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 MarchDecember 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 May 11,February 16, 2020, the number of shares of the registrant’s common stock outstanding was 46,497,409.47,763,220.
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
- INDEX -
i
PART I – FINANCIAL INFORMATION
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 MarchDecember 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, 2019,2020, filed with the Securities and Exchange Commission on September 30, 2019, as amended.23, 2020.
1 |
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, | June 30, | |||||||
2020 | 2019 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 10,939,166 | $ | 12,282,224 | ||||
Other receivables | — | 20,794 | ||||||
Prepaid expenses | 326,378 | 191,969 | ||||||
Total Current Assets | 11,265,544 | 12,494,987 | ||||||
Property and equipment, net | 793,672 | 687,517 | ||||||
OTHER ASSETS | ||||||||
Definite life intangible assets, net | 79,403 | 93,299 | ||||||
Indefinite life intangible assets | 154,824,000 | 154,824,000 | ||||||
Goodwill | 11,640,000 | 11,640,000 | ||||||
Deposits and other assets | 137,550 | 137,550 | ||||||
Right of use assets | 1,769,209 | — | ||||||
Total Other Assets | 168,450,162 | 166,694,849 | ||||||
TOTAL ASSETS | $ | 180,509,378 | $ | 179,877,353 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable – trade | $ | 328,366 | $ | 538,563 | ||||
Accounts payable – non-trade | — | 235,000 | ||||||
Accrued expenses | 376,724 | 336,853 | ||||||
Lease liabilities, current | 266,181 | — | ||||||
Total Current Liabilities | 971,271 | 1,110,416 | ||||||
NON-CURRENT LIABILITIES | ||||||||
Contingent consideration liability | 2,006,798 | 5,667,000 | ||||||
Lease liabilities, non-current | 1,601,155 | — | ||||||
Convertible notes payable – long-term | 1,200,000 | — | ||||||
Notes payable – long-term, net of discount | 4,506,808 | — | ||||||
Total Liabilities | 10,286,032 | 6,777,416 | ||||||
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, 46,497,409 shares issued and outstanding at March 31, 2020; 45,273,924 issued and outstanding at June 30, 2019 | 4,650 | 4,527 | ||||||
Additional paid-in capital | 230,364,478 | 225,765,432 | ||||||
Accumulated deficit | (60,090,037 | ) | (52,771,840 | ) | ||||
Other comprehensive (loss) income | (55,745 | ) | 101,818 | |||||
Total Stockholders’ Equity | 170,223,346 | 173,099,937 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 180,509,378 | $ | 179,877,353 |
See accompanying notes to the unaudited condensed consolidated financial statements.
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
For the Three Months | For the Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(As Revised) | (As Revised) | |||||||||||||||
Revenues | $ | — | $ | — | $ | — | $ | — | ||||||||
Cost of Goods Sold | $ | — | $ | — | $ | — | $ | — | ||||||||
Gross profit (Loss) | $ | — | $ | — | $ | — | $ | — | ||||||||
Operating Expenses | ||||||||||||||||
General and administrative | 1,486,561 | 1,951,685 | 5,622,721 | 6,845,699 | ||||||||||||
Research and development | 2,307,336 | 730,255 | 3,388,996 | 2,012,778 | ||||||||||||
Depreciation and amortization | 35,764 | 3,939 | 78,912 | 21,415 | ||||||||||||
Total Operating Expense | $ | 3,829,661 | $ | 2,685,879 | $ | 9,090,629 | $ | 8,879,892 | ||||||||
LOSS FROM OPERATIONS | $ | (3,829,661 | ) | $ | (2,685,879 | ) | $ | (9,090,629 | ) | $ | (8,879,892 | ) | ||||
Other Income (Expense) | ||||||||||||||||
Change in fair value of contingent consideration | 2,310,202 | (217,000 | ) | 1,450,202 | (10,342,390 | ) | ||||||||||
Interest expense | (12,030 | ) | (43 | ) | (12,030 | ) | (130 | ) | ||||||||
(Loss) gain on currency transactions | (371 | ) | 164,114 | 148,936 | (37,347 | ) | ||||||||||
Gain on settlement | 5,000 | — | 140,000 | — | ||||||||||||
Interest and other income | 12,371 | 8,724 | 45,324 | 72,531 | ||||||||||||
Total Other Income (Expense) | 2,315,172 | (44,205 | ) | 1,772,432 | (10,307,336 | ) | ||||||||||
Loss Before Income Taxes | (1,514,489 | ) | (2,730,084 | ) | (7,318,197 | ) | (19,187,228 | ) | ||||||||
Income Tax Benefit | $ | — | $ | — | $ | — | $ | — | ||||||||
NET LOSS | $ | (1,514,489 | ) | $ | (2,730,084 | ) | $ | (7,318,197 | ) | $ | (19,187,228 | ) | ||||
BASIC AND DILUTED LOSS PER SHARE | $ | (0.03 | ) | $ | (0.07 | ) | $ | (0.16 | ) | $ | (0.52 | ) | ||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED | 46,275,591 | 37,070,152 | 46,280,139 | 37,070,152 |
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
3 |
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS
(UNAUDITED)
For the Three Months | For the Nine Months | |||||||||||||||||||||||||||||||
Ended | Ended | For the Three Months | For the Six Months | |||||||||||||||||||||||||||||
March 31, | March 31, | Ended December 31, | Ended December 31, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
(As Revised) | (As Revised) | |||||||||||||||||||||||||||||||
Net Loss | $ | (1,514,489 | ) | $ | (2,730,084 | ) | $ | (7,318,197 | ) | $ | (19,187,228 | ) | $ | (2,933,296 | ) | $ | (1,720,531 | ) | $ | (5,329,866 | ) | $ | (5,803,708 | ) | ||||||||
Foreign Currency Translation, Adjustments | (10,198 | ) | (139,710 | ) | $ | (157,563 | ) | $ | (6,857 | ) | 9,933 | 131,291 | 38,322 | (147,365 | ) | |||||||||||||||||
Other Comprehensive Loss | $ | (1,524,687 | ) | $ | (2,869,794 | ) | $ | (7,475,760 | ) | $ | (19,194,085 | ) | $ | (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)
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||
July 1, 2019 | $ | 4,527 | $ | 225,765,432 | $ | (52,771,840 | ) | $ | 101,818 | $ | 173,099,937 | |||||||||
Stock issued pursuant to warrants exercised | 50 | 999,950 | — | — | 1,000,000 | |||||||||||||||
Contingent Shares issued pursuant to Acquisition Agreement | 50 | 2,209,950 | — | — | 2,210,000 | |||||||||||||||
Stock-based compensation | — | 234,010 | — | — | 234,010 | |||||||||||||||
Net loss | — | — | (4,083,177 | ) | — | (4,083,177 | ) | |||||||||||||
Foreign currency translation adjustment | — | — | — | (278,656 | ) | (278,656 | ) | |||||||||||||
September 30, 2019 | $ | 4,627 | $ | 229,209,342 | $ | (56,855,017 | ) | $ | (176,838 | ) | $ | 172,182,114 | ||||||||
Stock-based compensation | — | 546,061 | — | — | 546,061 | |||||||||||||||
Shares issued for consulting services | 3 | 143,997 | — | — | 144,000 | |||||||||||||||
Net loss | — | — | (1,720,531 | ) | — | (1,720,531 | ) | |||||||||||||
Foreign currency translation adjustment | — | — | — | 131,291 | 131,291 | |||||||||||||||
December 31, 2019 | $ | 4,630 | $ | 229,899,400 | $ | (58,575,548 | ) | $ | (45,547 | ) | $ | 171,282,935 | ||||||||
Stock-based compensation | — | (28,094 | ) | — | — | (28,094 | ) | |||||||||||||
Shares issued in kind for prepaid interest on notes payable – long-term | 19 | 493,173 | — | — | 493,192 | |||||||||||||||
Shares issued for fully vested RSU’s | 1 | (1 | ) | — | — | — | ||||||||||||||
Net loss | — | — | (1,514,489 | ) | — | (1,514,489 | ) | |||||||||||||
Foreign currency translation adjustment | — | — | — | (10,198 | ) | (10,198 | ) | |||||||||||||
March 31, 2020 | $ | 4,650 | $ | 230,364,478 | $ | (60,090,037 | ) | $ | (55,745 | ) | $ | 170,223,346 |
See accompanying notes to the unaudited condensed consolidated financial statements.
