U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from ________ to ________
Commission
file number
(Exact name of registrant as specified in its charter)
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| incorporation or organization) | Identification Number) | |
| (Address of principal executive offices) | (Zip Code) |
+1
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| The |
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.
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).
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 | ☐ |
| ☒ | 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. ☐
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As of May 12, 2022, the number of shares of the registrant’s common stock outstanding was .
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
- INDEX -
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
The results for the periods ended March 31, 2022, 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, 2021, filed with the Securities and Exchange Commission on September 24, 2021.
1
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | June 30, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Other receivables | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| OTHER ASSETS: | ||||||||
| Definite life intangible assets, net | ||||||||
| Indefinite life intangible assets | ||||||||
| Goodwill | ||||||||
| Deposits and other assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable – trade | $ | $ | ||||||
| Accrued expenses | ||||||||
| Other current liabilities | ||||||||
| Notes payable, net | ||||||||
| Convertible notes payable | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total Current Liabilities | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Contingent consideration liability | ||||||||
| Convertible notes payable | ||||||||
| Notes payable, net | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred stock, $ par value; shares authorized; shares issued and outstanding | ||||||||
| Common stock, par value $, shares authorized, shares issued and outstanding at March 31, 2022, and shares issued and outstanding at June 30, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
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 Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Change in fair value of contingent consideration | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Loss) gain on currency transactions | ( | ) | ( | ) | ||||||||||||
| Interest and other income | ||||||||||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss Before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income Tax (Provision) Benefit | ( | ) | ||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| BASIC AND DILUTED LOSS PER SHARE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED | ||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements
3
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other Comprehensive Income (Loss) | ||||||||||||||||
| Currency Translations | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| # of Shares | Common Shares | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total | |||||||||||||||||||
| July 1, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Currency translations | — | ( | ) | ( | ) | |||||||||||||||||||
| September 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||
| Stock issued pursuant to warrants exercised | ||||||||||||||||||||||||
| Shares issued pursuant to LPC purchase agreement | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Shares issued for fully vested RSUs | ||||||||||||||||||||||||
| Restricted shares converted to shares for services rendered | ( | ) | ||||||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Currency translations | — | ( | ) | ( | ) | |||||||||||||||||||
| December 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||
| Contingent shares issued pursuant to acquisition agreement | ||||||||||||||||||||||||
| Shares issued pursuant to LPC purchase agreement | ||||||||||||||||||||||||
| Shares issued for fully vested RSUs | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Currency translations | — | ( | ) | ( | ) | |||||||||||||||||||
| March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
5
| # of Shares | Common Shares | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total | |||||||||||||||||||
| July 1, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Issuance of commitment shares | ( | ) | ||||||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Currency translations | — | |||||||||||||||||||||||
| September 30, 2020 | ( | ) | ( | ) | ||||||||||||||||||||
| Stock issued pursuant to warrants exercised | ||||||||||||||||||||||||
| Contingent shares issued pursuant to acquisition agreement | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Currency translations | — | |||||||||||||||||||||||
| December 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||
| Shares issued pursuant to 2021 private placement | ||||||||||||||||||||||||
| Shares issued in lieu of interest on $5 million notes payable extension | ||||||||||||||||||||||||
| Restricted shares converted to shares for services rendered | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Currency translations | — | ( | ) | ( | ) | |||||||||||||||||||
| March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
6
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES : | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES: | ||||||||
| Depreciation and amortization | ||||||||
| Change in contingent consideration liability | ( | ) | ||||||
| Stock based compensation expense | ||||||||
| Right-of-use assets | ||||||||
| Amortization of discount of notes payable | ||||||||
| Changes in assets and liabilities: | ||||||||
| Other receivables | ||||||||
| Prepaid expenses/deposits | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Other current liabilities | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Repayment of finance agreement | ( | ) | ( | ) | ||||
| Proceeds from LPC equity agreement | ||||||||
| Proceeds from 2021 Private Placement | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| Effect of exchange rates on cash | ( | ) | ||||||
| NET CHANGE IN CASH | ( | ) | ( | ) | ||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income Taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Contingent shares issued pursuant to acquisition agreement | $ | $ | ||||||
| Shares issued in lieu of interest expense on $5 million note payable extension | $ | $ | ||||||
| Discount on $5 million note payable related to prepaid interest paid in the form of shares issued | $ | $ | ||||||
| Finance agreement entered into in exchange for prepaid assets | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statement.
7
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business – Enochian Biosciences Inc., (“Enochian,” or “Registrant”, and together with its subsidiaries, the “Company”, “we” or “us”) engages in the research and development of pharmaceutical and biological products for the human treatment of HIV, HBV, influenza and coronavirus infections, and cancer with the intent to manufacture and commercialize said products.
Basis of Presentation – The Company prepares consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and follows the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The accompanying financial statements are unaudited. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 31, 2022, and 2021 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s June 30, 2021, audited financial statements. The results of operations for the periods ended March 31, 2022, and 2021 are not necessarily indicative of the operating results for the full year.
Consolidation – For the three and nine months ended March 31, 2022, and 2021, the condensed consolidated financial statements include the accounts and operations of the Registrant and its subsidiaries. All material inter-company transactions and accounts have been eliminated in the consolidation.
Reclassification – Certain amounts in the prior period financial statements, have been reclassified to conform to the current presentation. For the three and nine months ended March 31, 2021, we reclassified lab expenses of $39,596 and $110,078, respectively from general and administrative expenses to research and development expenses.
Accounting Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated. Significant estimates include the fair value and potential impairment of intangible assets, and fair value of equity instruments issued.
