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RENOVARO BIOSCIENCES INC. - Quarter Report: 2020 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, 2020

 

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 001-38758

 

Enochian Biosciences, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   45-2259340
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)

 

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)

 

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.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

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 ☒

 

Title of Each Class   Trading Symbol   Name of Each Exchange on Which Registered
Common Stock, par value $0.0001 per share   ENOB   The Nasdaq Stock Market LLC

 

As of February 16, 2020, the number of shares of the registrant’s common stock outstanding was 47,763,220.

 

 

  

 

 

 

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

 

- INDEX -

 

    Page
PART I – FINANCIAL INFORMATION: 1
     
Item 1. Financial Statements (Unaudited): 1
     
  Condensed Consolidated Balance Sheets as of December 31, 2020 (Unaudited) and June 30, 2020 2
     
  Condensed Consolidated Statements of Operations  for the Three and Six Months December 31, 2020 and 2019 (Unaudited) 3
     
  Condensed Consolidated Statements of Other Comprehensive Loss for the Three and Six Months Ended December 31, 2020 and 2019 (Unaudited) 4
     
  Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2020 and 2019  (Unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows  for the Six Months Ended December 31, 2020 and 2019 (Unaudited) 6
     
  Notes to the Condensed Consolidated Financial Statements (Unaudited) 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
     
Item 4. Controls and Procedures 27
     
PART II – OTHER INFORMATION: 28
     
Item 1. Legal Proceedings 28
     
Item 1A. Risk Factors 28
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
     
Item 3. Defaults Upon Senior Securities 28
     
Item 4. Mine Safety Disclosures 28
     
Item 5. Other Information 28
     
Item 6. Exhibits 28
     
Signatures 29

 

i

 

 

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, 2020 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, 2020, filed with the Securities and Exchange Commission on September 23, 2020.

 

 1 

 

 

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   December 31,   June 30, 
   2020   2020 
   (Unaudited)     
ASSETS          
Current Assets:          
Cash  $3,425,050   $8,696,361 
Other receivables   -    1,982 
Prepaid expenses   583,028    242,866 
Total Current Assets   4,008,078    8,941,209 
           
Property and equipment, net   735,481    778,118 
           
OTHER ASSETS          
Definite life intangible assets, net   76,139    77,323 
Indefinite life intangible assets   154,824,000    154,824,000 
Goodwill   11,640,000    11,640,000 
Deposits and other assets   30,484    137,550 
Right of use assets   1,571,248    1,703,859 
Total Other Assets   168,141,871    168,382,732 
           
TOTAL ASSETS  $172,885,430   $178,102,059 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES:          
Accounts payable – trade  $188,924   $592,877 
Accrued expenses   603,178    470,636 
Other short term liabilities   484,786     
Current portion of operating lease liabilities   281,727    271,285 
Total Current Liabilities   1,558,615    1,334,798 
           
NON-CURRENT LIABILITIES          
Contingent consideration liability   2,069,101    3,182,434 
Leases liabilities, non-current   1,388,128    1,531,779 
Convertible notes payable-long term   1,200,000    1,200,000 
Notes payable – long term, net of discount   4,728,744    4,580,787 
           
Total Liabilities  $10,944,588    11,829,798 
           
Commitments and Contingencies        
           
STOCKHOLDERS’ EQUITY:          
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding        
Common stock, par value $0.0001, 100,000,000 shares authorized, 46,763,220 shares issued and outstanding at December 31, 2020; 46,497,409 shares issued and outstanding at June 30, 2020   4,676    4,650 
Additional paid-in capital   231,457,324    230,497,225 
Accumulated deficit   (69,518,064)   (64,188,198)
Accumulated other comprehensive loss   (3,094)   (41,416)
Total Stockholders’ Equity   161,940,842    166,272,261 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $172,885,430   $178,102,059 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 2 

 

  

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

 

   For the Three Months Ended  

For the Six Months

Ended

 
   December 31,   December 31, 
   2020   2019   2020   2019 
                 
Revenues  $   $   $   $ 
                     
Cost of Goods Sold                
                     
Gross profit (Loss)                
                     
Operating Expenses                    
General and administrative   1,939,988    2,235,348    3,717,911    4,136,160 
Research and development   1,334,468    561,468    2,384,844    1,081,660 
Depreciation and amortization   30,760    21,667    61,218    43,148 
Total Operating Expense   3,305,216    2,818,483   $6,163,973    5,260,968 
                     
LOSS FROM OPERATIONS   (3,305,216)   (2,818,483)   (6,163,973)   (5,260,968)
                     
Other Income (Expense)                    
Change in fair value of contingent consideration   493,411    1,082,000    920,811    (860,000)
Interest expense   (93,426)       (185,739)    
(Loss) gain on currency transactions   (32,289)   (137,448)   (32,289)   149,307 
Gain on settlement       135,000        135,000 
Interest and other income   3,066    18,400    7,372    32,953 
Total Other Income (Expense)   370,762    (1,097,952)   710,155    (542,740)
                     
Loss Before Income Taxes   (2,934,454)   (1,720,531)   (5,453,818)   (5,803,708)
                     
Income Tax Benefit   1,158        123,952     
                     
NET LOSS  $(2,933,296)  $(1,720,531)  $(5,329,866)  $(5,803,708)
                     
BASIC AND DILUTED LOSS PER SHARE  $(0.06)  $(0.04)  $(0.11)  $(0.13)
                     
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED   46,660,304    46,275,228    46,632,711    46,258,272 

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

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ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS

(UNAUDITED)

 

   For the Three Months   For the Six Months 
   Ended December 31,   Ended December 31, 
   2020   2019   2020   2019 
                 
Net Loss  $(2,933,296)  $(1,720,531)  $(5,329,866)  $(5,803,708)
Foreign Currency Translation, Adjustments   9,933    131,291    38,322    (147,365)
                     
Other Comprehensive Loss  $(2,923,363)  $(1,589,240)  $(5,291,544)  $(5,951,073)

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 4 

 

 