5
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY(UNAUDITED)
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total | ||||||||||||||||
July 1, 2018 (As Revised) | $ | 3,616 | $ | 193,283,798 | $ | (34,755,360 | ) | $ | 205,680 | $ | 158,737,734 | |||||||||
Issuance of Shares | 1 | 39,999 | — | — | 40,000 | |||||||||||||||
Stock-Based Compensation | — | 46,166 | — | — | 46,166 | |||||||||||||||
Net Loss | — | — | (350,081 | ) | — | (350,081 | ) | |||||||||||||
Currency Translations, Net of Taxes | — | — | — | (91,517 | ) | (91,517 | ) | |||||||||||||
September 30, 2018 (As Revised) | $ | 3,617 | $ | 193,369,963 | $ | (35,105,441 | ) | $ | 114,163 | $ | 158,382,302 | |||||||||
Stock issued pursuant to warrants exercised | 131 | 1,699,870 | — | — | 1,700,001 | |||||||||||||||
Contingent shares issued pursuant to Acquisition Agreement | 131 | 9,415,259 | 9,415,390 | |||||||||||||||||
Stock-Based Compensation | — | 1,780,060 | — | — | 1,780,060 | |||||||||||||||
Net Loss | — | — | (16,107,063 | ) | — | (16,107,063 | ) | |||||||||||||
Currency Translations, Net of Taxes | — | — | — | 224,370 | 224,370 | |||||||||||||||
December 31, 2018 (As Revised) | $ | 3,879 | $ | 206,265,152 | $ | (51,212,504 | ) | $ | 338,533 | $ | 155,395,060 | |||||||||
Stock-Based Compensation | — | 96,733 | — | — | 96,733 | |||||||||||||||
Net Loss | — | — | (2,730,084 | ) | — | (2,730,084 | ) | |||||||||||||
Currency Translations, Net of Taxes | — | — | — | (139,710 | ) | (139,710 | ) | |||||||||||||
March 31, 2019 (As Revised) | $ | 3,879 | $ | 206,361,885 | $ | (53,942,588 | ) | $ | 198,823 | $ | 152,621,999 |
# 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.
5 |
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
(As Revised) | ||||||||
NET LOSS | $ | (7,318,197 | ) | $ | (19,187,228 | ) | ||
ADJUSTMENT TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES: | ||||||||
Depreciation and amortization | 78,912 | 21,415 | ||||||
Change in contingent consideration liability | (1,450,202 | ) | 10,342,390 | |||||
Stock-based compensation expense | 895,976 | 1,962,958 | ||||||
Right of use asset | 192,335 | — | ||||||
Gain on settlement for non-trade payable | (140,000 | ) | — | |||||
CHANGES IN ASSETS AND LIABILITIES: | ||||||||
Other receivables | 16,892 | 120,391 | ||||||
Prepaid expenses/deposits | (130,507 | ) | (194,101 | ) | ||||
Accounts payable | (205,197 | ) | 463,520 | |||||
Accounts payable non-trade | (100,000 | ) | — | |||||
Accrued expenses | 132,622 | 181,890 | ||||||
Operating lease liabilities | (186,959 | ) | — | |||||
NET CASH USED IN OPERATINGACTIVITIES | $ | (8,214,325 | ) | $ | (6,288,765 | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | (174,015 | ) | (733,176 | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES | $ | (174,015 | ) | $ | (733,176 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from convertible notes payable – long-term | 1,200,000 | — | ||||||
Proceeds from notes payable – long-term | 5,000,000 | — | ||||||
Proceeds from exercise of warrants | 1,000,000 | 1,700,000 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | $ | 7,200,000 | $ | 1,700,000 | ||||
Loss on currency translation | $ | (154,718 | ) | $ | (6,726 | ) | ||
NET CHANGE IN CASH | $ | (1,343,058 | ) | (5,328,667 | ) | |||
CASH, BEGINNING OF PERIOD | $ | 12,282,224 | 15,600,865 | |||||
CASH, END OF PERIOD | $ | 10,939,166 | $ | 10,272,198 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
Non-cash investing and financing activities: | ||||||||
Contingent Shares issued in connection with Acquisition Agreement | $ | 2,210,000 | $ | 9,415,388 | ||||
Compensation for the issuance of stock for consulting services | $ | 144,000 | — | |||||
Right of uses obtained in exchange for operating lease liabilities upon adoption of ASC 842 - Leases | $ | 2,054,295 | $ | — | ||||
Discount on $5 million note payable related to prepaid interest paid in the form of shares issued | $ | 493,192 | — | |||||
Disposition of fully depreciated assets | $ | — | $ | 231,174 |
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.
7
6 |
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., formerly DanDrit Biotech USA, Inc. (“Enochian”, or “Registrant”, and together with its subsidiaries, the “Company”, “we” or “us”) engages in the researchis a pre-clinical stage biotechnology company committed to using our genetically modified cellular and development, manufacturingimmune-therapy technologies to prevent or potentially cure HIV, Hepatitis B (HBV), and clinical trialsto provide potentially life-long cancer remission of pharmaceutical and biological products for the treatment of HIV and cancer in humans. The Company was originally incorporated in the State of Delaware on January 18, 2011.
Acquisition of Enochian Biopharma-On January 12, 2018, Enochian, DanDrit Acquisition Sub, Inc., (“Acquisition Sub”), Enochian Biopharma and Weird Science, LLC (“Weird Science”) entered into an agreement to acquire Enochian Biopharma (the ���Acquisition Agreement”), pursuant to which on February 16, 2018, Enochian Biopharma became a wholly owned subsidiarysome of the Company (the “Acquisition”). As consideration for the Acquisition, the stockholders of Enochian Biopharma received (i) 18,081,962 shares of Enochian Common Stock and (ii) the right to receive earn-out shares of Common Stock (“Contingent Shares”) pro rata upon the exercise or conversion of warrants, which were outstanding at closing. At March 31, 2020, 1,438,122 Contingent Shares remained unissued.deadliest cancers.
Basis of Presentation–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 MarchDecember 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 accounting principles generally accepted in the United States of AmericaU.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, 20192020 audited financial statements. The results of operations for the periods ended MarchDecember 31, 2020 and 2019 are not necessarily indicative of the operating results for the full year.
Consolidation—- For the three months and ninesix months ended MarchDecember 31, 2020 and 2019, the consolidated financial statements include the accounts and operations of Enochian, Enochian Denmark,the Registrant, and Enochian Biopharma.its subsidiaries. All material inter-company transactions and accounts have been eliminated in the consolidation.
Reclassification–Certain amounts in the prior period financial statements have been reclassified to conform to the current presentation. For the three months and nine months period March 31, 2020, we reclassified the consulting expense of $0 and $94,760, respectively to general and administrative expenses.
Functional Currency / Foreign Currency Translation— The functional currency of Enochian Denmark is the Danish Kroner (“DKK”). The Company’s reporting currency is the U.S. Dollar for the purpose of these financial statements. The Company’s balance sheet accounts are translated into U.S. dollars at the period-end exchange rates and all revenue and expenses are translated into U.S. dollars at the average exchange rates prevailing during periods ended March 31, 2020, June 30, 2019 and March 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 statements of operations as incurred.
Recent Adopted Accounting Pronouncements —In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheet. The new standard is effective for fiscal years beginning after December 15, 2018. Originally, entities were required to adopt ASU 2016-02 using a modified retrospective transition method. However, in July 2018, the FASB issued ASU No. 2018-11, Targeted Improvements to Leases (Topic 842), which provides entities with an additional transition method. Under ASU No. 2018-11, entities have the option of recognizing the cumulative effect of applying the new standard as an adjustment to beginning retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Leases (Topic 842), which clarifies how to apply certain aspects of ASU 2016-02. Additionally, in March 2019, the FASB issued ASU No. 2019-01, Codification Improvements to Leases (Topic 842), which clarifies the transition disclosure requirements. The Company adopted this guidance on July 1, 2019using the prospective transition method allowed per ASU 2018-11, and applied the standard only to leases that existed on that date. Under the prospective transition method, the Company does not need to restate the comparative period in transition and will continue to present financial information and disclosures for periods before July 1, 2019 in accordance with Accounting Standard Codification (“ASC”) Topic 840. The Company has elected the package of practical expedients allowed under ASC Topic 842, which permits the Company to account for its existing operating leases as operating leases under the new guidance, without reassessing the Company’s prior conclusions about lease identification, lease classification and initial direct cost. As a result, of the adoption of the new lease accounting guidance the Company recognized, on July 1, 2019, operating lease right–of–use assets and operating lease liabilities of $1,961,544, and $2,054,295, respectively. On March 31, 2020, the right-of-use assets and the operating lease liabilities included in the unaudited condensed consolidated balance sheet are $1,769,209 and $1,867,336, respectively. The adoption of the standard did not have a material impact on the unaudited condensed consolidated statement of operations and the unaudited condensed consolidated statement of cash flows.
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. This ASU includes additional disclosures requirements for recurring Level 3 fair value measurements including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income, disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and narrative description of measurement uncertainty related to Level 3 measurements. Early adoption is permitted. This ASU will be effective for us on July 1, 2020. While we are continuing to evaluate the impact of the adoption of this ASU on our financial conditions, results of operations and cash flows, we do not expect its impact will be material at this time.
Other recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
Accounting Estimates —- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated. Significant estimates include the fair value and potential impairment of intangible assets, depreciation of fixed assets, and fair value of equity instruments issued.
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.
7 |
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 MarchDecember 31, 2020 and June 30, 20192020 of $10,939,166$3,173,624 and $12,282,224,$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 and licenses.patents. The Company accounts for definite life intangible assets in accordance with FASB ASCFinancial 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. License agreements cost represent the Fair Value of the license agreement on the date acquired. Intangible assets are amortized on a straight-line basis over their estimated useful life. The estimated useful life of patents is twenty years from the date of application.