COVID-19 – The pandemic continues to evolve, and to date has led to the implementation of various mitigation responses, including government-imposed quarantines, travel restrictions and other public health safety measures, as well as leading to reported adverse impacts on healthcare resources, facilities, and providers across the United States and in other countries. COVID-19 may cause delays in our research activities. To date, it has not materially affected our operations; however, it has caused delays in the conduct of experiments due to limitations of various organizations, in particular those conducting experiments related to COVID-19. There have also been increases in the cost to conduct animal studies due to staffing and other limitations.
The full extent to which the COVID-19 pandemic may impact our business and operations is subject to future developments, which are uncertain and difficult to predict. Further quarantines, shelter-in-place or similar restrictions and other actions taken or imposed by foreign, federal, state, and local governments could adversely impact our or our partners’ clinical, research and development, regulatory and manufacturing operations, or timelines.
We continue to monitor the impact of the COVID-19 pandemic on our business and operations and will seek to adjust our activities as appropriate. In addition, the pandemic could result in significant and prolonged disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect the financial resources available to us.
Functional Currency & Foreign Currency Translation – The functional currency of Enochian Denmark is the Danish Kroner (“DKK”). The Company’s reporting currency is the U.S. Dollar for the purpose of these financial statements. The Company’s balance sheet accounts are translated into U.S. dollars at the period-end exchange rates and all revenue and expenses are translated into U.S. dollars at the average exchange rates prevailing during the periods ended March 31, 2022, and 2021. Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.
8
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents –
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
The Company had balances held in financial institutions in Denmark and in the United States in excess of federally insured amounts
at March 31, 2022, and June 30, 2021, of $
Property and Equipment – Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized and depreciated upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful lives of the assets, which range from four to ten years (see Note 3.)
Intangible Assets – The Company has both definite and indefinite life intangible assets.
Definite life intangible assets include patents. The Company accounts for definite life intangible assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, “Goodwill and Other Intangible Assets”. Intangible assets are recorded at cost. Patent costs consist of costs incurred to acquire the underlying patent. If it is determined that a patent will not be issued, the related remaining capitalized patent costs are charged to expense. Intangible assets are amortized on a straight-line basis over their estimated useful life. The estimated useful life of patents is twenty years from the date of application.
Indefinite life intangible assets include license agreements and goodwill. The Company accounts for indefinite life intangible assets in accordance with ASC 350, “Goodwill and Other Intangible Assets”. License agreement costs represent the fair value of the license agreement on the date acquired and are tested annually for impairment, as well as whenever events or changes in circumstances indicate the carrying value may not be recoverable.
Goodwill – Goodwill is not amortized but is evaluated for impairment annually as of June 30th of each fiscal year or whenever events or changes in circumstances indicate the carrying value may not be recoverable.
Impairment of Goodwill and Indefinite Lived Intangible
Assets – We test for goodwill impairment at the reporting unit level, which is one level below the operating segment level.
Our detailed impairment testing involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair
value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit and is based on discounted
cash flows or relative market-based approaches. If the carrying value of the reporting unit exceeds its fair value, we record an impairment
loss for such excess. The carrying value of in-process research and development (“IPR&D”) and goodwill at March 31, 2022,
were $
For indefinite-lived intangible assets, such as licenses acquired as an IPR&D asset, on an annual basis we determine the fair value of the asset and record an impairment loss, if any, for the excess of the carrying value of the asset over its fair value. The fair value analysis performed on the license agreement, and the annual fair value analysis performed on goodwill supported that both indefinite life intangible assets are not impaired as of June 30, 2021, and no impairment is deemed necessary as of March 31, 2022 (see Note 4.)
9
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets – Long-lived assets, such as property and equipment, definite and indefinite life intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and would no longer be depreciated. The depreciable basis of assets that are impaired and continue in use are their respective fair values.
Leases – In accordance with ASC Topic 842, the Company determined the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date and thereafter. The lease terms include any renewal options and termination options that the Company is reasonably assured to exercise, if applicable. The present value of lease payments is determined by using the implicit interest rate in the lease, if that rate is readily determinable; otherwise, the Company develops an incremental borrowing rate based on the information available at the commencement date in determining the present value of the future payments.
Rent expense for operating leases is recognized on a straight-line basis, unless the operating lease right of use assets have been impaired, over the reasonably assured lease term based on the total lease payments and is included in operating expenses in the condensed consolidated statements of operations. For operating leases that reflect impairment, the Company will recognize the amortization of the operating lease right-of-use assets on a straight-line basis over the remaining lease term with rent expense still included in general and administrative expenses in the unaudited condensed consolidated statements of operations.
The Company has elected the practical expedient to not separate lease and non-lease components. The Company’s non-lease components are primarily related to property maintenance, insurance, and taxes, which vary based on future outcomes, and thus are recognized in general and administrative expenses when incurred (see Note 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, Coronaviruses and Oncology therapies and technologies for use
in the prevention, treatment, amelioration of and/or therapy for HIV, HBV, Coronaviruses and Oncology. Research and development expenses
for the three and nine months ended March 31, 2022, amounted to $
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.
10
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments – The Company accounts for fair value measurements for financial assets and financial liabilities in accordance with FASB ASC Topic 820, “Fair Value Measurements”. The authoritative guidance, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability (see Note 2.)
Stock Options and Restricted Share Units – The Company has granted stock options, restricted share units (“RSUs”) and warrants. The Company accounts for options in accordance with the provisions of FASB ASC Topic 718, “Compensation - Stock Compensation”.
