercise or conversion of warrants, which were outstanding at closing. At December 31, 2019, 1,438,122 Contingent Shares remained unissued.

Basis of Presentation– 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, 2019 and 2018 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America 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, 2019 audited financial statements. The results of operations for the periods ended December 31, 2019 and 2018 are not necessarily indicative of the operating results for the full year.

Consolidation–For the three months and six months ended December 31, 2019 and 2018, the consolidated financial statements include the accounts and operations of the Registrant, Enochian Denmark, and Enochian Biopharma. 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 and six months period December 31, 2018, we reclassified the stock-based compensation expense of $1,780,059 and $1,866,225 and consulting expense of $32,725 and $94,760, respectively to general and administrative expenses.

 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 periods ended December 31, 2019, June 30, 2019 and December 31, 2018. 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 statements of operations as incurred. 

 Recent Adopted Accounting Pronouncements —In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheet. The new standard is effective for fiscal years beginning after December 15, 2018. Originally, entities were required to adopt ASU 2016-02 using a modified retrospective transition method. However, in July 2018, the FASB issued ASU No. 2018-11, Targeted Improvements to Leases (Topic 842), which provides entities with an additional transition method. Under ASU No. 2018-11, entities have the option of recognizing the cumulative effect of applying the new standard as an adjustment to beginning retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Leases (Topic 842), which clarifies how to apply certain aspects of ASU 2016-02. Additionally, in March 2019, the FASB issued ASU No. 2019-01, Codification Improvements to Leases (Topic 842), which clarifies the transition disclosure requirements. The Company adopted this guidance on July 1, 2019 using the prospective transition method allowed per ASU 2018-11, and applied the standard only to leases that existed on that date. Under the prospective transition method, the Company does not need to restate the comparative period in transition and will continue to present financial information and disclosures for periods before July 1, 2019 in accordance with Accounting Standard Codification (“ASC”) Topic 840. The Company has elected the package of practical expedients allowed under ASC Topic 842, which permits the Company to account for its existing operating leases as operating leases under the new guidance, without reassessing the Company’s prior conclusions about lease identification, lease classification and initial direct cost. As a result, of the adoption of the new lease accounting guidance the Company recognized, on July 1, 2019, operating lease right–of–use assets and operating lease liabilities of $1,961,544, and $2,054,295, respectively. On December 31, 2019, the right-of-use assets and the operating lease liabilities included in the unaudited condensed consolidated balance sheet are $1,833,933 and $1,930,982, respectively. The adoption of the standard did not have a material impact on the unaudited condensed consolidated statement of operations and the unaudited condensed consolidated statement of cash flows.

 New Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. This ASU includes additional disclosures requirements for recurring Level 3 fair value measurements including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income, disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and narrative description of measurement uncertainty related to Level 3 measurements. Early adoption is permitted. This ASU will be effective for us on July 1, 2020. We are evaluating the impact of the adoption of this ASU on our financial condition, results of operations and cash flows, and, as such, we are not able to estimate the effect the adoption of the new standard will have on our financial statements

Other recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company's present or future financial statements.

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, depreciation of fixed assets, and fair value of equity instruments issued.

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 December 31, 2019 and June 30, 2019 of $8,626,677 and $1,282,224, 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 —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 cost represents the fair value of the license agreement on the date acquired and are tested annually for impairment at the end of each fiscal year. 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, 2019 (See Note 4).

Goodwill —Goodwill is not amortized but is evaluated for impairment annually in the fiscal fourth quarter 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 December 31, 2019, 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- The Company determines the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified. 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 unaudited condensed consolidated statement of operations. For operating leases that reflect impairment, the Company will recognize the amortization of the operating lease right-of-use assets on a straight-line basis over the remaining lease term with rent expense still included in general and administrative expenses in the unaudited condensed consolidated statements of operations.

The Company has elected the practical expedient to not separate lease and non-lease components. The Company’s non-lease components are primarily related to property maintenance, insurance and taxes, which vary based on future outcomes, and thus are recognized in general and administrative expenses when incurred. (See Note 5).