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

   # of Shares   Common Shares   Additional Paid-In Capital  

Accumulated

Deficit

   Accumulated Other Comprehensive Income   Total 
July 1, 2020   46,497,409   $4,650   $230,497,225   $(64,188,198)  $(41,416)  $166,272,261 
Stock-based compensation            326,156            326,156 
Issuance of commitment shares   139,567    14    (14)            
Net Loss               (2,396,570)       (2,396,570)
Foreign Currency Translation Adjustment                   28,389    28,389 
September 31, 2020   46,636,976   $4,664   $230,823,367   $(66,584,768)  $(13,027)  $164,230,236 
Stock issued pursuant to warrants exercised   63,122    6    82,050            82,056 
Contingent Shares issued pursuant to Acquisition Agreement   63,122    6    192,516            192,522 
Stock-Based Compensation           359,391            359,391 
Comprehensive Loss                              
Net Loss               2,933,296        (2,933,296)
Other Comprehensive Loss                              
Currency Translations                   9,933    9,933 
December 31, 2020   46,763,220    4,676    231,457,324    (69,518,064)   (3,094)   161,940,842 
                               
July 1, 2019   45,273,924   $4,527   $225,765,432   $(52,771,840)  $101,818   $173,099,937 
                               
Stock issued pursuant to warrants exercised   500,000    50    999,950            1,000,000 
Contingent Share issued pursuant to Acquisition Agreement   500,000    50    2,209,950            2,210,000 
Stock-based compensation             234,010            234,010 
Net Loss               (4,083,177)       (4,083,177)
Other Comprehensive Loss                              
Foreign Currency Translation Adjustment                   (278,656)   (278,656)
September 30, 2019   46,273,924   $4,627   $229,209,342   $(56,855,017)  $(176,838)  $172,182,114 
Stock-based compensation            546,061            546,061 
Restricted shares converted to shares for services rendered   30,000    3    143,997            144,000 
Net Loss               (1,720,531)       (1,720,531)
Other Comprehensive Loss                              
Foreign currency translation                   131,291    131,291 
December 31, 2019   46,303,924    4,630    229,899,400    (58,575,548)   (45,547)   171,282,935 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 

   For the Six Months Ended 
   December 31, 
   2020   2019 
NET LOSS  $(5,329,866)  $(5,083,708)
           
ADJUSTMENT TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:          
Depreciation and amortization   61,218    50,726 
Change in contingent consideration liability   (920,811)   860,000 
Stock Based Compensation Expense   685,547    924,071 
ROU assets   132,611    127,611 
Amortization of Discount of Notes Payable   147,957    - 
Gain on Settlement for non-trade payable   -    (135,000)
CHANGES IN ASSETS AND LIABILITIES:          
Other Receivables   1,982    17,796 
Prepaid Expenses/Deposits   374,154    (241,661)
Accounts Payable   (403,953)   90,731 
Accounts Payable –Non-Trade   -    (100,000)
Accrued Expenses   132,542    (43,114)
Operating Lease Liabilities   (133,209)   (123,313)
NET CASH USED IN OPERATING ACTIVITIES  $(5,251,828)  $(4,375,861)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (10,721)   (132,321)
NET CASH USED IN INVESTING ACTIVITIES  $(10,721)  $(132,321)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from exercise of warrants   82,056    1,000,000 
Repayment of finance agreement   (122,464)   - 
NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES  $(40,408)  $1,000,000 
           
(Loss) on Currency Translation  $31,646   $(147,365)
           
NET CHANGE IN CASH  $(5,271,311)   (3,655,547)
           
CASH, BEGINNING OF PERIOD  $8,696,361   $12,282,224 
           
CASH, END OF PERIOD  $3,425,050   $8,626,677 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION          
Cash paid during the quarter end for:          
Interest  $42,635   $- 
Income Taxes  $37   $- 
           
Non-cash operating, investing and financing Activities:          
Contingent Shares issued in connection with Acquisition Agreement  $192,522   $2,210,000 
Finance agreement entered in exchange for prepaid assets  $607,250   $- 
Right of uses obtained in exchange for operating lease liabilities upon adoption of ASC 842 - Leases  $-   $2,054,295 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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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, 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 December 31, 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 December 31, 2020 and 2019 are not necessarily indicative of the operating results for the full year.

 

Consolidation - For the three and six months ended December 31, 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.

 

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 December 31, 2020, and June 30, 2020, and December 31, 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.

 

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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, 2020 and June 30, 2020 of $3,173,624 and $8,444,935, 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 December 31, 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 December 31, 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.

 

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

 

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Impairment of Long-Lived Assets — Long-lived assets, such as property, plant, and equipment, patents and licenses are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.

 

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and would no longer be depreciated. The depreciable basis of assets that are impaired and continue in use is their respective fair values.

 

Leases — In accordance with ASC Topic 842, the Company determined the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date and thereafter. The lease terms include any renewal options and termination options that the Company is reasonably assured to exercise, if applicable. The present value of lease payments is determined by using the implicit interest rate in the lease, if that rate is readily determinable; otherwise, the Company develops an incremental borrowing rate based on the information available at the commencement date in determining the present value of the future payments.

 

Rent expense for operating leases is recognized on a straight-line basis, unless the operating lease right of use assets have been impaired, over the reasonably assured lease term based on the total lease payments and is included in operating expense in the consolidated statement of operations. For operating leases that reflect impairment, the Company will recognize the amortization of the operating lease right-of-use assets on a straight-line basis over the remaining lease term with rent expense still included in general and administrative expenses in the unaudited condensed consolidated statements of operations.

 

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

 

Research and Development Expenses — The Company expenses research and development costs incurred in formulating, improving, validating and creating alternative or modified processes related to and expanding the use of the HIV, HBV, and Cancer therapies and technologies for use in the prevention, treatment, amelioration of and/or therapy for HIV, HBV, and Cancer. Research and development expenses for the three and six months ended December 31, 2020 amounted to $1,334,468, and $2,384,844, respectively. Research and development expenses for the three and six months ended December 31, 2019 amounted to $561,468, and $1,081,660.