Indefinite life intangible assets include license agreements and goodwill. The Company accounts for indefinite life intangible assets in accordance with ASC 350, “Goodwill and Other Intangible Assets”. License agreement cost representscosts represent the fair valueFair Value of the license agreement on the date acquired and are tested annually for impairment at the end of each fiscal year.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, 20192020, 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 in the fiscal fourth quarteras 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 MarchDecember 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.
8 |
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-Leases The— In accordance with ASC Topic 842, the Company determinesdetermined the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified.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 unaudited condensed consolidated statement of operations. For operating leases that reflect impairment, the Company will recognize the amortization of the operating lease right-of-use assets on a straight-line basis over the remaining lease term with rent expense still included in general and administrative expenses in the unaudited condensed consolidated statements of operations.
The Company has elected the practical expedient to not separate lease and non-lease components. The Company’s non-lease components are primarily related to property maintenance, insurance and taxes, which vary based on future outcomes, and thus are recognized in general and administrative expenses when incurred. (See Note 5).
Research and Development Expenses— The Company expenses research and development costs incurred in formulating, improving, validating and creating alternative or modified processes related to and expanding the use of the HIV, HBV, and cancerCancer therapies and technologies for use in the prevention, treatment, amelioration of and/or therapy for HIV, HBV, and cancer.Cancer. Research and development expenses for the three and six months ended MarchDecember 31, 2020 and 2019, respectively amounted to $ 2,245,357$1,334,468, and $730,255, respectively$2,384,844, respectively. Research and development expenses for the ninethree and six months ended MarchDecember 31, 2020 and 2019 amounted to $3,327,017$561,468, and $2,012,778, respectively.$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 ninesix months ended MarchDecember 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 3,554,1854,072,275 and 3,448,473 potential shares of Common Stock excluded from the Diluted EPS calculation as of MarchDecember 31, 2020.2020 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. |
Unless otherwise disclosed,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 financial instruments including cash, accounts receivable, prepaid expenses, investments, accounts payable, accrued expenses, capital lease obligations and notes payable approximates their recorded values due to their short-term maturities.
The following table sets forth the liabilities at March 31, 2020, which is recorded on the balance sheet at fair value on a recurring basis by level within the fair value hierarchy. As required, these are classified based on the lowest level of input that is significant to the fair value measurement:classifications.)
Fair Value Measurements at Reporting Date Using (In thousands) | ||||||||||||||||
March 31, | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
2020 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Contingent Consideration Liability | $ | 2,006,798 | $ | — | $ | — | $ | 2,006,798 |
The roll forward of the contingent consideration liability is as follows:
Balance June 30, 2019 | $ | 5,667,000 | ||
Contingent shares issued pursuant to the Acquisition Agreement | $ | (2,210,000 | ) | |
Fair value adjustment, net | $ | (1,450,202 | ) | |
Balance March 31, 2020 | $ | 2,006,798 |
Stock Options and WarrantsRestricted Share Units - During the three and nine-month periods presented in the accompanying condensed consolidated financial statements, theThe Company has granted stock options, restricted share units (“RSU’s) and warrants. The Company accounts for options and warrants in accordance with the provisions of FASB ASC Topic 718, Compensation - Stock Compensation. Non-cashCompensation. Stock based compensation costs for the vesting of options and warrantsRSU’s granted to officers, board members, employees and consultants for the three and six months ended MarchDecember 31, 2020 were $359,391 and $685,547, respectively. For the three and six months ended December 31, 2019 were $ (28,094)$690,061 and $96,733,$924,071, respectively. During the three months ended March 31, 2020 there were cancellations of options for related to former employees and directors, which reduced the expense for the quarter. The non-compensation expense for the nine months ended March 31, 2020 and 2019 were $895,976 and $1,962,958, 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 employeesconsultants 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.
11
10 |
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — REVISION OF 2018 FINANCIAL STATEMENTSFAIR 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 Company discovered that it had incorrectly classifiedwere 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 intangible assets that were purchased as part of theFebruary 16, 2018 acquisition of Enochian BioPharma (the “Acquisition”). As consideration for the Acquisition, the stockholders of Enochian Biopharma Inc. as finite-lived (amortizable), rather than indefinite-lived intangible assets (not amortized). ASC 350-Intangibles- Goodwillreceived (i) 18,081,962 shares of Common Stock, and Other requires that all intangible assets acquired(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 a business combination that are used in research and development activities (i.e., in-process research and development (IPR&D) assets) be capitalized as indefinite-lived intangible assets, regardlessconnection with the Acquisition of whether they have an alternative future use.Enochian Biopharma.
The Company has revised its previously issued consolidated financial statements for the year ended June 30, 2018 to correct the error that occurred during that fiscal year. Management assessed the materialityfair value of the error identified in accordancecontingent consideration liability is estimated using an option-pricing model. The key inputs to the model are all contractual or observable with ASC 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements and concludedexception being volatility, which is computed, based on qualitativethe Company’s underlying stock. The key inputs to valuing the contingent consideration liability on the date of acquisition and quantitative considerations thatas of December 31, 2020, include the effectCompany’s stock price on the valuation date of $2.95; the exercise price of the correctionwarrants 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 period in whichfair value of the related misstatement originated was not material.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 impactLevel 3 liability at December 31, 2020, which is recorded on the lines impacted by the correctionbalance sheet at fair value on a recurring basis. As required, these are classified based on the Company’s financial statements forlowest level of input that is significant to the three months ended March 31, 2019 in thousands.fair value measurement:
For the Three Months Ended March 31, 2019 | Adjustments | For the Three Months Ended March 31, 2019 | ||||||||||
(As Reported) | (As Revised) | |||||||||||
Statement of Operations: | ||||||||||||
Depreciation & Amortization | $ | 1,979,701 | $ | (1,975,762 | ) | $ | 3,939 | |||||
Total Operating Expense | $ | 4,661,641 | $ | (1,975,762 | ) | $ | 2,685,879 | |||||
Loss Before Income Taxes | $ | (4,705,846 | ) | $ | 1,975,762 | $ | (2,730,084 | ) | ||||
Net (loss) Income | $ | (4,705,846 | ) | $ | 1,975,762 | $ | (2,730,084 | ) | ||||
Basic & Diluted Loss per Share | $ | (0.13 | ) | $ | 0.06 | $ | (0.07 | ) | ||||
Consolidated Statement of Other Comprehensive Income | ||||||||||||
Other Comprehensive Income | $ | (4,566,136 | ) | $ | 1,696,342 | $ | (2,869,794 | ) |
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 |
The following table sets forth the impact on the lines impacted by the correction on the Company’s financial statements as of and for the nine months ended March 31, 2019 in thousands.
11 |
For the Nine Months Ended March 31, 2019 | Adjustments | For the Nine Months Ended March 31, 2019 | ||||||||||
(As Reported) | (As Revised) | |||||||||||
Balance Sheet: | ||||||||||||
Definite life intangible assets, net | $ | 106,994 | — | $ | 106,994 | |||||||
Indefinite life intangible assets | $ | 146,170,570 | $ | 8,653,430 | $ | 154,824,000 | ||||||
Total Assets | $ | 169,305,692 | $ | 8,653,430 | $ | 177,959,122 | ||||||
Statement of Operations: | ||||||||||||
Depreciation & Amortization | $ | 5,834,817 | $ | (5,813,402 | ) | $ | 21,415 | |||||
Total Operating Expense | $ | 14,693,294 | $ | (5,813,402 | ) | $ | 8,879,892 | |||||
Loss Before Income Taxes | $ | (25,000,630 | ) | $ | 5,813,402 | $ | (19,187,228 | ) | ||||
Net Income (Loss) | $ | (25,000,630 | ) | $ | 5,813,402 | $ | (19,187,228 | ) | ||||
Basic & Diluted Loss per Share | $ | (0.67 | ) | $ | 0.15 | $ | (0.52 | ) | ||||
Consolidated Statement of Other Comprehensive Income | ||||||||||||
Other Comprehensive Income | $ | (25,007,487 | ) | $ | 5,813,402 | $ | (19,194,085 | ) | ||||
Consolidated Statement of Changes to Shareholders’ Equity | ||||||||||||
Accumulated Deficit | $ | (62,596,019 | ) | $ | 8,653,431 | $ | (53,942,588 | ) |
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — PROPERTY AND EQUIPMENT
Useful Life | March 31, 2020 | June 30, 2019 | Useful Life | December 31, 2020 | June 30, 2020 | |||||||||||||||
Lab Equipment and Instruments | 4-7 | $ | 524,079 | $ | 479,155 | 4-7 | $ | 545,248 | $ | 534,527 | ||||||||||
Leasehold Improvements | 10 | $ | 224,629 | 194,778 | 10 | $ | 224,629 | 224,629 | ||||||||||||
Furniture Fixtures and Equipment | 4-7 | $ | 171,975 | $ | 72,736 | 4-7 | $ | 171,975 | $ | 171,975 | ||||||||||
Total | $ | 920,683 | $ | 746,669 | $ | 941,852 | $ | 931,131 | ||||||||||||
Less Accumulated Depreciation | $ | (127,011 | ) | $ | (59,152 | ) | $ | (206,371 | ) | $ | (153,013 | ) | ||||||||
Net Property and Equipment | $ | 793,672 | $ | 687,517 | $ | 735,481 | $ | 778,118 |
DuringDepreciation expense amount to $26,813, and $53,358 for the three and six months ended MarchDecember 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, respectively,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 Company had depreciation expense of $35,764,intangible asset provides economic benefit, and $3,939, respectively, and for the nine months ended Marchgoodwill.