Research and Development Expenses — The Company expenses research and development costs incurred in formulating, improving, validating and creating alternative or modified processes related to and expanding the use of the HIV and cancer therapies and technologies for use in the prevention, treatment, amelioration of and/or therapy for HIV and cancer. Research and development expenses for the three months ended December 31, 2019 and 2018, respectively, amounted to $561,468 and $788,968, and for the six months ended December 31, 2019 and 2018, amounted to $1,081,660 and $1,282,523, 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 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, 2019 and December 31, 2018, the dilutive shares for both periods were excluded from the Diluted EPS calculation as the effect of these potential shares of Common Stock is anti-dilutive. The Company had 3,448,473 potential shares of Common Stock excluded from the Diluted EPS calculation as of December 31, 2019.

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:

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 liabilities at December 31, 2019, which is recorded on the balance sheet at fair value on a recurring basis by level within the fair value hierarchy. As required, these are classified based on the lowest level of input that is significant to the fair value measurement:

The roll forward of the contingent consideration liability is as follows: 

Stock Options and Warrants - The Company has granted stock options to certain employees, officers and directors that were subsequently converted to Grant Warrants (see Note 6). The Company accounts for options and warrants in accordance with the provisions of FASB ASC Topic 718, Compensation - Stock Compensation (“ASC 718-Stock Compensation”.) Non-cash compensation costs for the vesting of options and warrants granted to officers, board members, employees and consultants for the three months ended December 31, 2019 and 2018 were $690,061 and $1,780,059, respectively; and for the six months ended December 31, 2019 and 2018 were $924,071 and $1,866,225, respectively. The three and six month ended December 31, 2019, includes the $144,000 expense related to the 30,000 restricted share units described below.

Stock-Based Compensation -The Company records stock-based compensation in accordance with ASC 718-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. On December 27, 2019, 30,000 restricted share units with immediate vesting were issued in exchange for consulting services valued at $144,000.

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — REVISION OF 2018 FINANCIAL STATEMENTS

        The Company discovered that it had incorrectly classified the intangible assets that were purchased as part of the acquisition of Enochian Biopharma, Inc. as finite-lived (amortizable), rather than indefinite-lived intangible assets (not amortized). ASC 350- Intangibles- Goodwill and Other requires that all intangible assets acquired in a business combination that are used in research and development activities (i.e., in-process research and development (IPR&D) assets) be capitalized as indefinite-lived intangible assets, regardless of whether they have an alternative future use.

The Company has revised its previously issued consolidated financial statements for the year ended June 30, 2018 to correct the error that occurred during that fiscal year. Management assessed the materiality of the error identified in accordance with ASC 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements and concluded based on qualitative and quantitative considerations that the effect of the correction in the period in which the related misstatement originated was not material.

The following table sets forth the impact on the lines impacted by the correction on the Company’s financial statements for the three months ended December 31, 2018 in thousands.

The following table sets forth the impact on the lines impacted by the correction on the Company’s financial statements as of and for the six months ended December 31, 2018 in thousands.

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 — PROPERTY AND EQUIPMENT  

Property and equipment consisted of the following at December 31, 2019 and June 30, 2019 in thousands: 

Depreciation expense amounted to $21,667 and $43,148, for the three and six months ended December 31, 2019, respectively, and $9,601 and $17,476 for the three months and six months ended December 31, 2018, respectively.

   ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 NOTE 4 — DEFINITE-LIFE INTANGIBLE ASSETS

During February 2018, the Company acquired a License Agreement (as licensee) to the HIV therapy being developed as ENO-1001 which consists of a perpetual, fully paid-up, royalty-free, sublicensable, 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 in the Field (the “License”).

At December 31, 2019 and June 30, 2019, definite and indefinite-life intangible assets consisted of the following in thousands:  

At December 31, 2019 the expected future amortization expense for the years ended are as follows in thousands: 

Impairment – Following the fourth quarter of each year, management performs its annual test of impairment of intangible assets assessing the qualitative factors 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. 

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 — 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, pursuant to which the Company agreed to lease 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 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, 2018, 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 Company received $108,168 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 36 months and 8 years. As of December 31, 2019, the weighted-average remaining term is 6.88 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, 2019, 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.