 

Income Taxes — The Company accounts for income taxes in accordance with FASB ASC Topic 740 Accounting for Income Taxes, which requires an asset and liability approach for accounting for income taxes. During the quarter ended December 31, 2020, the Company’s Danish subsidiary received a payment for an R&D tax credit owed under Danish statutory tax laws for $122,831.

 

Loss Per Share — The Company calculates earnings/(loss) per share in accordance with FASB ASC 260 Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of shares of Common Stock, par value 0.0001 per share (“Common Stock”) outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as under basic EPS) and potentially dilutive shares of Common Stock. Potential shares of Common Stock included in the diluted earnings per share calculation include in-the-money stock options that have been granted but have not been exercised. Because of the net loss for the three and six months ended December 31, 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 4,072,275 and 3,448,473 potential shares of Common Stock excluded from the Diluted EPS calculation as of December 31, 2020 and December 30, 2019.

 

 9 

 

 

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 for the three and six months ended December 31, 2020 were $359,391 and $685,547, respectively. For the three and six months ended December 31, 2019 were $690,061 and $924,071, respectively.

 

 

Stock-Based Compensation -The Company records stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to consultants and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period. The Company issued 15,000 options with immediate vesting for services with a Black-Sholes value of $27,990 during the three and six months ended December 31, 2020. The Company issued 30,000 restricted units shares with immediate vesting in exchange for consulting services valued at $144,000 for services for the three and six months ended December 31, 2019 (see Note 7).

 

Recent Adopted Accounting Pronouncements 

 

The Company adopted ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements, as of July 1, 2020 (Note 2).

 

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

 

 10 

 

 

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

 

NOTE 2 — FAIR VALUE MEASUREMENT — The Company accounts for fair value measurements for financial assets and financial liabilities in accordance with FASB ASC Topic 820, “Fair Value Measurements”. The authoritative guidance, which, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

  Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;

 

  Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

 

  Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The were no Level 1, 2 or 3 assets, nor any Level 1 or 2 liabilities as of December 31, 2020.

 

Level 3 liabilities held as of December 31, 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 December 31, 2020, 1,375,000 Contingent Shares are issuable in connection with the Acquisition of Enochian Biopharma.

 

The fair value of the contingent consideration liability is estimated using an option-pricing model. The key inputs to the model are all contractual or observable with the exception being volatility, which is computed, based on the Company’s underlying stock. The key inputs to valuing the contingent consideration liability on the date of acquisition and as of December 31, 2020, include the Company’s stock price on the valuation date of $2.95; the exercise price of the warrants of $1.30, the risk-free rate of .12% the expected volatility of the Company’s Common Stock of 100.2%, the digital call rate 52%, and the 1,375,000 of contingent shares remaining at the end of the period. Fair Value measurements are highly sensitive to changes in these inputs and significant changes in these inputs could result in a significantly higher or lower fair value.

 

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, prepaid expenses, investments, accounts payable, accrued expenses, capital lease obligations and notes payable approximates their recorded values due to their short-term maturities.

 

The following table sets forth the Level 3 liability at December 31, 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          $2,069,101 
The roll forward of the contingent consideration liability is as follows:               
Balance June 30, 2020          $3,182,434 
Contingent Shares issued pursuant to the Acquisition Agreement          $(192,522)
Fair value adjustment          $(920,811)
Balance December 31, 2020          $2,069,101 


 

 11 

 

 

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

 

NOTE 3 — PROPERTY AND EQUIPMENT

 

   Useful Life  December 31,
2020
  

June 30,

2020

 
Lab Equipment and Instruments  4-7  $545,248   $534,527 
Leasehold Improvements  10  $224,629    224,629 
Furniture Fixtures and Equipment  4-7  $171,975   $171,975 
Total     $941,852   $931,131 
Less Accumulated Depreciation     $(206,371)  $(153,013)
Net Property and Equipment     $735,481   $778,118 

 

Depreciation expense amount to $26,813, and $53,358 for the three and six months ended December 31, 2020 respectively, and $21,667 and $43,148, for the three and six months ended December 31, 2019.

  

NOTE 4 —INTANGIBLE ASSETS

 

At December 31, 2020 and June 30, 2020, definite-life intangible assets, net of accumulated amortization, consisted of patents on the Company’s products and processes of $76,139 and $77,323, respectively. The patents are recorded at cost and amortized over twenty years from the date of application. Amortization expense for the three and six months ended December 31, 2020 was $3,947 and $7,859, respectively.

 

At December 31, 2020 and 2019, indefinite life intangibles assets consisted of a license agreement classified In-Process Research and Development (“IPR&D”) intangible assets, which are not amortizable until the intangible asset provides economic benefit, and goodwill.

 

At December 31, 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   December 31,
2020
 
Definite Life Intangible Assets                       
Patents  20 Years  $299,175   $-   $26,943   $326,118 
Less Accumulated Amortization     $(221,852)  $(7,859)  $(20,268)   (249,979)
Net Definite-Life Intangible Assets     $77,323   $(7,859)  $6,675   $76,139 
                        
Indefinite Life Intangible Assets                       
License Agreement     $154,824,000             $154,824,000 
Goodwill      11,640,000              11,640,000 
Total Indefinite Life Intangible Assets     $166,464,000             $166,464,000 

 

Year ending June 30,    
2021  $7,295 
2022   15,154 
2023   15,154 
2024   15,154 
2025   15,154 
Thereafter   8,228 
Total  $76,139 

 

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. 