Stock-Based Compensation – The Company records stock-based compensation in accordance with ASC Topic 718, “Compensation - Stock Compensation”. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to consultants and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the required service period, which is generally the vesting period. Stock based compensation costs for the vesting of options and RSUs granted for the three and nine months ended March 31, 2022, were $ and $, respectively. Stock-based compensation costs for the vesting of the options and RSUs granted for the three and nine months ended March 31, 2021, were $ and $, respectively. (See Note 7.)
Recently Adopted Accounting Pronouncements – Recent accounting pronouncements issued by the FASB do not or are not believed by management to have a material impact on the Company’s present or future financial statements.
11
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — FAIR VALUE MEASUREMENTS – The Company accounts for fair value measurements for financial assets and financial liabilities in accordance with FASB ASC Topic 820, “Fair Value Measurements”. The authoritative guidance among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
| ● | Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and |
| ● | Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
There were no Level 1, 2 or 3 assets, nor any Level 1 or 2 liabilities as of March 31, 2022.
Level 3 liabilities held as of
March 31, 2022, consisted of a contingent consideration liability related to the February 16, 2018, acquisition of Enochian Biopharma
Inc. (the “Acquisition”). As consideration for the Acquisition, the stockholders of Enochian Biopharma received (i)
shares of Common Stock, and (ii) the right to receive contingent shares pro rata upon the exercise of warrants, which were outstanding
at closing. The contingent consideration liability was recorded at fair value of $
The fair value of the contingent
consideration liability is estimated using an option-pricing model. The key inputs to the model are all contractual or observable with
the exception being volatility, which is computed, based on the Company’s underlying stock. The key inputs to valuing the contingent
consideration liability as of March 31, 2022, include the Company’s stock price on the valuation date of $; the exercise price
of the warrants of $
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, prepaid expenses, investments, accounts payable, accrued expenses, capital lease obligations and notes payable approximate their recorded values due to their short-term maturities.
The following table sets forth the Level 3 liability at March 31, 2022, which is recorded on the balance sheet at fair value on a recurring basis. As required, this liability is classified based on the lowest level of input that is significant to the fair value measurement:
| Fair Value Measurements at Reporting Date Using | ||||||||||||
| Quoted Prices in Active Markets for Identical Assets Inputs | Significant Other Observable Inputs | Significant Other Unobservable Inputs | ||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||
| The roll forward of the contingent consideration liability is as follows: | ||||||||||||
| Balance June 30, 2021 | $ | |||||||||||
| Contingent Shares issued pursuant to the Acquisition Agreement | ( | ) | ||||||||||
| Fair value adjustment | ||||||||||||
| Contingent Consideration Liability at March 31, 2022 | $ | |||||||||||
12
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
| Useful Life | March 31, 2022 | June 30, 2021 | ||||||||||
| Lab Equipment and Instruments | $ | $ | ||||||||||
| Leasehold Improvements | ||||||||||||
| Furniture, Fixtures and Equipment | ||||||||||||
| Total | ||||||||||||
| Less Accumulated Depreciation | ( | ) | ( | ) | ||||||||
| Net Property and Equipment | $ | $ | ||||||||||
Depreciation expense amounted
to $
NOTE 4 —INTANGIBLE ASSETS
At March 31, 2022, and June 30,
2021, definite-life intangible assets, net of accumulated amortization, consisted of patents on the Company’s products and processes
of $
At March 31, 2022, and 2021, indefinite life intangible assets consisted of a license agreement classified as In-Process Research and Development (“IPR&D”) intangible assets, which are not amortizable until the intangible asset provides economic benefit, and goodwill.
At March 31, 2022, and June 30, 2021, definite and indefinite-life intangible assets consisted of the following:
| Useful Life | June 30, 2021 | Period Change | Effect of Currency Translation | March 31, 2022 | ||||||||||||||
| Definite Life Intangible Assets | ||||||||||||||||||
| Patents | $ | $ | $ | ( | ) | $ | ||||||||||||
| Less Accumulated Amortization | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net Definite-Life Intangible Assets | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
| Indefinite Life Intangible Assets | ||||||||||||||||||
| License Agreement | $ | — | — | $ | ||||||||||||||
| Goodwill | — | — | ||||||||||||||||
| Total Indefinite Life Intangible Assets | $ | — | — | $ | ||||||||||||||
Expected future amortization expense is as follows:
| Year ending June 30, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
During February 2018, the Company acquired a License Agreement (as licensee) to an HIV therapy which consists of a perpetual, fully paid-up, royalty-free, sub-licensable, and sole and exclusive worldwide license to research, develop, use, sell, have sold, make, have made, offer for sale, import and otherwise commercialize certain intellectual property in cellular therapies for the prevention, treatment, amelioration of and/or therapy exclusively for HIV in humans, and research and development exclusively relating to HIV in humans. Because the HIV License Agreement is considered an IPR&D intangible asset it is classified as an indefinite life asset that is tested annually for impairment.
Impairment – Following the fourth quarter of each year, management performs its annual test of impairment of intangible assets by performing a quantitative assessment and determines if it is more likely than not that, the fair value of the asset is greater than or equal to the carrying value of the asset. The results of the quantitative assessment supported Management’s conclusion that an impairment adjustment was not required as of June 30, 2021, and no impairment is deemed necessary as of March 31, 2022.
13
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 — LEASES
Operating
Leases —
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 9 months and 65 months.
As of March 31, 2022, the weighted-average remaining term is
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 March 31, 2022, the weighted-average
discount rate is
Lease and non-lease components — In certain cases the Company is required to pay for certain additional charges for operating costs, including insurance, maintenance, taxes, and other costs incurred, which are billed based on both usage and as a percentage of the Company’s share of total square footage. The Company determined that these costs are non-lease components, and they are not included in the calculation of the lease liabilities because they are variable. Payments for these variable, non-lease components are considered variable lease costs and are recognized in the period in which the costs are incurred.