The components of the Company’s rent expense were $89,675 and $182,054 for the three and six months ended December 31, 2019, respectively. The cash outflows for the operating lease liabilities were $82,389 and $163,173 for the three and six months ended December 31, 2019, respectively.

 Prior to the adoption of ASC 842-Leases and for the three and six months ended December 31, 2019, respectively, the Company recognized rent expense on a straight-line basis over the lease period and recorded deferred rent expense for rent expense incurred but not yet paid. The Company also recorded deferred rent attributable to cash incentives received under its lease agreements, which were amortized to rent expense over the lease term. During the three and six months ended December 31, 2018, the Company recognized total rent expense of $169,962 and $174,353, respectively.

Disclosures related to periods prior to the adoption of the new lease standard:

Under ASC 840, approximate future minimum rental payments due under these leases as of December 31, 2019 would have been as follows:

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  NOTE 6 — STOCKHOLDERS’ EQUITY

Preferred Stock — The Registrant has 10,000,000 authorized shares of Preferred Stock, par value $0.0001 per share. As of December 31, 2019, and June 30, 2019 there were zero shares issued and outstanding.

Common Stock — The Registrant has 100,000,000 authorized shares of Common Stock, par value $0.0001 per share. As of December 31, 2019, and June 30, 2019, there were 46,303,924 and 45,273,924 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.

Common Stock Issuances — On December 27, 2019, there were 30,000 restricted share units issued that immediately vested and were converted into shares in exchange for consulting services valued at $144,000.

Acquisition of Enochian Biopharma / Contingently issuable shares — On February 16, 2018, we completed our acquisition of Enochian Biopharma (the “Acquisition”) pursuant to an acquisition agreement, dated January 12, 2018, by and among the Registrant, its wholly owned subsidiary DanDrit Acquisition Sub, Inc., Enochian Biopharma and Weird Science (the “Acquisition Agreement”). 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 shares of Common Stock (“Contingent Shares”) pro rata upon the exercise or conversion of warrants, which were outstanding at closing. As of December 31, 2019, 1,438,122 Contingent Shares are potentially issuable in connection with the Acquisition of Enochian Biopharma.

Acquisition of Enochian Denmark — On December 31, 2019 and June 30, 2019, the Registrant maintained a reserve of 82,237 and 92,237 shares, respectively (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, 2019 and June 30, 2019, in accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark. There have been 102,816 shares of Common Stock issued to non-consenting shareholders of Enochian Denmark as of December 31, 2019. There were 10,000 shares of Common Stock to such non-consenting shareholders of Enochian Denmark were issued during the three and six months ended December 31, 2019. There is no impact on outstanding shares as these shares are reflected as issued and outstanding.

Stock Grants - On September 15, 2016, the Board granted the right to acquire 300,000 shares of Common Stock at a strike price of $2.00 per share in what the Board originally described as “options” (the “Grants”) to each of Eric Leire, APE Invest A/S for Aldo Petersen and N.E. Nielson in consideration of their service to the Registrant. These Grants vested immediately. In October of 2017, the Registrant issued warrants to APE Invest A/S and N.E. Nielsen, and in January 2018, the Registrant issued a warrant to Eric Leire (each a “Grant Warrant” collectively the “Grant Warrants”) to evidence the Grants for an aggregate of 900,000 Grant Warrants. All Grant Warrants have been exercised as of December 31, 2019.

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:

The Company recognized stock-based compensation expense (excluding other non-cash compensation expense) related to the options of $690,061 and $1,780,059 for the three months ended December 31, 2019 and 2018, respectively, and $924,071 and $1,866,225 for the six months ended December 31, 2019 and 2018, respectively. At December 31, 2019, the Company had approximately $368,231 of unrecognized compensation cost related to non-vested options. 

Plan Options

On February 6, 2014, the Board adopted the Registrant’s 2014 Equity Incentive Plan (the “Plan”), and the Registrant has reserved 1,206,000 shares of Common Stock for issuance in accordance with the terms of the Plan. To date the Registrant has granted 602,230 options under the Plan (“Plan Options”) to purchase shares of Common Stock.

On October 30, 2019, the Board approved and on October 31, 2019, the Company’s shareholders adopted the Registrant’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 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 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 available to grant immediately after the effective date of the 2019 Plan.