 

 12 

 

 

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 — LEASES

 

Operating Leases — On November 13, 2017, Enochian entered into a Lease Agreement for a term of five years and two months from November 1, 2017 (the “Term”) with Plaza Medical Office Building, LLC, a California limited liability company (the “Landlord”), as landlord, pursuant to which the Company agreed to lease from the Landlord approximately 2,325 rentable square feet. The base rent increases by 3% each year, and ranges from approximately $8,719 per month for the first year to $10,107 per month for the two months of the sixth year

   

On June 19, 2018, the Registrant entered into a Lease Agreement for a term of ten years from September 1, 2018 with Century City Medical Plaza Land Co., Inc., pursuant to which the Company agreed to lease approximately 2,453 rentable square feet. On February 20, 2019, the Registrant entered into an Addendum to the original Lease Agreement with an effective date of December 1, 2019, where it expanded the lease area to include another 1,101 square feet for a total rentable 3,554 square feet. The base rent increases by 3% each year, and ranges from $17,770 per month for the first year to $23,186 per month for the tenth year. The equalized monthly lease payment for the term of the lease is $20,050. The Company was entitled to $148,168 in contributions toward tenant improvements.

 

The Company identified and assessed the following significant assumptions in recognizing the right-of-use asset and corresponding liabilities:

 

Expected lease term — The expected lease term includes both contractual lease periods and, when applicable, cancelable option periods when it is reasonably certain that the Company would exercise such options. The Company’s leases have remaining lease terms between 24 months and 80 months. As of December 31, 2020, the weighted-average remaining term is 6.04 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, 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.

 

Lease expense charged to general and administrative expenses for the three and six months ended amounted to $88,690 and $178,374 December 31, 2020, respectively. Lease expense charged to general and administrative expenses for the three and six months ended amounted to $$89,675 and $182,054 December 31, 2019, respectively

 

Below are the lease commitments for the next 5 years and thereafter:

 

Year Ending June 30th  Lease Expense 
2021  $170,276 
2022   348,495 
2023   298,305 
2024   246,004 
2025   253,384 
Thereafter   574,821 
Less imputed interest   (221,430)
Total  $1,669,855 

 

 13 

 

 

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 December 31, 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 was originally payable on November 30, 2021 (the “Maturity Date”) and bears interest at a fixed rate of 6% per annum, computed based on the number of days between the Issuance Date and the Maturity Date, which was prepaid by the Company in full on the Issuance Date through the issuance of 188,485 shares of the Company’s Common Stock based on the closing market price on that date for a total value of $501,370. The Company evaluated the Unsecured Note and PIK interest in accordance with ASC 470-Debt and ASC 835-Interest, respectively. Pursuant to ASC 470-20, proceeds received from the issuance are to be recognized at their relative fair value, thus the liability 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 December 31, 2020 is $4,728,744.

 

On February 11, 2021, the Company entered into an amendment to the Unsecured Note in the principal amount of $5,000,000 that will extend the Maturity Date out to November 30, 2022. All other terms of the Unsecured Note remain the same. The change in Maturity Date requires an additional year of interest at the fixed rate of 6% per annum, which was prepaid by the Company in full on the date of the amendment through the issuance of 74,054 shares of the Company’s Common Stock based on the closing market price on that date for a total value of $298,178.

 

Finance Agreement 

 

On December 4, 2020, the Company entered into a premium finance agreement (“Agreement”) with a principal amount of $607,250 at 4.99% interest per annum. The repayment of the Agreement will be made in nine equal monthly installments of $62,077. The remaining balance at December 31, 2020 is $484,786. The amount is reflected in other current liabilities.

 

For the three and six months ended December 31, 2020, the Company recorded accrued interest in the amount of $18,181 and $24,181, respectively.

 

For the three and six months ended December 31, 2020, the Company recorded interest expense in the amount of $93,426 and $185,739, respectively. The interest expense includes $73,978 and $147,958 related to the amortization of the discount related to the Unsecured Note, for the three and six months ended December 31, 2020, respectively. 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 December 31, 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 December 31, 2020, and June 30, 2020, there were 46,763,220 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.

 

 14 

 

 

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 and six months ended December 31, 2020, we did not sell any shares of Common Stock to Lincoln Park under the Purchase Agreement.

 

Common Stock Issuances — 

 

On December 14, 2020, the Registrant issued 63,122 shares of Common Stock valued at the price of $1.30 strike price per share pursuant to the exercise of vested warrants for total proceeds of $82,056. 

 

On December 14, 2020, the Registrant issued 63,122 shares of Common Stock valued at the price of $3.05 per share in connection with the acquisition of Enochian Biopharma. This non-cash transaction impacted shareholders’ equity in the amount of $192,522.

 

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

 

On July 3, 2019, the Registrant issued 500,000 shares of Common Stock valued at the price of $2.00 strike price per share pursuant to the exercise of vested grant warrants for total proceeds of $1.0 million. 

 

On July 3, 2019, the Registrant issued 500,000 shares of Common Stock valued at the price of $4.42 per share in connection with the acquisition of Enochian Biopharma. This non-cash transaction impacted shareholders’ equity in the amount of $2.2 million.

 

Acquisition of Enochian Biopharma / 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 December 31, 2020, 1,375,000 Contingent Shares are issuable in connection with the Acquisition of Enochian Biopharma.

 

Acquisition of Enochian Denmark   At December 31, 2020 and June 30, 2020, the Company maintained a reserve of 17,414 and 82,237 shares of Common Stock of the Registrant held in escrow according to Danish law (the “Escrow Shares”), respectively, all of which are reflected as issued and outstanding in the accompanying financial statements. The Escrow Shares are reserved to acquire the shares of Enochian Denmark held by non-consenting shareholders of Enochian Denmark on both December 31, 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 167,639 shares of Common Stock issued to non-consenting shareholders of Enochian Denmark as of December 31, 2020. During the three and six months ended December 31, 2020, the Company issued 59,385 and 64,823 shares of Common Stock to such non-consenting shareholders of Enochian Denmark, respectively. There is no impact on outstanding shares as these shares are reflected as issued and outstanding.