Lease expense charged to
general and administrative expenses for the three and nine months ended March 31, 2022, amounted to $
Below are the lease commitments for the next 5 years and thereafter:
| Year Ending June 30th | Lease Expense | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Less imputed interest | ( |
) | ||
| Total | $ | |||
14
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 $
The holder of the Convertible
Notes had the right at any time prior to the date that is twelve months from issuance to convert all or any part of the outstanding and
unpaid principal and all unpaid interest into shares of the Company’s Common Stock. The conversion price was equal to $
Note Payable — On March 30, 2020 (the
“Issuance Date”), the Company issued a Promissory Note in the principal amount of $
On February 11, 2021, the Company
entered into an amendment to the Unsecured Note in the principal amount of $
Finance Agreement — On November 30, 2021,
the Company entered into a premium finance agreement (the “Agreement”) with a principal amount of $
For the three and nine months
ended March 31, 2022, the Company recorded total interest expense in the amount of $
Total interest expense recorded
for the three and nine months ended March 31, 2022, was $
15
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — STOCKHOLDERS’ EQUITY
Preferred Stock —The Company has authorized shares of Preferred Stock, par value $ per share. At March 31, 2022, and June 30, 2021, there were zero shares issued and outstanding.
Common Stock —The Company has authorized shares of Common Stock, par value $ per share. At March 31, 2022, and June 30, 2021, there were and 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.
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 $
Under the Purchase Agreement,
we may direct Lincoln Park, at our sole discretion subject to certain conditions, to purchase up to 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 shares of Common Stock, provided that Lincoln Park’s committed obligation for Regular Purchases on any business day shall
not exceed $
Our sale of shares of Common Stock
to Lincoln Park pursuant to the Purchase Agreement is
In consideration for entering into the Purchase Agreement, we issued shares of Common Stock to Lincoln Park as a commitment fee on July 21, 2020.
During the three and nine months
ended March 31, 2022, we issued and shares of Common Stock to Lincoln Park under the Purchase Agreement for a purchase
price of $
16
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — STOCKHOLDERS’ EQUITY (Continued)
Common Stock Issuances — In the three and nine months ended March 31, 2022, there were and shares of Common Stock issued, respectively. In the three and nine months ended March 31, 2021, there were and shares of Common Stock issued, respectively.
Acquisition of Enochian Biopharma
Inc. / Contingently issuable shares — On February 16, 2018, the Acquisition was completed when the subsidiary merged
with and into Enochian Biopharma, with Enochian Biopharma as the surviving corporation. As consideration for the Acquisition, the stockholders
of Enochian Biopharma received (i) 18,081,962 shares of Common Stock, and (ii) the right to receive contingent shares pro rata upon the
exercise or conversion of warrants, which were outstanding at closing. At March 31, 2022,
Acquisition of Enochian Denmark — At March 31, 2022, and June 30, 2021, the Company maintained a reserve of shares of Common Stock of the Registrant held in escrow according to Danish law (the “Escrow Shares”), all of which are reflected as issued and outstanding in the accompanying financial statements. The Escrow Shares are reserved to acquire the shares of Enochian Denmark held by non-consenting shareholders of Enochian Denmark on both March 31, 2022, and June 30, 2021, in accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark. There have been shares of Common Stock issued to non-consenting shareholders of Enochian Denmark as of March 31, 2022. During the three and nine months ended March 31, 2022, the Company issued zero shares of Common Stock to such non-consenting shareholders of Enochian Denmark. There is no impact on outstanding shares as these shares are reflected as issued and outstanding.
17
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — STOCKHOLDERS’ EQUITY (Continued)
Stock-based Compensation
The Company recognizes compensation costs for stock option awards to employees and directors based on their grant-date fair value. The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average assumptions used to estimate the fair values of the stock options granted using the Black-Scholes option-pricing model are as follows:
| Enochian Biosciences Inc. | ||||
| Expected term (in years) | – | |||
| Volatility | %-% | |||
| Risk free interest rate | %-% | |||
| Dividend yield | % | |||
The Company recognized stock-based compensation expense related to the options of $ and $ for the three and nine months ended March 31, 2022, respectively. The Company recognized stock-based compensation expense related to the options of $ and $ for the three and nine months ended March 31, 2021, respectively. At March 31, 2022, the Company had approximately $ of unrecognized compensation cost related to non-vested options.
Plan Options
On February 6, 2014, the Board adopted the Company’s 2014 Equity Incentive Plan (the “2014 Plan”), and the Company had reserved shares of Common Stock for issuance in accordance with the terms of the 2014 Plan.
On October 30, 2019, the Board approved and on October 31, 2019, the Company’s shareholders adopted Enochian’s 2019 Equity Incentive Plan (the “2019 Plan”), which replaced the 2014 Plan. The 2019 Plan authorized options to be awarded to not exceed the sum of (1) 6,000,000 new shares 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 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 that were available to grant immediately after the effective date of the 2019 Plan.
Pursuant to the 2019 Plan, the Company granted options to purchase and shares of Common Stock to employees with a three-year vesting period during the three and nine months ended March 31, 2022, respectively. For the three and nine months ended March 31, 2021, the Company granted options to purchase zero and shares of Common Stock to employees with a three-year vesting period.
During the three and nine months ended March 31, 2022, the Company granted options to purchase shares of Common stock to employees with a one-year vesting period. For the three and nine months ended March 31, 2021, the Company granted options to purchase zero shares of Common Stock to employees with a one-year vesting period.