Pursuant to the 2019 Plan, on December 27, 2019, the Company granted options of 21,999 to employees with a three-year vesting period. Options will be exercisable at the market price of the Company’s common stock on the date of the grant.

A summary of the status of the Plan Options and Grant Warrants outstanding at December 31, 2019 is presented below:

A summary of the status of the Plan Options and the Grant Warrants at December 31, 2019 and changes during the period are presented below:

On December 31, 2019, 424,967 Plan Options are exercisable. The total intrinsic value of options on December 31, 2019 was $13,619.  Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) on December 31, 2019 (for outstanding options), less the applicable exercise price.

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

NOTE 6 — STOCKHOLDERS’ EQUITY (Continued) 

Common Stock Purchase Warrants

A summary of the status of shares of Common Stock, which can be purchased and underlies the warrants outstanding for the six-month period as of December 31, 2019, is presented below:

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)

On December 27, 2019, the Company granted 30,000 restricted stock units vesting immediately for consulting services valued at $144,000.

A summary of the status of Restricted Stock Units outstanding at December 31, 2019 is presented below:

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7— 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 is entitled to consulting fees for 20 months, with a monthly consulting fee of not greater than $130,000 per month. Certain members of Weird Science control G-Tech. For the three and six months ended December 31, 2019, $375,000 and $750,000, respectively, was charged to research and development expenses in our Condensed Consolidated Statements of Operations related to this consulting agreement.

Shares held for non-consenting shareholders –The 82,237 remaining shares have been reflected as issued and outstanding in the accompanying financial statements. There were 10,000 shares of Common Stock issued to such non-consent shareholders during the three- and six-months period ended December 31, 2019 (See Note 6).

Employment and Service Agreements – The Company has a director’s 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. The Company has an employment agreement with the Chief Financial Officer with a base annual compensation of $200,000 plus 60,000 options and 15,000 shares of restricted stock. The Company maintains employment agreements with other staff in the ordinary course of business.

Contingencies - The Company is from time to time involved in routine legal and administrative proceedings and claims of various types. While any proceedings or claim contains an element of uncertainty, management does not expect a material impact on our results of operations or financial position.

NOTE 8 — RELATED PARTY TRANSACTIONS

Consulting Agreement - On July 9, 2018, the Company entered into the G-Tech Agreement. G-Tech is entitled to consulting fees for 20 months, with a monthly consulting fee of not greater than $130,000 per month. Certain members of Weird Science control G-Tech. For the three and six months ended December 31, 2019, $375,000 and $750,000, respectively, was charged to research and development expenses in our Condensed Consolidated Statements of Operations.

NOTE 9 — SUBSEQUENT EVENTS

On January 31, 2020, the Company entered into a Statement of Work & License Agreement (the “License Agreement”), by and among the Company, G Tech Bio, LLC, a California limited liability company (“G Tech”) and G Health Research Foundation, a not for profit entity organized under the laws of California doing business as Seraph Research Institute (“SRI”), whereby the Company acquired an perpetual, sublicensable, exclusive license (the “License”) for a treatment under development (the “Treatment”) aimed to treat the Hepatitis B Virus (HBV) infections in accordance with its agreement in principle with G Tech and SRI announced by the Company on November 25, 2020.

The License Agreement states that in consideration for the License, the Company shall provide cash funding for research costs and equipment and certain other in-kind funding related to the 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 License Agreement, in each case subject to the terms of the License Agreement. Additionally, the 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 License. The up front payment of $1.2 million was paid on February 7, 2020.

The License Agreement contains customary representations, warranties and covenants of the parties with respect to the development of the Treatment and the License. G Tech and SRI are each controlled by certain members of Weird Science, LLC, a shareholder of the Company, and G Tech and the Company are party to a consulting agreement, dated July 9, 2018, under which G Tech provides services to the Company unrelated to the License.