At December 31, 2020 and 2019, respectively had depreciation expenseJune 30, 2020, definite and indefinite-life intangible assets consisted of $78,912 and $21,415, respectively.the following:
The Company disposed of assets valued at $0 and $231,174 in the nine months ended March 31, 2020 and 2019 respectively.
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 |
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 — DEFINITE-LIFE INTANGIBLE ASSETS
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 HV-01ENOB-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, and/or amelioration of and/or therapy exclusively for HIV in humans, and research and development exclusively relating to HIV in humans (the “License”).
At March 31, 2020 and June 30, 2019, definite and indefinite-lifehumans. Because the HIV License Agreement is considered, an IPR&D intangible assets consisted of the following: asset it is classified as an indefinite life asset that is tested annually for impairment.
June 30, | Effect of Currency | March 31, | ||||||||||||||||
Useful Life | 2019 | Period Change | Translation | 2020 | ||||||||||||||
Definite Life Intangibles Assets | ||||||||||||||||||
Patents | 20 Years | $ | 302,371 | — | $ | (9,347 | ) | $ | 293,024 | |||||||||
Less accumulated amortization | (209,072 | ) | (11,052 | ) | 6,503 | (213,621 | ) | |||||||||||
Net Definite Life Intangible Assets | $ | 93,299 | (11,052 | ) | $ | 2,844 | $ | 79,403 | ||||||||||
Indefinite Life Intangible Assets | ||||||||||||||||||
License Agreement | $ | 154,824,000 | $ | 154,824,000 | ||||||||||||||
Goodwill | $ | 11,640,000 | $ | 11,640,000 | ||||||||||||||
Total | $ | 166,464,000 | $ | 166,464,000 | ||||||||||||||
Total Indefinite Life Intangible Assets | $ | 166,464,000 | $ | 166,464,000 |
Year ending June 30, | ||||
2020 | $ | 3,788 | ||
2021 | $ | 15,154 | ||
2022 | $ | 15,154 | ||
2023 | $ | 15,154 | ||
Thereafter | $ | 30,153 | ||
Total | $ | 79,403 |
Impairment – Following the fourth quarter of each year, management performs its annual test of impairment of intangible assets assessing the qualitative factorsby 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. The Company received $70,800 in tenant improvement allowance in the form of free rent applied over 10 months in equal installments beginning in January of 2018.year
On June 19, 2018, Enochianthe 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, Enochianthe Registrant entered into an Addendum to the original Lease Agreement with an effective date of December 1, 2019, where it expanded the lease area to include another 1,101 square feet for a total rentable 3,554 square feet. The base rent increases by 3% each year, and ranges from $17,770 per month for the remainder of the first year to $23,186 per month for the tenth year. The equalized monthly lease payment for the term of the lease is $20,050. The Company iswas entitled to $108,168$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 3624 months and 8 years.80 months. As of MarchDecember 31, 2020, the weighted-average remaining term is 6.676.04 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 MarchDecember 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.
For the three and nine months ended March 31, 2020, leaseLease expense charged to general and administrative expenses for the three and six months ended amounted to $88,144$88,690 and $270,198,$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 | |||||||
2020 | $ | 82,658 | ||||||
Year Ending June 30th | Lease Expense | |||||||
2021 | $ | 338,345 | $ | 170,276 | ||||
2022 | $ | 348,495 | 348,495 | |||||
2023 | $ | 298,305 | 298,305 | |||||
2024 | $ | 246,004 | 246,004 | |||||
2025 | 253,384 | |||||||
Thereafter | $ | 828,205 | 574,821 | |||||
Less imputed interest | (274,676 | ) | (221,430 | ) | ||||
Total | $ | 1,867,336 | $ | 1,669,855 |
Prior to the adoption of ASC 842-Leases and for the three and nine months ended March 31, 2020, respectively, the Company recognized rent expense on a straight-line basis over the lease period and recorded deferred rent expense for rent expense incurred but not yet paid. The Company also recorded deferred rent attributable to cash incentives received under its lease agreements, which were amortized to rent expense over the lease term. During the three and nine months ended March 31, 2019, the Company recognized total rent expense of $62,368 and $236,991, respectively.
Disclosures related to periods prior to the adoption of the new lease standard:
13 |
Under ASC 840, approximate future minimum rental payments due under these leases as of March 31, 2020 would have been as follows:
Year Ending June 30 | ||||
2020 | $ | 82,658 | ||
2021 | $ | 338,345 | ||
2022 | $ | 348,495 | ||
2023 | $ | 298,305 | ||
2024 | $ | 246,004 | ||
Thereafter | $ | 1,106,435 | ||
Total | $ | 2,420,242 |
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, $0.0001 par value per share.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.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.
For the three and nine months ended March The Convertible Notes balance as of December 31, 2020 the Company recorded an interest payable and interest expense in the amount of $12,030, respectively. These amounts are reflected in accrued expenses and general and administrative expenses on the face of the financial statements.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 “Note”“Unsecured Note”) to Paseco APS, a Danish limited company and an existing stockholder of the Company. The principal amount of the Note will bewas 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 stockCommon 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-Debt470-Debt and ASC 835-Interest,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, at March 31, 2020, which is the relative fair value of the shares issued for the PIK interest on the closing date using the effective interest method. The discount of $493,192 will be accreted over the life of the 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.
16
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSFinance 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 MarchDecember 31, 2020, and June 30, 2019,2020, 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 MarchDecember 31, 2020, and June 30, 2019,2020, there were 46,497,40946,763,220 and 45,273,92446,497,409 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 January 9, 2020,July 3, 2019, the CompanyRegistrant issued 5,000500,000 shares related to restricted share units that vested on January 7, 2020. These shares were expensed during the period. On March 30, 2020, the Company issued 188,485 sharesof Common Stock valued at $501,370 based on the closing price on that date, in lieu of prepaid interest related$2.00 strike price per share pursuant to the $5 million, which is recorded againstexercise of vested grant warrants for total proceeds of $1.0 million.
On July 3, 2019, the NoteRegistrant issued 500,000 shares of Common Stock valued at its computed relative fair valuethe price of $493,192 using$4.42 per share in connection with the effective interest method (see Note 6).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 Acquisition Subsubsidiary 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 MarchDecember 31, 2020, 1,438,1221,375,000 Contingent Shares are issuable in connection with the Acquisition of Enochian Biopharma.
Acquisition of Enochian Denmark— At MarchDecember 31, 2020 and June 30, 2019,2020, the Company maintained a reserve of 17,414 and 82,237 and 92,237 Escrow Shares,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 MarchDecember 31, 2020 and June 30, 2019,2020, in accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark. There have been 102,816167,639 shares of Common Stock issued to non-consenting shareholders of Enochian Denmark as of MarchDecember 31, 2020. During the three and ninesix months ended MarchDecember 31, 2020, the Company issued zero59,385 and 10,00064,823 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 |
Stock Grants ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-In October of 2017, the Company issued warrants to APE Invest A/S and N.E. Nielsen, and in January 2018, the Company issued a warrant to Eric Leire (each a “Grant Warrant” collectively the “Grant Warrants”) to evidence the Grants for an aggregate of 900,000 Grant Warrants. As of July 1, 2019, there were 500,000 Grant Warrants outstanding. During the three and nine month periods ending March 31, 2020, there were zero and 500,000 grant warrants exercised, respectively. As of March 31, 2020, all grant warrants have been exercised.
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 (excluding other non-cash compensation expense) related to the options of $(28,094)$359,391 and $96,733$668,482 for the three and six months ended MarchDecember 31, 2020, respectively. The Company recognized stock-based compensation expense related to the options of $500,562 and 2019, respectively. During$726,828 for the three and six months ended MarchDecember 31, 2020 there were cancellations of options for related to former employees and directors, which reduced the expense for the quarter. Stock based compensation expense was $895,976 and $1,962,958 for the nine months ended March 31, 2020 and 2019, respectively. At MarchDecember 31, 2020, the Company had approximately $453,607$651,337 of unrecognized compensation cost related to non-vested options.
17
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — STOCKHOLDERS’ EQUITY (Continued)
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.
Pursuant
For the three and six months ended December 31, 2019, the Company granted annual options of zero and 13,470 to members of the 2019 Plan, onBoard of Directors and Scientific Advisory Board with a one-year vesting period pursuant to their contracts.