During the three and nine months ended March 31, 2022, the Company granted options to purchase and shares of Common stock, respectively, to the Board of Directors and Scientific Advisory Board Members with a one-year vesting period. For the three and nine months ended March 31, 2021, the Company granted annual options to purchase and shares of Common Stock, respectively to members of the Board of Directors and Scientific Advisory Board with a one-year vesting period.
The Company issued options for
consulting services to purchase zero and
All of the above options are exercisable at the market price of the Company’s Common Stock on the date of the grant.
To date the Company has granted options under the Plan (“Plan Options”) to purchase shares of Common Stock.
18
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 outstanding at March 31, 2022, is presented below:
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||
| Exercise Price Ranges | Number Outstanding | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | ||||||||||||||||||||||
| $ | – | $ | |
|
$ | |||||||||||||||||||||||
| $ | – | |
$ | |
|
$ | ||||||||||||||||||||||
| $ | – | $ | |
$ | ||||||||||||||||||||||||
| Total | $ | |
$ | |||||||||||||||||||||||||
A summary of the status of the Plan Options at March 31, 2022, and changes since July 1, 2021, are presented below:
| Shares | Weighted Average Exercise Price | Average Remaining Life | Weighted Average Intrinsic Value | |||||||||||||
| Outstanding at beginning of period | $ | $ | ||||||||||||||
| Granted | $ | — | $ | |||||||||||||
| Exercised | $ | — | $ | |||||||||||||
| Forfeited | $ | — | $ | |||||||||||||
| Expired | ( | ) | $ | — | $ | |||||||||||
| Outstanding at end of period | $ | $ | ||||||||||||||
| Exercisable at end of period | $ | $ | ||||||||||||||
At March 31, 2022, the Company had exercisable Plan Options outstanding. The total intrinsic value of options exercisable at March 31, 2022, was $. Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at March 31, 2022 (for outstanding options), less the applicable exercise price.
Common Stock Purchase Warrants
A summary of the warrants outstanding at March 31, 2022, and changes since July 1, 2021, are presented below:
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Life | ||||||||||
| Outstanding at beginning of period | $ | |||||||||||
| Granted | $ | — | ||||||||||
| Exercised | ( | ) | $ | — | ||||||||
| Cancelled/Expired | $ | — | ||||||||||
| Outstanding and exercisable at end of period | 1,250,000 | $ | ||||||||||
| Underlying Warrants Outstanding | Equivalent Shares Exercisable | |||||||||||||||||||
| Exercise Prices | Equivalent Shares | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||
| $ | $ | $ | ||||||||||||||||||
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.
19
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 — STOCKHOLDERS’ EQUITY (Continued)
Restricted Stock Units (RSUs)
The Company recognized stock-based compensation expense related to RSUs of $ and $ for the three and nine months ended March 31, 2022, respectively. The Company recognized stock-based compensation expense related to the RSUs of $ for the three and nine months ended March 31, 2021, respectively.
A summary of the status of Restricted Stock Units outstanding at March 31, 2022, and changes since July 1, 2021, is presented below:
| Shares | Weighted Average Issuance Price |
Weighted Average Remaining Life |
Weighted Average Intrinsic Value | |||||||||||||
| Outstanding at beginning of period | $ | $ | $ | |||||||||||||
| Granted | — | |||||||||||||||
| Exercised | ( |
) | — | |||||||||||||
| Cancelled/Expired | — | |||||||||||||||
| Outstanding at end of period | $ | $ | — | $ | ||||||||||||
20
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 — COMMITMENTS AND CONTINGENCIES
On July 9, 2018, the Company entered
into a consulting agreement with G-Tech Bio, LLC, a California limited liability company (“G-Tech”) to assist the Company
with the development of the gene therapy and cell therapy modalities for the prevention, treatment, and amelioration of HIV in humans,
and with the development of a genetically enhanced Dendritic Cell for use as a wide spectrum platform for various diseases (including
but not limited to cancers and infectious diseases) (the “G-Tech Agreement”). G-Tech was entitled to consulting fees for 20
months, with a monthly consulting fee of not greater than $130,000 per month. Upon the completion of the 20 months, the monthly consulting
fee of $
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 , and G Health Research Foundation, a not for profit entity organized under the laws of California doing business as Seraph Research Institute (“SRI”), whereby the Company acquired a perpetual, sublicensable, exclusive license (the “HBV License”) for a treatment under development (the “Treatment”) aimed to treat Hepatitis B Virus (HBV) infections in accordance with its agreement in principle with G-Tech and SRI.
The HBV License Agreement 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.
The cash funding for research
costs pursuant to the HBV License consists of monthly payments amounting to $
On April 18, 2021, the Company entered into a Statement of Work and License Agreement (the “License Agreement”), by and among the Company, G-Tech and SRI, whereby the Company acquired a perpetual sublicensable, exclusive license (the “Development License”) to research, develop, and commercialize certain formulations which are aimed at preventing and treating pan-coronavirus or the potential combination of the pan-coronavirus and pan-influenza, including the SARS-coronavirus that causes COVID-19 and pan-influenza (the “Prevention and Treatment”).
21
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The License Agreement was entered
into pursuant to the existing Framework Agreement between the parties dated November 15, 2019. The License Agreement states that in consideration
for the Development License, the Company shall provide cash funding for research costs and equipment and certain other in-kind funding
related to the Prevention and Treatment over a 24-month period. Additionally, the License Agreement provides for an up-front payment of
$
The License Agreement provides
for cooperation related to the development of intellectual property related to the Prevention and Treatment and for a 3% royalty to G-Tech
on any net sales that may occur under the License Agreement. For the three and nine months ended March 31, 2022, the Company paid zero
and $
G-Tech is controlled by Dr. Serhat Gümrükcü and Anderson Wittekind, shareholders of the Company, and SRI is controlled by Dr. Serhat Gümrükcü. G-Tech and SRI are each controlled by certain members of Weird Science, LLC, a shareholder of the Company.