In accordance with ASC 855-10, Company management reviewed all material events through the date of this report. 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statement Notice

Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Enochian Biosciences, Inc. formerly DanDrit Biotech USA, Inc. (“Enochian”, or “Registrant”, and together with its subsidiaries, the “Company”, “we” or “us”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The Company’s plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

Our Business

We are a pre-clinical stage biotechnology company committed to using our genetically modified cellular and immune-therapy technologies to prevent or potentially cure HIV and to potentially provide life-long cancer remission of some of the deadliest cancers. We do this by genetically modifying, or re-engineering, different types of cells, depending on the therapeutic area, and then injecting or reinfusing the re-engineered cells back into the patient to provide treatment. In some of our interventions, immunotherapy is used.

Human Immunodeficiency Virus, or HIV, and Acquired Immunodeficiency Syndrome, or AIDS

HIV attacks the body’s own immune system, specifically killing off CD4+ cells, or T-cells. Left untreated, HIV reduces the number of T-cells in the body, leading to AIDs, a condition where the body cannot fight off common infections and disease.

Currently there are over 30 antiretroviral drugs, or ART, approved by the FDA to treat HIV patients but these drugs are expensive, require daily adherence and can have significant side effects over time. In addition, approximately 1 million people, including in high-income countries, continue to die from HIV/AIDS due to resistance to ART or lack of access. Today there are no treatments which can eliminate the reservoir of cells that contain HIV from the body. In other words, treatment is life-long.

There have been several efforts to cure HIV by re-engineering a person’s own T-cells so that such cells no longer express C-C chemokine receptor type 5, also known as CCR5, which is an essential co-receptor for HIV to enter T-cells. A mutation that blocks expression of CCR5 on T-cells occurs in a small percentage of people with no known adverse effects. The “Berlin patient” is an HIV-positive person who developed cancer and was treated with a bone marrow transplant with cells derived from a person with a naturally occurring deletion of CCR5. The Berlin patient seems to be effectively cured from HIV. Therefore, several researchers and companies have attempted to replicate the experience of the Berlin patient by genetically modifying the T-cells of HIV-positive patients and reinfusing them with T-cells that do not express CCR5. However, the uptake, or engraftment of the modified, reinfused cells has not been optimal, leading to a failure to achieve a cure. In addition, the transplant conditioning that has been used is myeloablative chemotherapy, wiping out the patient’s immune system, which has inherent risks and can have long term side-effects including the risk of developing cancer.

ENOB-HV-01 is a novel, proprietary approach with the potential to overcome the failures of recent efforts. The intervention: 1) provides gene-modified, reinfused cells with a competitive advantage over non-modified cells in the HIV-positive person, with the potential to significantly increase engraftment; and 2) avoids the need for myeloablative chemotherapy and, in fact, could potentially be given on an outpatient basis. Results from an array of in vitro studies and an in vivo mouse model have exceeded expectations. Based on the strength of those data, a request has been made to the US FDA for an INTERACT meeting to discuss pathways to pre-IND and IND. Additional in vitro and in vivo studies potentially to support a pre-IND and IND submission are in process.

We also plan to develop ENOB-HV-11 and ENOB-HV-12 that will utilize a novel cellular- and immunotherapy approach to potentially provide for a preventative vaccine and a therapeutic vaccine, respectively. A non-human primate study is in process, beginning with ENOB-12. Vectors and being prepared and the animals are being identified.

Cancer

We have designed an innovative therapeutic vaccination platform that could potentially be used to induce life-long remissions from some of the deadliest solid tumors. We plan to initially target pancreatic cancer, triple negative breast cancer, glioblastoma, and renal cell carcinoma. The platform might also allow for non-specific immune enhancement that could have impact against a broad array of solid tumors. As with HIV, our approach would potentially allow for outpatient therapy without ablating or significantly impairing the patient’s immune system, as many current approaches require.

Corporate History

Enochian was originally incorporated in Delaware on January 18, 2011 under the name “Putnam Hills Corp.” We filed a Registration Statement on Form 10 with the U.S. Securities and Exchange Commission, or the SEC, on August 12, 2011.