 

 15 

 

 

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)   5.0 – 6.5
Volatility   80.03%-82.34%
Risk free interest rate   0.26%-.45%
Dividend yield   0%

 

The Company recognized stock-based compensation expense related to the options of $359,391 and $668,482 for the three and six months ended December 31, 2020, respectively. The Company recognized stock-based compensation expense related to the options of $500,562 and $726,828 for the three and six months ended December 31, 2019, respectively. At December 31, 2020, the Company had approximately $651,337 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 and six months ended December 31, 2020, the Company granted annual options to purchase 63,435 and 87,631 shares of Common Stock to members of the Board of Directors and Scientific Advisory Board with a one-year vesting period. Options will be exercisable at the market price of the Company’s Common Stock on the date of the grant.

 

For the three and six months ended December 31, 2019, the Company granted annual options of zero and 13,470 to members of the Board of Directors and Scientific Advisory Board with a one-year vesting period pursuant to their contracts.

 

For three and six months ended December 31, 2020, the Company granted options of 9,201 to employees with a three year vesting period. For the three and six months ended December 31, 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 grant. The Company 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 Company’s common stock on the date of the grant.

 

The Company issued 15,000 options with immediate vesting for services with a Black-Sholes value of $27,990 during the three and six months ended December 31, 2020. The Company issued 30,000 restricted units shares with immediate vesting in exchange for consulting services valued at $144,000 for services for the three and six months ended December 31, 2019.

 

To date the Company has granted options under the 2019 Plan (“Plan Options”) to purchase 1,212,275 shares of Common Stock.

 

 16 

 

 

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 December 31, 2020 is presented below:

 

Options Outstanding   Options Exercisable  
   

Exercise Price

Ranges

    Number Outstanding     Weighted Average Remaining Contractual Life (years)     Weighted Average Exercise Price     Number Exercisable     Weighted Average Remaining Contractual Life (years)     Weighted Average Exercise Price  
    $ 2.00 – 4.50       195,663       9.51     $ 3.09       20,063       9.34     $ 3.16  
    $ 4.51 – 6.50       482,497       8.12     $  6.14       432,833       8.07     $  6.17  
      6.51 – 8.00       534,116       9.14     $  7.97       70,575       7.53     $ 7.80  
Total   $       1,212,275       8.79     $ 6.46       523,471       8.05     $ 6.28  

 

A summary of the status of the Plan Options at December 31, 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   111,832   $3.21    10.0      
Exercised                
Forfeited                 
Expired   (4,999)            
Outstanding at end of period   1,212,275   $6.46    8.79   $15,950 
Vested and expected to vest                  - 
Exercisable end of period   523,471   $6.28    8.05   $900 

 

At December 31, 2020, the Company had 523,471 exercisable Plan Options. The total intrinsic value of options at December 31, 2020 is $15,950.  Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) at December 31, 2020 (for outstanding options), less the applicable exercise price.

 

 17 

 

 

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

 

NOTE 7 — STOCKHOLDERS’ EQUITY (Continued) 

  

Common Stock Purchase Warrants

 

A summary of the shares of Common Stock, which can be purchased, related to the underlying the warrants outstanding for the six-month period as of December 31, 2020, is presented below:

 

       Weighted Average   Weighted Average 
   Shares   Exercise
Price
   Remaining Life 
             
Outstanding at beginning of period   1,438,122   $1.42    1.99 
Granted                 
Exercised     (63,122)   1.30    1.30 
Cancelled/Expired   -    -    - 
Outstanding at end of period   1,375,000   $1.42    1.49 
Exercisable end of period   1,375,000   $1.42    1.49 

 

      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       1,350,000       1.51     $ 1.30       1,350,000     $ 1.30  
$ 8.00       25,000       .12     $ 8.00       25,000     $ 8.00  
                                             
Total       1,375,000       1.49     $ 1.42       1,375,000     $ 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 $7,860 and $17,066 for the three and six months ended December 31, 2020, respectively. The Company recognized stock-based compensation expense related to RSUs of $181,755 and $189,499 for both the three and six months ended December 31, 2019.

 

A summary of the status of Restricted Stock Units outstanding at December 31, 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       .52     $  
Granted           -              
Exercised           -              
Cancelled/Expired           -              
Outstanding at end of period     10,000       6.15       .52     $  
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       .52     $ 6.15  
Total       10,000       .52     $ 6.15  

  

 18 

 

 

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 and six months ended December 31, 2020 $75,000 and 125,000, was charged to research and development expenses in our Condensed Consolidated Statements of Operations related to this consulting agreement, respectively. For the three and six months ended December 31, 2019 $375,000 and $750,000, 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 and six months ended December 31, 2020, the Company paid $433,500 and $867,000 for scientific staffing resources, respectively. During the six months ended December 31. 2020, the Company paid 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 shareholdersThe 17,414 remaining shares of Common Stock have been reflected as issued and outstanding in the accompanying financial statements. There were 59,835 and 64,823 shares of Common Stock issued to such non-consent shareholders during the three and six months ended December 31, 2020, respectively. (See Note 7) 

 

Employment and Service Agreements  - The Company has an agreement with the Executive Vice-Chair, where he fulfills the duties as prescribed by the Company’s bylaws and receives annual compensation in the amount of $430,000, plus 300,000 options that vested immediately. Dr. Dybul was given a one-time grant of options to purchase 450,000 shares of Common Stock at a strike price of $8.00 per share on June 11, 2020. The Company executed a consulting agreement for services for a Senior Medical Advisor of $210,000 on a part-time basis. The Company maintains employment agreements with other staff in the ordinary course of business.

 

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

 

 19 

 

 

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

 

On February 11, 2021, the Company entered into an amendment to the Unsecured Note in the principal amount of $5,000,000 that will extend the Maturity Date out to November 30, 2022. All other terms of the Unsecured Note remain the same. The change in Maturity Date requires an additional year of interest at the fixed rate of 6% per annum, which was prepaid by the Company in full on the date of the amendment through the issuance of 74,054 shares of the Company’s Common Stock based on the closing market price on that date for a total value of $298,178.

 

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

 

 20 

 

 

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. (“Enochian”, 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 the 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 cell, gene, and immune therapy technologies to prevent or potentially cure HIV, HBV as well as 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 human immune cells, depending on the therapeutic area and then injecting or returning the re-engineered cells into a patient with HIV or some cancers to provide treatment or potentially cure.