On August 25, 2021, the Company
entered into an ALC Patent License and Research Funding Agreement in the HIV Field (the “ALC License Agreement”) with Dr.
Gümrükcü and SRI whereby Dr. Gümrükcü granted the Company an exclusive, worldwide, perpetual, fully paid-up,
royalty-free license, with the right to sublicense, his proprietary technology subject to a U.S. patent application, to make, use, offer
to sell, sell or import products for use solely for the prevention, treatment, amelioration of or therapy exclusively for HIV in humans,
and research and development exclusively relating to HIV in humans; provided Dr. Gümrükcü retained the right to conduct
HIV research in the field. Pursuant to the ALC License Agreement, the Company granted a non-exclusive license back to Dr. Gümrükcü
and SRI, under any patents or other intellectual property owned or controlled by the Company, to the extent arising from the ALC License,
to make, use, offer to sell, sell or import products for use in the diagnosis, prevention, treatment, amelioration or therapy of any (i)
HIV Comorbidities and (ii) any other diseases or conditions outside the HIV Field. The Company made an initial payment to SRI of $
Shares held for non-consenting shareholders – The 17,414 remaining shares of Common Stock related to the Acquisition of Enochian Denmark have been reflected as issued and outstanding in the accompanying financial statements. There were zero shares of Common Stock issued to such non-consenting shareholders during the three and nine months ended March 31, 2022 (see Note 7.)
Service Agreements – The
Company has a consulting agreement for services of a Senior Medical Advisor for up to $
Contingencies – The Company is from time to time involved in routine legal and administrative proceedings and claims of various types. While any proceeding or claim contains an element of uncertainty, management does not expect a material impact on our results of operations or financial position from such proceedings or claims.
NOTE 9 — RELATED PARTY TRANSACTIONS
The Company paid G-Tech $
NOTE 10 — SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company performed a review of events subsequent to the balance sheet date through the date of this report and determined that there were no such events requiring recognition or disclosure.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statement Notice
Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, or achievements of Enochian Biosciences Inc. (“Enochian,” and together with its subsidiaries, the “Company”, “we” or “us”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K as filed with the SEC on September 24, 2021. The Company’s plans and objectives are based, in part, on assumptions involving the continued expansion of the business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.
Our Business
We are a pre-clinical stage biotechnology company committed to using our genetically modified cell, gene, and immune therapy technologies to potentially prevent or cure HIV, HBV, influenza, SARS-CoV-1 and -2, and coronavirus infections, as well as to provide potentially long-term or life-long cancer remission in some of the deadliest cancers.
Over the past several years, we have expanded the pipeline from a single potential cure for HIV (autologous transplantation with gene-modified cells; ENOB-HV-01) to three additional potential cures for HIV, a potential cure for Hepatitis B Virus (HBV), potential inhaled treatment and prophylaxis/prevention of all variants of SARS-CoV-1 and -2 (the cause of the COVID-19 pandemic) and potentially other coronaviruses, and potential cures for many solid tumors, beginning with pancreatic cancer.
Our integrated platforms encompass innovative interventions in gene and immune therapies that provide hope for cures or life-long remissions for devastating diseases. Our platforms can potentially streamline and accelerate pre-clinical, regulatory, clinical, and production pathways. Because of the relative ease of administration, our potentially groundbreaking interventions could be used throughout the world.
Platforms:
Hijack RNA
Our novel approach tricks the virus into sending suicide signals to the infected cell instead of turning the cell into a virus factory. The technology is delivered by vectors that would allow it to rapidly treat an infection, or to lay and wait in ambush until a cell becomes infected, which would prevent (prophylaxis, similar to taking drugs to protect from becoming infected with malaria or HIV) future infections.
The delivery mechanism can be adapted for aerosol (e.g., respiratory infections like the virus that causes COVID-19 and influenza), intravenous or other delivery mechanisms (e.g. for Hepatitis B Virus and HIV).
Allogeneic Cell Therapy
The human immune system is designed to recognize “self” and destroy “otherness” or “non-self,” such as bacteria, viruses and cancer cells.
23
Alloreactivity (reacting against another person’s cells) is the most powerful response the immune system generates. Several of our technologies take advantage of the alloreactivity to hyper stimulate a person’s immune response to better attack a chronic infection (e.g., HIV) or solid tumors. In certain treatments (e.g., HIV and cancer), cells taken from healthy donors are sometimes genetically modified to further boost the immune system to seek and kill diseases.
In addition to those platforms, we have an innovative approach to remove cells from a person living with HIV and genetically modify them so they cannot be infected with HIV. The unique innovation is an additional genetic alteration to increase the ability of those cells to survive and expand when they are given back to the same person (autologous transplantation).
Respiratory Diseases
In April 2021, we acquired the exclusive license to a potential pan-SARS-Cornavirus-1 and-2 (SARS-CoV) and pan-Influenza inhaled treatment and prophylaxis.
SARS-CoV-2 has caused the most devastating global pandemic in a century – COVID-19. Using the Hijack RNA platform technology, in vitro and in vivo results showing rapid killing of infected cells, but not uninfected cells were presented at the important Conference on Retroviruses and Opportunistic Infections in March 2021. Since that time, there has been substantial progress with a Pre-IND (as defined below) submission expected in the near term.