On February 12, 2014, pursuant to the Share Exchange Agreement, the Registrant acquired 100% (including the Escrow Shares) of the issued and outstanding capital stock of Enochian Denmark (formerly DanDrit BioTech Aps) and as a result became Enochian Denmark’s parent company. Prior to the Share Exchange, the Registrant and an existing shareholder agreed to cancel 4,400,000 out of 5,000,000 common shares of Enochian Denmark outstanding, and the Company issued 1,440,000 shares of Common Stock for legal and consulting services related to the Share Exchange and a future public offering. At the time of the Share Exchange each outstanding share of common stock of Enochian Denmark was exchanged for 1.498842 shares of Common Stock, for a total of 6,000,000 shares of Common Stock, resulting in 8,040,000 shares of Common Stock outstanding immediately following the Share Exchange, including the Escrow Shares, which are deemed issued and outstanding for accounting purposes.

On January 12, 2018, the Registrant, Acquisition Sub, Enochian Biopharma and Weird Science entered into the Acquisition Agreement. On February 16, 2018, the Acquisition was completed when the Acquisition Sub 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) 50% of the number of shares of the Common Stock issued and outstanding as of the effective time of the Acquisition, in the aggregate, after giving effect to the Acquisition, and (ii) the right to receive earn-out shares of Common Stock pro rata upon the exercise or conversion of any of the Registrant’s stock options and warrants which were outstanding at closing.

On March 2, 2018, the Registrant changed its name from DanDrit BioTech USA, Inc. to Enochian BioSciences, Inc.

Emerging Growth Company

 As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012. An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

Each of the foregoing exemptions is currently available to us. We may take advantage of these exemptions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), which such fifth anniversary will occur on June 30, 2020. The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies; provided, however, that an emerging growth company may elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have not elected to opt out of the transition period.

Because we have elected to take advantage of certain of the reduced disclosure obligations and may elect to take advantage of other reduced reporting requirements in future filings, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

Results of Operations for the three months and six months ended December 31, 2019 compared to the three months and six months ended December 31, 2018 

The following table sets forth our revenues, expenses and net loss for the three and six months ended December 31, 2019 and December 31, 2018. The financial information below is derived from our unaudited condensed consolidated financial statements.

Revenues

Revenues from operations for the three and six months ended December 31, 2019, and December 31, 2018 were $0 and $0, respectively. 

Cost of Goods Sold

Our cost of goods sold was $0 and $0 during the three and six months ended December 31, 2019, and December 31, 2018, respectively.

Gross profit (Loss)

Gross profit for the three and six months ended December 31, 2019, and December 31, 2018 was $0 and $0, respectively.

Expenses

Our operating expenses for the three months ended December 31, 2019, and December 31, 2018 were $2,818,483 and $4,381,139, respectively, representing a decrease of $1,562,656, or approximately 35.7%. The largest contributors to the decrease in operating expenses were the decrease in stock-based compensation of $1,002,598, the decrease in R&D expenses of $227,500, and the decrease in severance costs of $317,000. The reduction in stock based compensation was due to decreased options granted during the current year when compared to prior year. The reduction in R&D results from large expenditures for the laboratory build out during the prior year. The decrease in severance costs results from not having any of these costs during the current period.

Our operating expenses for the six months ended December 31, 2019, and December 31, 2018 were $5,260,968 and $6,194,013, respectively, representing a decrease of $933,045, or approximately 15.1%. The largest contributors to the decrease in operating expenses were the decrease in stock-based compensation of $942,155, the decrease in R&D expenses of $200,863, and the decrease in severance costs of $317,000. The reduction in stock based compensation was due to decreased options granted during the current year when compared to prior year. The reduction in R&D is a result of the slowdown of infrastructure expenses during the current year as the laboratory was built out offset by the continued expenditures related to the development of studies for our genetically modified cellular and immune-therapy technologies. The decrease in severance costs results from not having any of these types costs during the current period.

 General and administrative expenses for the three months ended December 31, 2019 and 2018 are $2,235,348 and $3,580,105, respectively, representing a decrease of $1,344,757 or 37.6%. The largest contributors to the decrease in general and administrative expenses were the decrease in stock based compensation of $1,089,999 and the decrease in severance costs of $317,000. The reduction in stock based compensation was due to decreased options granted during the current year when compared to prior year and the decrease in severance costs results from not having any of these types of costs during the current period.