For three and six months ended December 27,31, 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. Additionally, pursuant to the 2019 Plan, during the three months and nine months ended March 31, 2020, the Company granted options of 92,576 and 123,826, respectively to the Board of Directors with a one-yearyear 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 726,0551,212,275 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 MarchDecember 31, 2020 is presented below:
Options Outstanding | Options Outstanding | Options Exercisable | Options Outstanding | Options Exercisable | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | 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 | |||||||||||||||||||||||||||||||||||||||||||
$ | 2.69 | 55,762 | 0.91 | $ | 2.69 | — | — | $ | — | $ | 2.00 – 4.50 | 195,663 | 9.51 | $ | 3.09 | 20,063 | 9.34 | $ | 3.16 | |||||||||||||||||||||||||||||||||||||
$ | 3.26 | 23,006 | 0.09 | $ | 3.26 | — | — | $ | — | $ | 4.51 – 6.50 | 482,497 | 8.12 | $ | 6.14 | 432,833 | 8.07 | $ | 6.17 | |||||||||||||||||||||||||||||||||||||
$ | 3.95 | 5,063 | 8.34 | $ | 3.95 | 5,063 | 8.34 | $ | 3.95 | 6.51 – 8.00 | 534,116 | 9.14 | $ | 7.97 | 70,575 | 7.53 | $ | 7.80 | ||||||||||||||||||||||||||||||||||||||
$ | 4.63 | 10,000 | 9.40 | $ | 4.63 | 10,000 | 9.64 | $ | 4.63 | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 4.80 | 53,249 | 9.75 | $ | 4.80 | — | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 4.85 | 4,124 | 9.4 | $ | 4.85 | — | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 4.90 | 9,183 | 9.36 | $ | 4.90 | 3,346 | 9.40 | $ | 4.90 | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 5.00 | 6,000 | 9.40 | $ | 5.00 | — | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 5.74 | 15,679 | 8.47 | $ | 5.74 | 15,679 | 8.47 | $ | 5.74 | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 5.80 | 7,759 | 8.53 | $ | 5.80 | 7,759 | 8.53 | $ | 5.80 | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 6.15 | 60,000 | 9.19 | $ | 6.15 | 20,000 | 9.19 | $ | 6.15 | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 6.25 | 24,001 | 8.94 | $ | 6.25 | 24,001 | 8.94 | $ | 6.25 | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 6.50 | 300,000 | 8.65 | $ | 6.50 | 300,000 | 8.65 | $ | 6.50 | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 6.95 | 4,317 | 9.03 | $ | 6.95 | — | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 7.10 | 10,563 | 8.92 | $ | 7.10 | 10,563 | 8.92 | $ | 7.10 | |||||||||||||||||||||||||||||||||||||||||||||||
$ | 8.00 | 69,235 | 8.07 | $ | 8.00 | 54,504 | 8.11 | 8.00 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | — | 657,941 | 8.92 | $ | 5.93 | 450,915 | 8.64 | $ | 6.55 | $ | — | 1,212,275 | 8.79 | $ | 6.46 | 523,471 | 8.05 | $ | 6.28 |
A summary of the status of the Plan Options at MarchDecember 31, 2020 and changes since July 1, 20192020 are presented below:
Weighted Average | Average | Weighted Average | Weighted Average | Average | Weighted Average | |||||||||||||||||||||||||||
Shares | Exercise Price | Remaining Life | Intrinsic Value | Shares | Exercise Price | Remaining Life | Intrinsic Value | |||||||||||||||||||||||||
Outstanding at beginning of period | 1,001,761 | 4.30 | 4.96 | $ | 1,252,785 | 1,105,442 | $ | 6.78 | 9.19 | $ | 107,931 | |||||||||||||||||||||
Granted | 179,295 | 4.02 | 10.0 | - | 111,832 | $ | 3.21 | 10.0 | ||||||||||||||||||||||||
Exercised | (500,000 | ) | - | - | - | — | — | — | — | |||||||||||||||||||||||
Forfeited | - | 2.00 | - | - | — | — | — | |||||||||||||||||||||||||
Expired | (23,115 | ) | 4.63 | - | - | (4,999 | ) | — | — | — | ||||||||||||||||||||||
Outstanding at end of period | 657,941 | 5.93 | 8.92 | $ | 17,286 | 1,212,275 | $ | 6.46 | 8.79 | $ | 15,950 | |||||||||||||||||||||
Vested and expected to vest | 450,915 | 6.55 | 8.64 | - | - | |||||||||||||||||||||||||||
Exercisable end of period | 450,915 | 6.55 | 8.64 | $ | - | 523,471 | $ | 6.28 | 8.05 | $ | 900 |
At MarchDecember 31, 2020, the Company has 450,915had 523,471 exercisable Plan Options. The total intrinsic value of options at MarchDecember 31, 2020 was $17,286.is $15,950. Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) at MarchDecember 31, 2020 (for outstanding options), less the applicable exercise price.
18
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 nine- monthsix-month period at Marchas of December 31, 2020, is presented below:
Weighted Average | Weighted Average | Weighted Average | Weighted Average | |||||||||||||||||||||
Shares | Exercise Price | Remaining Life | Shares | Exercise Price | Remaining Life | |||||||||||||||||||
Outstanding at beginning of period | 1,438,122 | $ | 1.42 | - | 1,438,122 | $ | 1.42 | 1.99 | ||||||||||||||||
Granted | - | - | - | |||||||||||||||||||||
Exercised | - | - | - | (63,122 | ) | 1.30 | 1.30 | |||||||||||||||||
Cancelled/Expired | - | - | - | - | - | - | ||||||||||||||||||
Outstanding at end of period | 1,438,122 | $ | 1.42 | 2.24 | 1,375,000 | $ | 1.42 | 1.49 | ||||||||||||||||
Exercisable end of period | 1,438,122 | $ | 1.42 | 2.24 | 1,375,000 | $ | 1.42 | 1.49 |
Equivalent Shares | Underlying Warrants | Outstanding | Equivalent Shares Exercisable | Equivalent Shares | Underlying Warrants | Outstanding | Equivalent Shares Exercisable | |||||||||||||||||||||||||||||||||||||
Exercise Prices | Exercise Prices | Equivalent Shares | Weight Average Remaining Contractual Life (years) | Weight Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | Exercise Prices | Equivalent Shares | Weight Average Remaining Contractual Life (years) | Weight Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | ||||||||||||||||||||||||||||||||
$ | 1.30 | 1,413,122 | 2.27 | $ | 1.30 | 1,413,122 | $ | 1.30 | 1.30 | 1,350,000 | 1.51 | $ | 1.30 | 1,350,000 | $ | 1.30 | ||||||||||||||||||||||||||||
$ | 8.00 | 25,000 | 0.87 | $ | 8.00 | 25,000 | $ | 8.00 | 8.00 | 25,000 | .12 | $ | 8.00 | 25,000 | $ | 8.00 | ||||||||||||||||||||||||||||
Total | Total | 1,438,122 | 2.24 | $ | 1.42 | 1,438,122 | $ | 1.42 | 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)
On December 27, 2019, theThe Company granted 30,000 restricted stock units vesting immediately for consulting services valued at $144,000.
On January 9, 2020, the Company issued 5,000 shares of Common Stockrecognized stock-based compensation expense related to restricted share units that vested on January 7, 2020.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 were fully expensed at date of issuance.$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 MarchDecember 31, 2020 is presented below:
Weighted Average | Weighted Average | Weighted Average | Weighted Average | Weighted Average | Weighted Average | |||||||||||||||||||||||||||
Shares | Issuance Price | Remaining Life | Intrinsic Value | Shares | Issuance Price | Remaining Life | Intrinsic Value | |||||||||||||||||||||||||
Outstanding at beginning of period | 15,000 | $ | 6.15 | 1.27 | $ | — | 10,000 | $ | 6.15 | .52 | $ | — | ||||||||||||||||||||
Granted | 30,000 | $ | 4.80 | — | $ | — | - | - | - | — | ||||||||||||||||||||||
Exercised | (35,000 | ) | $ | 4.99 | — | $ | - | - | - | - | ||||||||||||||||||||||
Cancelled/Expired | — | $ | — | — | $ | — | - | - | - | — | ||||||||||||||||||||||
Outstanding at end of period | 10,000 | $ | 6.15 | 1.27 | $ | — | 10,000 | 6.15 | .52 | $ | — | |||||||||||||||||||||
Exercisable end of period | — | $ | — | — | $ | — | — | $ | — | — | $ | — |
Restricted Stock Units Outstanding | Restricted Stock Units Outstanding | ||||||||||||||||||||||||||
Grant Price | Stock Units | Weight Average Remaining Contractual Life (years) | Weight Average Issuance Price | Grant Price | Stock Units | Weight Average Remaining Contractual Life (years) | Weight Average Issuance Price | ||||||||||||||||||||
6.15 | 10,000 | 1.27 | $ | 6.15 | |||||||||||||||||||||||
6.15 | 10,000 | .52 | $ | 6.15 | |||||||||||||||||||||||
Total | 10,000 | 1.27 | $ | 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 ninesix months ended MarchDecember 31, 2020 $300,000$75,000 and $1,050,000, respectively,125,000, was charged to research and development expenses in our Condensed Consolidated Statements of Operations related to this consulting agreement.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 announced by the Company on November 25, 2019.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 ninesix months ended MarchDecember 31, 2020, the Company paid $289,000$433,500 and $867,000 for scientific staffing resources, and $300,000 for materials.
The HBV License Agreement contains customary representations, warranties and covenants ofrespectively. During the parties with respect to the development of the Treatment and the HBV License. G Tech and SRI are each controlled by certain members of Weird Science, LLC, a shareholder of the Company.