 

To date, our operations have been funded by sales of our securities and the issuance of debt. Sales revenue will not 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. 

 

Human Immunodeficiency Virus (HIV), and Acquired Immunodeficiency Syndrome (AIDS)

 

HIV attacks the human immune system, specifically killing off CD4+ cells, or T cells, which play a central, controlling role in the immune system. Left untreated, HIV dramatically reduces the number of T cells in the body, devastates the immune system, leading to AIDS, the, a condition where the immune system cannot fight off life-threatening infections and cancers.

 

Currently there are over 30 antiretroviral drugs, or ART, approved by the U.S. Food and Drug Administration (“FDA”) to treat HIV but these drugs are expensive, require daily adherence and can have significant side effects over time. In addition, on a global basis, approximately 1 million people, including persons in high-income countries, continue to die from HIV/AIDS due to drug-resistant HIV or lack of access to treatment. To date, there are no treatments that can eliminate the reservoir of immune cells that are quietly infected with HIV from the body. Consequently, treatment for HIV is life-long.

 

There have been several efforts to cure HIV by re-engineering a person’s own T-cells so that these cells no longer express a special protein on these cells (C-C chemokine co-receptor type 5 or CCR5) which HIV uses to gain entry to them. A naturally occurring mutation that blocks expression of CCR5 on T cells occurs in ~1% of persons living in or from Northern Europe with no known adverse effects. The “Berlin patient”, and more recently the “London patient” are HIV- positive persons who developed cancer and were treated with a bone marrow transplant with cells donated from persons with this naturally occurring mutation of CCR5. The Berlin and London patients seem to be effectively cured from HIV providing proof-of-concept that HIV can be cured. However, because the transplanted cells come from another person, such transplants carry high risk and can result in death in a significant proportion of patients. Given the success with these two patients, several researchers and companies have attempted to replicate this experience by genetically modifying T cells of HIV-positive patients to render them unable to be infected by HIV and then returning them to the patient. Because the transplanted cells are from the same person, the risks to the patient are much lower. The uptake, or engraftment of the modified, T cells, however, has not been optimal, leading to failure to achieve a cure. In addition, the transplant pre-treatment that has been used is bone marrow-destroying chemotherapy, which wipes out the patient’s immune system and can have long-term side effects including the risk of developing cancer.

 

 21 

 

 

ENOB-HV-01 is a novel, proprietary approach with the potential to overcome the failures of recent efforts. The intervention: 1) provides gene-modified, T 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 chemotherapy that substantially depletes the bone marrow and, in fact, could potentially be given as an outpatient treatment. The Company met with the FDA INTERACT team on June 2, 2020. INTERACT is the first available FDA interaction and is a key step in the process towards a potential Investigational New Drug (IND) to study First-in-Human products potentially leading to marketing authorization via Biologics License Application (BLA). The FDA Center for Biologics Evaluation and Research (CBER) has numerous INTERACT requests and grants meetings that are deemed appropriate for this early FDA engagement. The Enochian management team considered the meeting to be successful with strong alignment between Enochian’s approach to developing ENOB-HV-01 and the comments of the FDA reviewers.

 

Initial scientific findings from a mouse study on the ENOB-HV-01 approach were presented at the annual conference of the American Society of Cell and Gene Therapy (ASCGT) in May 2020. Additional in vitro and in vivo studies are ongoing and/or planned. Pre-IND submission to the US FDA is potentially possible by Q4 of 2021.

 

We are also developing ENOB-HV-11 and ENOB-HV-12 that will utilize a novel cellular- and immunotherapy approach that could potentially provide both preventative and therapeutic vaccines for HIV. A non-human primate study is in process and on schedule. Preliminary results could potentially be available by the end of 2021.

 

We are in the development phase of additional product candidates related to our HIV pipeline. ENOB-HV-31, which is an in vivo gene therapy, and ENOB-HV-32, which is a peptide drug for packaging and distribution.  

 

Hepatitis B (HBV)   

 

Despite the availability of an effective vaccine, hepatitis B virus (HBV) is the world’s most common serious liver infection. It is the leading cause of liver cancer and the second leading cause of cancer deaths in the world. Two billion people have been infected with HBV, approximately 250 to 290 million have chronic HBV infection, and nearly one million people die every year.

 

Current efforts to develop novel treatment or cure largely focus on approaches to deplete the pool of a certain type of HBV DNA. Enochian has partnered with Seraph Research Institute (SRI) to develop an innovative approach to co-opt HBV polymerase, a key expanding factor which the virus needs to reproduce itself, to induce the death of liver cells infected with the virus.

 

The initial in vitro and in vivo work was presented at the biannual HEP DART meeting in December of 2019, where it was selected as one of the best new therapies/novel strategies. Additional data was presented at the annual conference of the ASCGT in May 2020. A proof-of-concept, in vivo cure study is in advanced stages. Pre-IND submission to the US FDA could potentially be made by Q2 of 2021.

 

On July 27, 2020, Enochian announced the creation of an HBV Scientific Advisory Board comprised of distinguished leaders in HBV disease, treatment and cure.  

 

Cancer

 

Based on learning from peer-reviewed publications of Phase I/IIa trials, 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. Initial preclinical in vitro studies have been encouraging. 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.

 

Through a collaboration with a leader in the field of pancreatic cancer, our first therapeutic target, we are developing the pipeline with in vitro and in vivo proof-of-concept studies to evaluate the potential to induce long-term remission or cure.

 

Recent Developments

 

On February 11, 2021, the Company entered into an amendment to the Unsecured Note in the principal amount of $5,000,000 that will extend the Maturity Date out to November 30, 2022. All other terms of the Unsecured Note remain the same. The change in Maturity Date requires an additional year of interest at the fixed rate of 6% per annum, which was prepaid by the Company in full on the date of the amendment through the issuance of 74,054 shares of the Company’s Common Stock based on the closing market price on that date for a total value of $298,178.