General and administrative expenses for the six months ended December 31, 2019, and December 31, 2018 were $4,136,160 and $4,894,014, respectively, representing a decrease of $757,854 or approximately 15.5%. The largest contributors to the decrease in general and administrative expenses were the decrease in stock based compensation of $942,155 and the decrease in severance costs of $317,000. The reduction in stock based compensation was due to decreased options granted during the current year when compared to prior year and the decrease in severance costs results from not having any of these costs during the current year.

Research and development expenses for the three months ended December 31, 2019 and December 31, 2018 were $561,468 and $788,968, respectively, representing a decrease of $227,500 or approximately 28.8%. The reduction in R&D is a result of the slowdown of infrastructure expenses during the current year as the laboratory has been primarily built out, offset by the continued expenditures related to the development of studies for our genetically modified cellular and immune-therapy technologies.

Research and development expenses for the six months December 31, 2019, and December 31, 2018 were $1,081,660 and $1,282,523, respectively, representing an increase of $200,863 or approximately 15.7%. The reduction in R&D is a result of the slowdown of infrastructure expenses during the current year as the laboratory has been primarily built out, offset by the continued expenditures related to the development of studies for our genetically modified cellular and immune-therapy technologies. 

Depreciation and amortization for the three months ended December 31, 2019, and December 31, 2018, were $21,667 and $12,066, respectively, representing an increase of $9,601 or 79.6%. The increase in depreciation and amortization expenses primarily related to the additional fixed assets purchased during the past year.  

Depreciation and amortization expenses for the six months ended December 31, 2019, and December 31, 2018, were $43,148 and $17,476, respectively, representing an increase of $25,672 or 146.9%. The increase in depreciation and amortization expenses primarily related to the additional fixed assets purchased during the past year.  

Other income (expense) for the three months ended December 31, 2019, and December 31, 2018, was $1,097,952 and ($11,725,924) respectively, representing an increase of $12,823,876. The significant increase in other income is mainly attributable to the change in fair value of the contingent consideration liability of $12,675,390. This contingent consideration is related to the Contingent Shares in connection with the Acquisition of Enochian Biopharma, which is impacted by warrants exercised and the mark to market quarterly valuation that is performed (see Note 1 to the unaudited condensed consolidated financial statements).

Other income (expense) for the six months ended December 31, 2019, and December 31, 2018, was ($542,740) and ($10,263,131), respectively representing an increase of $9,720,391 or 94.7%. This significant increase in other income is mainly attributable to the change in fair value of the contingent consideration of $9,265,390. This contingent consideration is related to the Contingent Shares in connection with the Acquisition of Enochian Biopharma, which is impacted by warrants exercised and the mark to market quarterly valuation that is performed (see Note 1 to the unaudited condensed consolidated financial statements).  

Net Loss

Net loss for the three months ended December 31, 2019, and December 31, 2018, was ($1,720,531) or ($0.04) per share and ($16,107,063) or ($0.45) per share, respectively, representing a decrease in loss of $14,386,532. The net decrease in loss was primarily due to the decrease in the general and administrative expense of $1,344,757, and the increase in other income of $12,675,390 related to the reduction of the contingent consideration liability related to the earn-out shares as part of the Enochian BioPharma Acquistion Agreement.

Net loss for the six months December 31, 2019, and December 31, 2018, was ($5,803,708) or ($0.13) per share and ($16,457,144) or ($0.45) per share, respectively, representing a decrease in loss of $10,653,436. The net decrease in loss was primarily due to the decrease in the general and administrative expense $757,854 and the increase in other income of 9,265,390 related to the reduction of the contingent consideration liability related to the earn-out shares as part of the Enochian BioPharma Acquistion Agreement.

Liquidity and Capital Resources

We have historically satisfied our capital and liquidity requirements through funding from shareholders, the issuance of convertible notes and the sale of our Common Stock and warrants. We currently have no sales revenue to support our current operations and we expect this to be the case until our therapies or products are approved for marketing in the United States and Europe. Even if we are successful in having our therapies or products approved for sale in the United States and Europe, we cannot guarantee that a market for the product will develop. We may never be profitable. At this time, we believe we have sufficient liquidity to fund our operations for the next twelve months.