Influenza has caused dozens of major global pandemics; the most notable in 1918 that killed 50 to 100 million people. There was an H1N1 threat as recently as 2009. The Hijack RNA also has shown promising in vitro results that were presented at the Annual Conference of the American Society of Gene and Cell Therapy (ASGCT) in May 2020.
A vector combining the SARS-CoV, and Influenza Hijack RNA has been designed.
A leading scientist and public health expert serve on our Scientific Advisory Board focused on respiratory diseases.
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, 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, as many as 1 million people, including persons in high-income countries, continue to die each year 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 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 (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” were 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 have been 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.
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ENOB-HV-01 is a novel, proprietary approach with the potential to overcome the failures of recent efforts to develop a cure for HIV. The intervention 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 avoid the need for chemotherapy that substantially depletes the bone marrow and 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 Application (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 BioSciences management team considered the meeting to be successful with strong alignment between Enochian BioSciences’ 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 ASCGT conference in May 2020.
We are also developing 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. Preliminary results could potentially be available by the latter part of 2022.
Our co-founder and inventor, Dr. Serhat Gümrükcü, who is also the Director of Seraph Research Institute (SRI), submitted a Pre-IND for ENOB-HV-21, an innovative treatment of Natural Killer (NK) and Gamma Delta T-Cells (GDT) collected from another person. It is believed that the GDT cells, a small subset of immune cells that can be infected with HIV, could be a key factor in controlling the virus. The initial scientific findings were presented during the ASCGT Conference in May 2021. Enochian BioSciences has an exclusive license to use the underlying patent to develop HV-21 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.
On October 18, 2021, the Company announced that FDA comments on an investigator-initiated Pre-IND were, from Management’s perspective, insightful and helpful with an investigator-initiated IND submission possible in the near-term with the potential for human trial enrollment to begin in the near to medium term in 2022.
We are in the development phase of additional product candidates related to our HIV pipeline. ENOB-HV-31, which is 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 and treatment that can control infection if it is taken daily for life, hepatitis B virus (HBV) is the world’s most common serious liver infection. While vaccines are increasingly required for children, many adults have not been vaccinated. Life-long treatment can be difficult for certain people and access can be limited.
In that regard, HBV remains 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 350 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 BioSciences has collaborated with SRI to develop an innovative approach to co-opt HBV polymerase, a key expanding factor that the virus needs to reproduce itself, to induce the death of liver cells infected with the virus.
On July 27, 2020, Enochian BioSciences announced the creation of an HBV Scientific Advisory Board comprised of distinguished leaders in HBV disease, treatment, and cure. On August 23, 2021, we announced the addition of a third leading expert with substantial experience in HBV clinical trials.
On September 27, 2021, the Company announced the completion of a Pre-Investigational New Drug (IND) process following receipt of written comments from the U.S. Food and Drug Administration (FDA) Center for Biologics Evaluation and Research (CBER) Office of Tissues and Advanced Therapies (OTAT) for ENOB-HB-01.
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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 ASCGT conference in May 2020. A proof-of-concept, in vivo cure study is in advanced stages. A Pre-IND request has been completed with productive comments and insights. An IND could potentially be submitted towards the end of 2022 with potential for enrollment in a clinical trial to begin by the end of 2022 or in 2023.
In March 2022, Enochian announced a profit-sharing partnership with Caring Cross to use ENOB-HV-01’s “special sauce” to potentially improve the effectiveness and reduce the cost and toxicity of a CAR-T approach to HIV Cure already in clinical trials.
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 initially plan to 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 cancer-related 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. Results are expected in the second half 2022. If the results are promising, a potential Pre-IND and an IND with potential for enrollment in a clinical trial may begin in 2022.
To date, our operations have been funded by sales of our securities and the issuance of debt. We have never generated any sales revenue, and we expect this to continue until our therapies or products are approved for marketing in the United States and/or Europe. Even if we are successful in having our therapies or products approved for sale in the United States and/or Europe, we cannot guarantee that a market for the therapies or products will develop. We may never be profitable.
Corporate History
We were incorporated under the laws of the State of Delaware on January 18, 2011, under the name Putnam Hills Corp. and in 2014 we merged with and changed our name to DanDrit Biotech USA, Inc. In 2018, we acquired Enochian Biopharma and changed our name to Enochian BioSciences Inc.
COVID-19
The COVID-19 pandemic continues to evolve, and to date has led to the implementation of various mitigation responses, including government-imposed quarantines, travel restrictions and other public health safety measures, as well as leading to reported adverse impacts on healthcare resources, facilities, and providers across the United States and in other countries. COVID-19 may cause delays in our research activities. To date, it has not materially affected our operations; however, it has caused delays in the conduct of experiments due to limitations of various organizations, in particular those conducting experiments related to COVID-19. There have also been increases in the cost to conduct animal studies due to staffing and other limitations.
The full extent to which the COVID-19 pandemic may impact our business and operations is subject to future developments, which are uncertain and difficult to predict. Further quarantines, shelter-in-place or similar restrictions and other actions taken or imposed by foreign, federal, state, and local governments could adversely impact our or our partners’ clinical, research and development, regulatory and manufacturing operations, or timelines.
We continue to monitor the impact of the COVID-19 pandemic on our business and operations and will seek to adjust our activities as appropriate. In addition, the pandemic could result in significant and prolonged disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect the financial resources available to us.