 

Corporate History

 

On February 16, 2018, we completed our acquisition of Enochian Biopharma 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 with Enochian Biopharma surviving as a wholly owned subsidiary of the Registrant. 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 (See Note 7.)

 

 22 

 

 

COVID-19 Outlook

 

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 and additional legislation related to COVID-19 has been proposed; 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 2020.

 

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.

 

Results of Operations for the three months ended December 31, 2020 compared to the three months ended December 31, 2019 

 

The following tablesets forth our revenues, expenses and net loss for the three months ended December 31, 2020 and December 31, 2019. The financial information below is derived from our unaudited condensed consolidated financial statements.

 

   For the Three Months Ended           For the Six Months Ended         
   December 31,   Increase/(Decrease)   December 31,   Increase/(Decrease) 
   2020   2019   $   %   2020   2019   $   % 
Revenues  $   $   $    %  $   $   $    %
Cost of Goods Sold  $   $   $    %  $   $   $   $%
Gross profit (Loss)  $   $   $    %  $   $   $   $%
Operating Expenses                                        
General and administrative expenses   1,939,988    2,235,348    (295,360)   (13.2)   3,717,911    4,136,160    (418,249)   (10.1)
Research and development expenses   1,334,468    561,468    773,000    137.7    2,384,844    1,081,660    1,303,184    120.5 
Depreciation and amortization   30,760    21,667    9,093    42.0    61,218    43,148    18,070    41.9 
Total Operating Expense  $3,305,216   $2,818,483   $486,733    17.3%  $6,163,973   $5,260,968   $903,005    17.2%
LOSS FROM OPERATIONS  $(3,305,216)  $(2,818,483)  $(486,733)   17.3%  $(6,163,973)  $(5,260,968)  $(903,005)   17.2%
Other Income (Expense)                                       
Change in fair value of contingent consideration   493,411    1,082,000    (588,589)   (54.4)   920,811    (860,000)   1,780,811    (207.1)
Interest expense   (93,426)   -    (93,426)   100.0    (185,739)   -    (185,739)   100.0 
Gain (Loss) on currency transactions   (32,289)   (137,448)   105,159    (76.5)   (32,289)   149,307    (181,596)   (121.6)
Gain on settlement   -    135,000    (135,000)   (100.0)   -    135,000    (135,000)   (100.0)
Interest income   3,066    18,400    (15,334)   (83.3)   7,372    32,953    (25,581)   (77.6)
Total Other Expense   370,762    1,097,952    (727,190)   (66.2)   710,155    (542,740)   1,252,895    (230.8)
Loss Before Income Taxes  $(2,934,454)  $(1,720,531)  $(1,213,923)   70.6%  $(5,453,818)  $(5,803,708)  $349,890    (6.0)%
Income Tax Benefit  $1,158   $-   $-    -   $123,952   $-   $123,952    100.0 
NET LOSS  $(2,933,296)  $(1,720,531)  $(1,212,765)   70.5%  $(5,329,866)  $(5,803,708)  $473,842    (8.2)%

 

 23 

 

 

Revenues

 

Revenues from operations for the three and six months ended December 31, 2020, and December 31, 2019 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, 2020, and December 31, 2019, respectively.

 

Gross profit (Loss)

 

Gross profit for the three and six months ended December 31, 2020, and December 31, 2019 was $0 and $0, respectively.

 

Expenses

 

Our operating expenses for the three months ended December 31, 2020, and December 31, 2019 were $3,305,216 and $2,818,483, respectively, representing an increase of $486,732, or approximately 17%. The increase in operating expenses primarily relate to the HBV License Agreement and studies for ENOB-HV11/12.

 

Our operating expenses for the six months ended December 31, 2020, and December 31, 2019 were $6,163,973 and $5,260,968, respectively, representing an increase of $903,005, or approximately 17%. The change is primarily related to the increase in R&D expenses of $1,303,184, offset by a decrease in general and administrative of $418,249. The reduction in general and administrative is due to a decrease in stock compensation expense. R&D primarily increased due to the commencement of the non-human primate study for ENOB-HV11/12 and continued expenditures pursuant to the Hepatitis B License agreement related to the development of studies for our genetically modified cellular and immune-therapy technologies.

 

General and administrative expenses for the three months ended December 31, 2020, and December 31, 2019 were $1,939,988 and $2,235,348, respectively, representing a decrease of $295,360 or approximately 13%. The decrease is primarily related to the decrease in stock based compensation of $331,000 and legal fees of $256,000, offset by an increase in salaries of $209,000 and insurance premiums of $68,000. The reduction in stock based compensation was due to less stock options granted during the current period when compared to the prior year. The decrease in legal fees is due to the origination of the HBV license and agreements occurring in the prior year when compared to current legal fees. The increase in salaries was due to change in mix of headcount when compared to prior year.

 

General and administrative expenses for the six months ended December 31, 2020, and December 31, 2019 were $3,717,911 and $4,136,160, respectively, representing a decrease of $418,249 or approximately 10%. The largest contributors to the decrease in general and administrative expenses were the decrease in stock based compensation of $239,000, legal fees of $211,000 and laboratory expense of $88,000, offset by an increase in salaries of $134,000, and insurance premiums of $97,000. The reduction in stock based compensation was due to less stock options granted during the current period when compared to the prior year. The decrease in legal fees was due to the origination of the HBV license and agreements occurring in the prior year when compared to current legal fees. The decrease in laboratory expense was a result of related expenditures stabilizing during the current year.

 

Research and development expenses for the three months ended December 31, 2020, and December 31, 2019 were $1,334,468 and $561,468, respectively, representing an increase of $773,000, or approximately 138%. The increases in research and development expenses were primarily due to the commencement of the non-human primate study for ENOB-HV11/12, which represents an increase of approximately $505,000, and an increase of HBV staffing costs of $433,500, offset by a reduction of $300,000 of contractual HIV license costs that expired in February 2020. All other R&D costs have remained relatively stable during this period.