We may however need additional funds for (a) purchase of equipment and, (b) research and development, specifically to open an Investigational New Drug Application (IND) (The first step in the drug review process by the FDA) for ENOB-HV01, to continue our research and development of ENOB-HV11/12, and possible future strategic acquisitions of businesses, products or technologies complementary to our business. If additional funds are required, we may raise such funds from time to time through public or private sales of our equity or debt securities. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely affect our growth plans and our financial condition and results of operations.

As of December 31, 2019, the Company had $8,627,677 in cash and working capital of $7,973,210 as compared to $12,282,224 in cash and working capital of $11,384,571 as of June 30, 2019, a decrease of 29.8% and 30.0%, respectively.

Assets

Total assets at December 31, 2019 were $178,359,885 compared to $179,877,353 as of June 30, 2019. Total current liabilities decreased to $1,090,095 at December 31, 2019 compared to $1,110,416 as of June 30, 2019. The decrease in total assets is mainly due to the growth in the Company as we continue to build the administrative and clinical infrastructure to support the development of and studies for our genetically modified cellular and immune-therapy technologies.

Following is a summary of the Company’s cash flows (used in) provided by operating, investing, and financing activities:

 Cash Flows

Net cash used by operating activities for the six months ended December 31, 2019, and December 31, 2018 was $4,375,861 and $3,550,914, respectively, representing an increase $824,947 or 23.2%.

Net cash used by investing activities for the six months ended December 31, 2019 and December 31, 2018 was $132,321 and $640,544, respectively, representing a decrease of $508,223 or 79.3%. The six months ended December 31, 2018 included purchases related to the build out of the corporate offices and labs. Our current expenditures of our operations as we move forward with our pipeline and contemplate new product lines.

Net cash provided by financing activities for the six months ended December 31, 2019 and December 31, 2018, was $1,000,000 and $1,700,000, representing a decrease of $700,000 or 41.2%. The decrease is due to a smaller amount of warrants being exercised during the current period

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Emerging Growth Company

As an “emerging growth company” under the JOBS Act, the Company has elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result, of this election our financial statements may not be comparable to companies that comply with public company effective dates.

Significant Accounting Policies and Critical Accounting Estimates

The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are not choosing to “opt out” of this provision. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. As a result of our election, not to “opt out” of Section 107, our financial statements may not be comparable to companies that comply with public company effective dates.

For a full explanation of our accounting policies, see Note 1 to the unaudited condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information required by this Item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures for the Company.  The Certifying Officers have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which this Report was prepared.

The Certifying Officers are responsible for establishing and maintaining adequate internal control over financial reporting for the Company used the “Internal Control over Financial Reporting Integrated Framework” issued by Committee of Sponsoring Organizations (“COSO”) to conduct an extensive review of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act, Rules 13a-15(e) and 15-d-15(e)) as of the end of each of the periods covered by this Report (the “Evaluation Date”).  Based upon that evaluation, the Certifying Officers concluded that, as of December 31, 2019, our disclosure controls and procedures were not effective in ensuring that the information we were required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The deficiencies are attributed to the fact that the Company does not have adequate resources to address complex accounting issues, as well as an inadequate number of persons to whom it can segregate accounting tasks within the Company so as to ensure the segregation of duties between those persons who approve and issue payment from those persons who are responsible to record and reconcile such transactions within the Company’s accounting system.  These control deficiencies will be monitored and attention will be given to the matter as we continue to accelerate through our current growth stage.

The Certifying Officers based their conclusion on the fact that the Company has identified material weaknesses in controls over financial reporting, detailed below.  In order to reduce the impact of these weaknesses to an acceptable level, the Company has contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  However, even with the added expertise of these consultants, we still expect to be deficient in our internal controls over disclosure and procedures until sufficient capital is available to hire the appropriate internal accounting staff and individuals with requisite GAAP and SEC financial reporting knowledge.  There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Changes in Internal Controls

There have been no changes in our internal controls over financial reporting during the three and six months ended December 31, 2019, that have materially affected or are reasonably likely to materially affect our internal controls.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

There are presently no material pending legal proceedings to which the Company or any of its subsidiaries, is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.

Item 1A. Risk Factors.

As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Item 6. Exhibits.