Shares held for non-consenting shareholders –The 82,237 remaining shares have been reflected as issued and outstanding in the accompanying financial statements. There were 10,000 shares of Common Stock issued to such non-consent shareholders during the three and ninesix months ended March 31, 2020. (See Note 7)
Employment and Service Agreements-The Company has an agreement with the Executive Vice-Chair, where he fulfills the duties as prescribed by the Company’s bylaws and receives annual compensation in the amount of $430,000, plus 300,000 options that vested immediately. The Company has an employment agreement with the Chief Financial Officer with a base annual compensation of $200,000 plus 60,000 options and 15,000 shares of restricted stock. The Company executed a consulting agreement for services for a Senior Medical Advisor, in the amount of $175,000 on a part-time basis. The Company maintains employment agreements with other staff in the ordinary course of business.
Contingencies– From time to time, the Company is involved in routine legal and administrative proceedings and claims of various types. While any proceedings or claim contains an element of uncertainty, management does not expect a material impact on our results of operations or financial position.
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — RELATED PARTY TRANSACTIONS
Consulting Agreements –
On July 9, 2018, the Company entered into 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 and consulting and knowledge transfer on existing HIV experiments, and will continue until the services are no longer rendered or the agreement is terminated. Certain members of Weird Science control G-Tech. For the three and nine months ended March 31, 2020, $300,000 and $1,050,000, respectively, was charged to research and development expenses in our Condensed Consolidated Statements of Operations.
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.
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,December 31. 2020, the Company paid the $1.2 million aforementioned.
The cash fundingand $400,000 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 nine months ended March 31, 2020, the Company paid $289,000 for scientific staffing resources and $300,000 for materials.mouse studies conducted by a collaborating partner.
The HBV License Agreement contains customary representations, warranties and covenants of the parties with respect to the development of the Treatment and the HBV License. G Tech and SRI are each controlled by certain members of Weird Science, LLC, a shareholder of the Company.
Shares held for non-consenting shareholders – The 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
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., accelerating during the first half of March. 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 2020.
Our senior management team is monitoring COVID-19’s impact on a daily basis 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.
Paycheck Protection Program Promissory Note
On April 16, 2020,February 11, 2021, the Company entered into a Paycheck Protection Program Promissoryan amendment to the Unsecured Note (the “PPP Note”) in the principal amount of $272,700 (the “PPP Loan”) from City National Bank (the “PPP Loan Lender”). The PPP Loan was obtained pursuant$5,000,000 that will extend the Maturity Date out to the Paycheck Protection Program (the “PPP”)November 30, 2022. All other terms of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered byUnsecured Note remain the U.S. Small Business Administration (“SBA”).same. The PPP Loan was disbursed by the PPP Loan Lender to the Company on April 20, 2020 (the “Disbursement Date”), and will mature two years from the Disbursement Date. The PPP Loan bearschange in Maturity Date requires an additional year of interest at 1.00%the fixed rate of 6% per annum, and is payable monthly commencing seven months from the Disbursement Date. The PPP Loan may bewhich was prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used 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 payroll costs, costs for continuing group healthcare benefits, mortgage interest payments, rent, utility and interest on any other debt obligations that were incurred before February 15, 2020.
Because the U.S. government subsequently changed its position and guidelines related to the PPP Loans, the Company repaid the loan before May 7, 2020.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. formerly DanDrit Biotech USA, 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 preclinicalpre-clinical stage biotechnology company committed to using our genetically modified cellularcell, gene, and immune-therapyimmune therapy technologies to prevent or potentially cure HIV, andHBV as well as to potentially provide potentially 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 reinfusingreturning the re-engineered cells back into thea patient with HIV or some cancers to provide treatment. In some of our interventions, immunotherapy is used.
Human Immunodeficiency Virus, or HIV, and Acquired Immunodeficiency Syndrome, or AIDS
HIV attacks the body’s own immune system, specifically killing off CD4+ cells or T-cells. Left untreated, HIV reduces the number of T-cells in the body, leading to AIDs, a condition where the body cannot fight off common infections and disease.
Currently, there are over 30 antiretroviral drugs, or ART, approved by the FDA to treat HIV patients, but these drugs are expensive, require daily adherence, and can have significant side effects over time. In addition, approximately 1 million people, including in high-income countries, continue to die from HIV/AIDS due to resistance to ART or lack of access. Today there are no treatments, which can eliminate the reservoir of cells that contain HIV from the body. In other words, treatment is life-long.
There have been several efforts to cure HIV by re-engineering a person’s own T-cells so that such cells no longer express C-C chemokine receptor type 5, also known as CCR5, which is an essential co-receptor for HIV to enter T-cells. A mutation that blocks expression of CCR5 on T-cells occurs in a small percentage of people with no known adverse effects. The “Berlin patient” is an HIV-positive person who developed cancer and was treated with a bone marrow transplant with cells derived from a person with a naturally occurring deletion of CCR5. The Berlin patient seems to be effectively cured from HIV. Therefore, several researchers and companies have attempted to replicate the experience of the Berlin patient by genetically modifying the T-cells of HIV-positive patients and reinfusing them with T-cells that do not express CCR5. However, the uptake, or engraftment of the modified, reinfused cells has not been optimal, leading to a failure to achieve a cure. In addition, the transplant conditioning that has been used is myeloablative chemotherapy, wiping out the patient’s immune system, which has inherent risks and can have long-term side effects, including the risk of developing cancer.
ENOB-HV-01 is a novel, proprietary approach with the potential to overcome the failures of recent efforts. The intervention: 1) provides gene-modified, reinfused cells with a competitive advantage over non-modified cells in the HIV-positive person, with the potential to significantly increase engraftment; and 2) avoids the need for myeloablative chemotherapy and, in fact, could potentially be given on an outpatient basis. The FDA scheduled an INTERACT meeting for June 2, 2020. Initial scientific findings will be presented at the annual conference of the American Society of Cell and Gene Therapy in May 2020.
We are developing ENOB-HV-11 and ENOB-HV-12 that will utilize a novel cellular- and immunotherapy approach to potentially provide for a preventative vaccine and a therapeutic vaccine, respectively. A non-human primate study is in process.
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, and 257 million have chronic infection, and nearly 1 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 to develop an innovative approach to co-opt HBV polymerase 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 will be presented at the annual conference of the American Society of Cell and Gene Therapy in May 2020.
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 preclinicalinvitro 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.cure.
To date, our operations have been funded by sales of our securities.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 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 HBV Treatment under development aimed to treat Hepatitis B Virus (HBV) infections in accordance with its agreement in principle with G Tech and SRI announced by the Company on November 25, 2019 (See Note 8).
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 Common Stock. The outstanding principal amount of the Convertible Notes is due and payable on February 6, 2023 (See Note 6).
On March 27, 2020,11, 2021, the Company entered into an agreement with Paseco ApS, a Danish limited company and an existing stockholderamendment 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 Company, for $5,000,000Unsecured Note remain the same. The change in unsecured, non-convertible debt pursuant to a Note Purchase Agreement, withMaturity Date requires an additional year of interest at the fixed rate of 6% interest per annum, which was prepaid by the Company in kind with 188,485full on the date of the amendment through the issuance of 74,054 shares of the Company’s common stock of $501,370, which isCommon Stock based on the closing market price on that date (See Note 6)for a total value of $298,178.
Corporate History
Enochian was originally incorporated in Delaware on January 18, 2011, under the name “Putnam Hills Corp.” We filed a Registration Statement on Form 10 with the U.S. Securities and Exchange Commission, or the SEC, on August 12, 2011.
On February 12, 2014,16, 2018, we completed our acquisition of Enochian Biopharma pursuant to the Share Exchange Agreement, the Company acquired 100% (including the Escrow Shares) of the issued and outstanding capital stock of DanDrit Denmark and as a result became DanDrit Denmark’s parent company. Prior to the Share Exchange, the Company and an existing shareholder agreed to cancel 4,400,000 out of 5,000,000 common shares of DanDrit Denmark outstanding, and the Company issued 1,440,000 shares of Common Stock for legal and consulting services related to the Share Exchange and a future public offering. At the time of the Share Exchange each outstanding share of common stock of DanDrit Denmark was exchanged for 1.498842 shares of Common Stock, for a total of 6,000,000 shares of Common Stock, resulting in 8,040,000 shares of Common Stock outstanding immediately following the Share Exchange, including the Escrow Shares, which are deemed issued and outstanding for accounting purposes.
Onacquisition agreement, dated January 12, 2018, Enochian,by and among the Registrant, its wholly owned subsidiary DanDrit Acquisition Sub, Inc., Enochian Biopharma and Weird Science entered into the Acquisition Agreement. On February 16, 2018, the Acquisition was completed when the Acquisition Sub merged with and into Enochian Biopharma, with Enochian Biopharma surviving as a wholly owned subsidiary of the surviving corporation.Registrant. As consideration for the Acquisition,acquisition, the stockholders of Enochian Biopharma received (i) 50% of the number of18,081,962 shares of the Common Stock issued and outstanding as of the effective time of the Acquisition, in the aggregate, after giving effect to the Acquisition, and (ii) the right to receive earn-out shares of Common StockContingent Shares pro rata upon the exercise or conversion of any of the Company’s stock options and warrants, which were outstanding at closing.closing (See Note 7.)