 

Research and development expenses for the six months ended December 31, 2020, and December 31, 2019 were $2,384,844 and $1,081,660, respectively, representing an increase of $1,303,184 or approximately 120%. The increases in research and development expenses were primarily due to the commencement of the non-human primate study for ENOB-HV11/12, which represents an increase of approximately $505,000, a $400,000 increase in HBV costs related to a cure proof of concept in vivo study and staffing costs of $867,000 offset by a decrease of $600,000 HIV contractual obligation payments that expired in February 2020. All other R&D costs have remained relatively stable during this period.

 

The Company recorded other income of $710,155 for the six months ended December 31, 2020, compared to other (expense) of ($542,740) for the six months ended December 31, 2019, representing an increase of $1,252,895. The increase in other income (expense) is primarily attributable to the change in fair value of the contingent consideration liability related to the Enochian BioPharma Acquisition of $1,780,811, offset by the increase in interest expense of $185,739 related to our notes payables, and the increase in gain on currency transactions that occurred in the prior year.

 

Net Loss

 

Net loss for the three months ended December 31, 2020, and December 31, 2019, was ($2,933,296) or ($0.06) per share and ($1,720,531) or ($0.04) per share, respectively, representing an increase in loss of $1,212,765 or approximately 70%. The increase in loss was primarily due to the decrease in fair value of the contingent consideration of $588,589 and the increase in research and development expenses of $773,000 primarily related to the HBV License Agreement, and the commencement of new studies related to HV-12 product line.

 

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Net loss for the six months ended December 31, 2020, and December 31, 2019, was ($5,329,866) or ($0.11) per share and ($5,803,708) or ($0.13) per share, respectively, representing an decrease in loss of $473,842 or approximately (8)%. The decrease in loss was primarily due to the increase in fair value of the contingent consideration of $1,780,811, offset by the increase in research and development expenses of $1,303,184 primarily related to the HBV License Agreement, and the commencement of new studies related to ENOB-HV11/12 product line. 

 

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 and access to committed funds to fund our operations for the next twelve months.

 

At this time, we believe we have sufficient liquidity and access to committed funds to fund our operations for the next twelve months. We may 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, to fund the HBV License Agreement in furtherance of the Treatment for Hepatitis B, 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. 

 

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As of December 31, 2020, the Company had $3,425,050 in cash and working capital of $2,449,463 as compared to $8,696,361 in cash and working capital of $7,606,411 as of June 30, 2020, a decrease of 60.6 % and 67.8%%, respectively.

 

 Assets

 

Total assets at December 31, 2020, were $172,885,430 compared to $178,102,059 as of June 30, 2020. The decrease in total assets were primarily due to the decrease in cash of $5,271,311. The change is primarily attributed to the following expenditures, $2,384,844 in research and development costs primarily related to the HBV License Agreement and ENOB-HV11/12 studies, and general and administrative expenses of $3,032,363 net of non-cash items.

 

Liabilities

 

Total Liabilities at December 31, 2020, were $10,944,588 compared to $11,829,798 as of June 30, 2020. The decrease in total liabilities were primarily related to reduction in accounts payable trade that totaled approximately $403,953 due to timing, and the decrease of approximately $1,113,333 in the contingent consideration liability as a result of mark to market adjustment, offset by an increase in other short term liabilities of $484,786 and accrued expenses of $132,542.

 

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

 

   Six
Months
Ended
December 31,
2020
   Six Months
Ended December 31,
2019
 
Net Cash  (Used in) Operating Activities  $(5,251,828)  $(4,375,861)
Net Cash (Used in) Investing Activities   (10,721)   (132,321)
Net Cash Provided by Financing Activities   (40,408)   1,000,000 
(Loss) Gain  on Currency Translation   31,646    (147,365)
Change in Cash and Cash Equivalents  $(5,271,311)  $(3,655,547)

 

Cash Flows

 

Cash used in operating activities for the six months ended December 31, 2020, and December 31, 2019 was ($5,251,828) and ($4,375,861), respectively. Cash used in operating activities during the current period included $2,384,849 in research and development costs primarily related to the HBV License Agreement and studies related to ENOB-HV11/12, and general and administrative expenses of $3,032,363 net of non-cash items.

 

Cash used in investing activities was $10,721 during the six months ended December 31, 2020, and $132,321 for the six months ended December 31, 2019, primarily due to purchase of equipment for the lab.

 

Cash used by financing activities for the six months ended December 31, 2020 and December 31, 2019, was ($40,408) and $1,000,000, respectively. During the six months ended December 31, 2020 and 2019, the Company received financing from the exercising of warrants held by shareholders, and made payments towards the finance agreement.

 

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.

 

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.

 

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

 

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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 Principal 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, 2020, 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 six months ended December 31, 2020 that have materially affected or are reasonably likely to materially affect our internal controls.

 

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PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

There are presently no material pending legal proceedings other than in the ordinary course of business 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. 

 

Risk factors that may affect our business and financial results are discussed within Item 1A ”Risk Factors” of our annual report for the fiscal year ended June 30, 2020 on Form 10-K (“2020 Form 10-K”) filed with the SEC on September 23, 2020. There have been no material changes to the disclosures relating to this item from those set forth in our 2020 Form 10-K.

 

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.

 

  (a) Exhibits required by Item 601 of Regulation S-K.

 

Exhibit No.   Description
     
31.1**   Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
     
31.2**   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
     
32.1***   Certification of Principal Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
     
32.2***   Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
     
101.INS   XBRL Instance Document*
     
101.SCH   XBRL Taxonomy Extension Schema*
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase*
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase*
     
101.LAB   XBRL Taxonomy Extension Label Linkbase*
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase*

  

* Filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the SEC on July 14, 2020.
** Filed herewith. 
*** Furnished herewith.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: February 16, 2021 ENOCHIAN BIOSCIENCES, INC.
     
  By: /s/ Mark Dybul
    Mark Dybul  
    Executive Vice Chair
    (Principal Executive Officer)
     
  By: /s/ Luisa Puche
    Luisa Puche
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

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