22 |
Emerging Growth CompanyCOVID-19 Outlook
AsDuring March 2020, a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as definedglobal 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 Jumpstart Our Business Startups Act,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 JOBS Act, enacted in April 2012. An “emerging growth company” may take advantagehow 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 reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
Each of the foregoing exemptions is currently available to us. We may take advantage of these exemptions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), which such fifth anniversary will occur on June 30, 2020. The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies; provided, however, that an emerging growth company may elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have not elected to opt out of the transition period.
Because we have electedOur senior management team is monitoring COVID-19’s impact daily and will continue to take advantageadjust our operations as necessary. However, the impact of certainthis event on the Company’s results of the reduced disclosure obligationsoperations, financial position, and may elect to take advantage of other reduced reporting requirements in future filings, the information that we provide to our stockholders mayliquidity or capital resources cannot be different than you might receive from other public reporting companies in which you hold equity interests.reasonably estimated at this time.
Results of Operations for the three months and nine months ended MarchDecember 31, 2020 compared to the three months and nine months ended MarchDecember 31, 2019
The following table setstablesets forth our revenues, expenses and net loss for the three and nine months ended MarchDecember 31, 2020 and MarchDecember 31, 2019. The financial information below is derived from our unaudited condensed consolidated financial statements.
For the Three Months | For the Nine Months | |||||||||||||||||||||||||||||||||||||||||||||||
Ended | Ended | |||||||||||||||||||||||||||||||||||||||||||||||
March 31, | March 31, | For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | December 31, | Increase/(Decrease) | December 31, | Increase/(Decrease) | |||||||||||||||||||||||||||||||||||||||||
(As Revised) | (As Revised) | 2020 | 2019 | $ | % | 2020 | 2019 | $ | % | |||||||||||||||||||||||||||||||||||||||
Revenues | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | — | % | $ | — | $ | — | $ | — | — | % | ||||||||||||||||||||||||
Cost of Goods Sold | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | — | % | $ | — | $ | — | $ | — | $ | — | % | |||||||||||||||||||||||
Gross profit (Loss) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | — | % | $ | — | $ | — | $ | — | $ | — | % | |||||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
General and administrative | 1,486,561 | 1,951,685 | 5,622,721 | 6,845,699 | ||||||||||||||||||||||||||||||||||||||||||||
Research and development | 2,307,336 | 730,255 | 3,388,996 | 2,012,778 | ||||||||||||||||||||||||||||||||||||||||||||
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 | 35,764 | 3,939 | 78,912 | 21,415 | 30,760 | 21,667 | 9,093 | 42.0 | 61,218 | 43,148 | 18,070 | 41.9 | ||||||||||||||||||||||||||||||||||||
Total Operating Expense | $ | 3,829,661 | $ | 2,685,879 | $ | 9,090,629 | $ | 8,879,892 | $ | 3,305,216 | $ | 2,818,483 | $ | 486,733 | 17.3 | % | $ | 6,163,973 | $ | 5,260,968 | $ | 903,005 | 17.2 | % | ||||||||||||||||||||||||
LOSS FROM OPERATIONS | $ | (3,829,661 | ) | $ | (2,685,879 | ) | $ | (9,090,629 | ) | $ | (8,879,892 | ) | $ | (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 | 2,310,202 | (217,000 | ) | 1,450,202 | (10,342,390 | ) | 493,411 | 1,082,000 | (588,589 | ) | (54.4 | ) | 920,811 | (860,000 | ) | 1,780,811 | (207.1 | ) | ||||||||||||||||||||||||||||||
Interest expense | (12,030 | ) | (43 | ) | (12,030 | ) | (130 | ) | (93,426 | ) | - | (93,426 | ) | 100.0 | (185,739 | ) | - | (185,739 | ) | 100.0 | ||||||||||||||||||||||||||||
(Loss) gain on currency transactions | (371 | ) | 164,114 | 148,936 | (37,347 | ) | ||||||||||||||||||||||||||||||||||||||||||
Gain (Loss) on currency transactions | (32,289 | ) | (137,448 | ) | 105,159 | (76.5 | ) | (32,289 | ) | 149,307 | (181,596 | ) | (121.6 | ) | ||||||||||||||||||||||||||||||||||
Gain on settlement | 5,000 | — | 140,000 | — | - | 135,000 | (135,000 | ) | (100.0 | ) | - | 135,000 | (135,000 | ) | (100.0 | ) | ||||||||||||||||||||||||||||||||
Interest and Other Income | 12,371 | 8,724 | 45,324 | 72,531 | ||||||||||||||||||||||||||||||||||||||||||||
Total Other Income (Expense) | 2,315,172 | (44,205 | ) | 1,772,432 | (10,307,336 | ) | ||||||||||||||||||||||||||||||||||||||||||
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 | (1,514,489 | ) | (2,730,084 | ) | (7,318,197 | ) | (19,187,228 | ) | $ | (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 | $ | (1,514,489 | ) | $ | (2,730,084 | ) | $ | (7,318,197 | ) | $ | (19,187,228 | ) | $ | (2,933,296 | ) | $ | (1,720,531 | ) | $ | (1,212,765 | ) | 70.5 | % | $ | (5,329,866 | ) | $ | (5,803,708 | ) | $ | 473,842 | (8.2 | )% | |||||||||||||||
BASIC AND DILUTED LOSS PER SHARE | $ | (0.03 | ) | $ | (0.07 | ) | $ | (0.16 | ) | $ | (0.52 | ) | ||||||||||||||||||||||||||||||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED | 46,275,591 | 37,070,152 | 46,280,139 | 37,070,152 |
23 |
Revenues
Revenues from operations for the three and ninesix months ended MarchDecember 31, 2020, and MarchDecember 31, 2019 were $0 and $0, respectively.
Cost of Goods Sold
Our cost of goods sold was $0 and $0 during the three and ninesix months ended MarchDecember 31, 2020, and MarchDecember 31, 2019, respectively.
Gross profit (Loss)
Gross profit for the three and ninesix months ended MarchDecember 31, 2020, and MarchDecember 31, 2019 was $0 and $0, respectively.
Expenses
Our operating expenses for the three months ended MarchDecember 31, 2020, and MarchDecember 31, 2019 were $3,829,661$3,305,216 and $2,685,879,$2,818,483, respectively, representing an increase of $1,143,782,$486,732, or approximately 43%17%. The increase in operating expenses primarily relate to additional staffing in the current year, and the payments of $1,800,000 related to the HBV License Agreement entered into during the period.and studies for ENOB-HV11/12.
Our operating expenses for the ninesix months ended MarchDecember 31, 2020, and MarchDecember 31, 2019 were $9,090,629$6,163,973 and $8,879,892,$5,260,968, respectively, representing an increase of $210,737,$903,005, or approximately 2%17%. The primary contributors forchange is primarily related to the increase in operatingR&D expenses primarily relateof $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 non-compensation expensestock compensation expense. R&D primarily increased due to the commencement of approximately $1,067,000the non-human primate study for ENOB-HV11/12 and continued expenditures pursuant to the increase in R&D expendituresHepatitis B License agreement related to the HBV License Agreementdevelopment of $1,800,000.studies for our genetically modified cellular and immune-therapy technologies.
General and administrative expenses for the three months ended MarchDecember 31, 2020, and MarchDecember 31, 2019 were $1,486,561$1,939,988 and $1,951,685,$2,235,348, respectively, representing a decrease of $465,124,$295,360 or approximately 24%13%. The decrease is primarily related to the decrease in generalstock based compensation of $331,000 and administrative expenseslegal 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 an aggregate of individual immaterial variances with two largest variance due to aless stock options granted during the current period when compared to the prior year. The decrease in corporatelegal fees is due to the origination of the HBV license and franchise feesagreements occurring in the prior year when compared to current legal fees. The increase in salaries was due to change in mix of $160,000, and a decrease in non-compensation expense of $124,000 offset by greater payroll costs because of an increase from fiveheadcount when compared to ten full-time employees.prior year.
General and administrative expenses for the ninesix months ended MarchDecember 31, 2020, and MarchDecember 31, 2019 were $5,622,721$3,717,911 and $6,845,699,$4,136,160, respectively, representing a decrease of $1,222,978,$418,249 or approximately 18%10%. The largest contributors to the decrease in general and administrative expenses is primarilywere 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 non-compensationlaboratory expense was a result of approximately $1,067,000. related expenditures stabilizing during the current year.
Research and development expenses for the three months ended MarchDecember 31, 2020, and MarchDecember 31, 2019 were $2,307,336$1,334,468 and $730,255,$561,468, respectively, representing an increase of $1,577,081$773,000, or approximately 216%138%. The increases in research and development expenses arewere 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 License Agreement related paymentsstaffing costs of $1,800,000.$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 ninesix months Marchended December 31, 2020, and MarchDecember 31, 2019 were $3,388,996$2,384,844 and $2,012,778,$1,081,660, respectively, representing an increase of $1,376,218$1,303,184 or approximately 68%120%. The increases in research and development expenses arewere 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 License Agreementcosts 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 of $1,800,000.that expired in February 2020. All other R&D costs have remained relatively stable during this period.
The Company recorded other income of $2,315,172$710,155 for the threesix months ended MarchDecember 31, 2020, compared to other (expense) of ($44,205)542,740) for the threesix months ended MarchDecember 31, 2019, representing an increase of $2,359,377.$1,252,895. The increase in other income (expense) is primarily attributable to the change in fair value of the contingent consideration liability of $2,527,202. This contingent consideration is related to the Contingent Shares in connection with theEnochian BioPharma Acquisition of Enochian Biopharma.$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.
Other income (expense) for the nine months ended March 31, 2020, and March 31, 2019, was and $1,772,432 and ($10,307,336), respectively representing an increase of $12,079,768. The increase in other income (expense) is primarily attributable to the change in fair value of the contingent consideration of $11,792,592 related to the Contingent Shares in connection with the Acquisition of Enochian Biopharma.
Net Loss
Net loss for the three months ended MarchDecember 31, 2020, and MarchDecember 31, 2019, was ($1,514,489)2,933,296) or ($0.03)0.06) per share and ($2,730,084)1,720,531) or ($0.07)0.04) per share, respectively, representing aan 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.
24 |
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 $1,215,595,$473,842 or approximately 45%(8)%. The decrease in loss was primarily due to the changeincrease in fair value of the contingent consideration of $2,310,202,$1,780,811, offset by increasesthe increase in research and development expenses of $1,800,000$1,303,184 primarily related to the HBV License Agreement.Agreement, and the commencement of new studies related to ENOB-HV11/12 product line.
Net loss for the nine months March 31, 2020, and March 31, 2019, was ($7,318,197) or ($0.16) per share and ($19,187,228) or ($0.52) per share, respectively, representing a decrease in loss of $11,869,031, or approximately 62%. The decrease in loss was primarily due to the change in fair value of the contingent consideration of $11,792,592, the gain on currency transactions of approximately $186,000 offset by the $1,800,000 payments related to the HBV License Agreement.
Liquidity and Capital Resources
We have historically satisfied our capital and liquidity requirements through funding from shareholders, the issuance of convertible notes and the sale of our Common Stock and warrants.We currently have no sales revenue to support our current operations and we expect this to be the case until our therapies or products are approved for marketing in the United States and Europe. Even if we are successful in having our therapies or products approved for sale in the United States and Europe, we cannot guarantee that a market for the product will develop.We may never be profitable. At this time, we believe we have sufficient liquidity 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 however need additional funds for (a) purchase of equipment and, (b) research and development, specifically to open an Investigational New Drug Application (IND) (The first step in the drug review process by the FDA) for ENOB-HV01, to continue our research and development of ENOB-HV11/12, to fund the HBV License Agreement in the furthermentfurtherance 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.
25 |
As of MarchDecember 31, 2020, the Company had $10,939,166$3,425,050 in cash and working capital of $10,294,273$2,449,463 as compared to $12,282,224$8,696,361 in cash and working capital of $11,384,571$7,606,411 as of June 30, 2019,2020, a decrease of 1060.6 % and 11%67.8%%, respectively.
Assets
Total assets at MarchDecember 31, 2020, were $180,509,378$172,885,430 compared to $179,877,353$178,102,059 as of June 30, 2019.2020. The increasedecrease in total assets were primarily due to the rightdecrease in cash of use assets that were recorded as of July 1, 2020$5,271,311. The change is primarily attributed to the following expenditures, $2,384,844 in accordance with ASC 842-Leases, offset by normal course of business expendituresresearch and the $1,200,000 upfront paymentdevelopment costs primarily related to the Hepatitis BHBV License Agreement.Agreement and ENOB-HV11/12 studies, and general and administrative expenses of $3,032,363 net of non-cash items.
Liabilities
Total Liabilities at MarchDecember 31, 2020, were $10,286,032$10,944,588 compared to $6,777,416$11,829,798 as of June 30, 2019.2020. The increasedecrease in total liabilities were primarily related to new notereduction in accounts payable agreements entered into during the periodtrade that totaled approximately $6,200,000,$403,953 due to timing, and the lease liabilities related to the return on use assets recorded in accordance with ASC 842-Leases of approximately $1,867,000, offset by the decrease of approximately $3,660,000$1,113,333 in the contingent consideration liability.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:
Nine Months Ended March 31, 2020 | Nine Months Ended March 31, 2019 | |||||||
Net Cash (Used by) Operating Activities | $ | (8,214,325 | ) | $ | (6,288,765 | ) | ||
Net Cash (Used by) Investing Activities | (174,015 | ) | (733,176 | ) | ||||
Net Cash Provided by Financing Activities | 7,200,000 | 1,700,000 | ||||||
(Loss) Gain on Currency Translation | (154,718 | ) | (6,726 | ) | ||||
(Decrease) in Cash and Cash Equivalents | $ | (1,343,058 | ) | $ | (5,328,667 | ) |
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 ninesix months ended MarchDecember 31, 2020, and MarchDecember 31, 2019 was ($8,214,325)5,251,828) and ($6,288,765)4,375,861), respectively. Cash used in operating activities during the current period included several significant non-cash items that are added back$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 loss. These consisted of a decrease in the fair value of the contingent consideration liability of $1,450,202, the increase of prepaid insurance of $130,507, non-cash stock based compensation of $895,976.items.
Cash used in investing activities forwas $10,721 during the ninesix months ended MarchDecember 31, 2020, and March$132,321 for the six months ended December 31, 2019, was ($174,015) and ($733,176), respectively. The cash used in investing activities during the current period wasprimarily due to purchase more laboratory equipment.of equipment for the lab.
Cash providedused by financing activities for the ninesix months ended MarchDecember 31, 2020 and MarchDecember 31, 2019, was $7,200,000($40,408) and $1,700,000,$1,000,000, respectively. Cash provided byDuring the six months ended December 31, 2020 and 2019, the Company received financing activities during the current period came from $1,000,000 of proceeds from the exerciseexercising of warrants $1,200,000 Convertible Notes,held by shareholders, and a $5,000,000 unsecured Notes.
The decrease in cash of $1,343,058 is primarily due tomade payments towards the approximate following expenditures, $3,327,000 in research and development costs, purchasing of furniture and lab equipment of $174,000, and compensation and benefit expenses of $1,216,000, offset by the proceeds from the exercised grant warrants of $1,000,000, the Convertible Notes of $1,200,000 and the unsecured Note of $5,000,000.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.
Emerging Growth Company
As an “emerging growth company” under the JOBS Act, the Company has elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. This election expires June 30, 2020.
Significant Accounting Policies and Critical Accounting Estimates
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result, of the need to make estimates regarding matters that are inherently uncertain. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are not choosing to “opt out” of this provision. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. As a result of our election, not to “opt out” of Section 107, our financial statements may not be comparable to companies that comply with public company effective dates.
For a full explanation of our accounting policies, see Note 1 to the unaudited condensed consolidated financial statements.
26 |
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 MarchDecember 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 three and ninesix months ended MarchDecember 31, 2020 that have materially affected or are reasonably likely to materially affect our internal controls.
27 |
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.
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.
Business interruptions resulting from the coronavirus disease 2019 (COVID-19) outbreak or similar public health crises could cause a disruption of the developmentRisk factors that may affect our business and financial results are discussed within Item 1A ”Risk Factors” of our product candidates and adversely impact our business.
Public health crises such as pandemics or similar outbreaks could adversely impact our business. In December 2019, a new strain of coronavirus surfaced in Wuhan, China and has reached multiple other regions and countries, including Los Angeles where our primary office and laboratory facilities are located. The COVID-19 pandemic continues to evolve, and to date has ledannual 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 implementation of various mitigation responses, including government-imposed quarantines, travel restrictions and other public health safety measures, as well as leadingdisclosures relating to reported adverse impacts on healthcare resources, facilities and providers across the United States and in other countries. COVID-19 is expected to cause delaysthis item from those set forth in our research activities, and the extent to which COVID-19 impacts our operations or those of our third-party partners, including research organizations and suppliers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, additional or modified government actions, new information that will emerge concerning the severity and impact of COVID-19 and the actions to contain COVID-19 or address its impact in the short and long term, among others.2020 Form 10-K.
Additionally, timely initiation and completion of planned preclinical studies is dependent upon the availability of, for example, preclinical study sites, researchers and investigators, regulatory agency personnel, and materials, which may be adversely affected by global health matters, such as pandemics. We plan to conduct preclinical studies in geographies that are currently being affected by COVID-19.
Further, in the event that governmental authorities were to further modify current restrictions, our employees conducting research and development activities may not be able to access our laboratory offices, and our core activities may be significantly limited or curtailed, possibly for an extended period of time.
Some factors from the COVID-19 pandemic that could delay or otherwise adversely affect the completion of our preclinical activities, as well as our business operations generally, include:
In addition, the trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. As a result, we could potentially face difficulties raising capital or such sales may be on unfavorable terms.
Further, conditions in the financial markets may continue to deteriorate as a result of the pandemic such that our access to capital and other sources of funding may be constrained.
The COVID-19 outbreak continues to rapidly evolve. The extent to which the outbreak may impact our business, preclinical studies will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and other actions to contain the outbreak or address its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and address the disease.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended March 31, 2020, the Company issued 193,485 of unregistered shares (see Note 7).None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
(a) | Exhibits required by Item 601 of Regulation S-K. |
Exhibit No. | Description | |
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 |
**
| Filed herewith. |
*** | Furnished herewith. |
32
28 |
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: | 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) |
33
29 |