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Results of Operations for the three and nine months ended March 31, 2022, compared to the three and nine months ended March 31, 2021
The following table sets forth our revenues, expenses, and net loss for the three and nine months ended March 31, 2022, and 2021. The financial information below is derived from our unaudited condensed consolidated
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||
| March 31, | Increase/(Decrease) | March 31, | Increase/(Decrease) | |||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||||||||||
| General and administrative expenses | 2,790,456 | 1,903,902 | 886,554 | 47 | % | 11,169,724 | 5,551,331 | 5,618,393 | 101 | % | ||||||||||||||||||||||
| Research and development expenses | 1,212,380 | 1,119,203 | 93,177 | 8 | % | 6,605,038 | 3,574,529 | 3,030,509 | 85 | % | ||||||||||||||||||||||
| Depreciation and amortization | 31,720 | 30,825 | 895 | 3 | % | 95,258 | 92,043 | 3,215 | 3 | % | ||||||||||||||||||||||
| Total Operating Expense | $ | 4,034,556 | $ | 3,053,930 | $ | 980,626 | 32 | % | $ | 17,870,020 | $ | 9,217,903 | $ | 8,652,117 | 94 | % | ||||||||||||||||
| LOSS FROM OPERATIONS | $ | (4,034,556 | ) | $ | (3,053,930 | ) | $ | (980,626 | ) | 32 | % | $ | (17,870,020 | ) | $ | (9,217,903 | ) | $ | (8,652,117 | ) | 94 | % | ||||||||||
| Other Income (Expense) | ||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | (2,078,994 | ) | (882,498 | ) | (1,196,496 | ) | 136 | % | (5,070,891 | ) | 38,313 | (5,109,204 | ) | (13,335 | )% | |||||||||||||||||
| Interest expense | (95,207 | ) | (96,347 | ) | 1,140 | (1 | )% | (278,327 | ) | (282,086 | ) | 3,759 | (1 | )% | ||||||||||||||||||
| Gain (Loss) on currency transactions | — | (221 | ) | 221 | 100 | % | 9 | (32,510 | ) | 32,519 | 100 | % | ||||||||||||||||||||
| Interest income | 7,291 | 1,437 | 5,854 | 407 | % | 22,888 | 8,809 | 14,079 | 160 | % | ||||||||||||||||||||||
| Total Other (expense) income | (2,166,909 | ) | (977,629 | ) | (1,189,280 | ) | 122 | % | (5,326,321 | ) | (267,474 | ) | (5,058,847 | ) | 1,891 | % | ||||||||||||||||
| Loss Before Income Taxes | $ | (6,201,465 | ) | $ | (4,031,559 | ) | $ | (2,169,906 | ) | 54 | % | $ | (23,196,341 | ) | $ | (9,485,377 | ) | $ | (13,710,964 | ) | 145 | % | ||||||||||
| Income Tax Benefit | $ | — | $ | 849 | $ | (849 | ) | (100 | )% | $ | (34 | ) | $ | 124,801 | $ | (124,835 | ) | (100 | )% | |||||||||||||
| NET LOSS | $ | (6,201,465 | ) | $ | (4,030,710 | ) | $ | (2,170,755 | ) | 54 | % | $ | (23,196,375 | ) | $ | (9,360,576 | ) | $ | (13,835,799 | ) | 148 | % | ||||||||||
Revenues
We are a pre-revenue, pre-clinical biotechnology company. We have never generated revenues and have incurred losses since inception. We do not anticipate earning any revenues until our therapies or products are approved for marketing and sale.
Expenses
Our operating expenses for the three months ended March 31, 2022, and March 31, 2021, were $4,034,556 and $3,053,930 respectively, representing an increase of $980,626, or approximately 32%. The increase in operating expenses primarily relates to an increase in general and administrative expenses of $886,554.
Our operating expenses for the nine months ended March 31, 2022, and March 31, 2021, were $17,870,020 and $9,217,903, respectively, representing an increase of $8,652,117 or approximately 94%. The change is primarily related to the increase in general and administrative expenses of $5,618,393, and an increase in R&D expenses of $3,030,509.
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General and administrative expenses for the three months ended March 31, 2022, and March 31, 2021, were $2,790,456 and $1,903,902, respectively, representing an increase of $886,554 or approximately 47%. The variance is related to an increase in compensation and related expenses of $269,688, an increase in legal expenses of $215,625, an increase in recruiting expenses of $133,007, an increase in stock-based compensation of $78,248, and a net aggregate of immaterial increase variances of $189,985.
General and administrative expenses for the nine months ended March 31, 2022, and March 31, 2021, were $11,169,724 and $5,551,331, respectively, representing an increase of $5,618,393 or approximately 101%. The largest contributors to the increase in general and administrative expenses were the increases in stock-based compensation of $4,163,968, officer compensation of $558,770, salaries expense and related costs of $395,298, and recruiting expenses of $250,240, and a net aggregate of immaterial increases of $250,118.
Research and development expenses for the three months ended March 31, 2022, and March 31, 2021, were $1,212,380 and $1,119,203, respectively, representing an increase of $93,177 or approximately 8%. The variance is primarily driven by $74,470 in costs related to CV-01 and HV-12, and an increase of $56,000 in collaborating partner expenses, partially offset by a net aggregate of immaterial decreases of $37,293.
Research and development expenses for the nine months ended March 31, 2022, and March 31, 2021, were $6,605,038 and $3,574,529, respectively, representing an increase of $3,030,509 or approximately 85%. The largest contributors to the increase in research and development expenses were the increases in license costs related to ENOB HB-01 of $1,500,000 for achievement of a milestone, costs incurred for ENOB HV-21 of $600,000, newly incurred costs with CDMO and CRO partners totaling $1,447,939 and, new COVID license payments of $150,000, partially offset by HBV costs and oncology costs that were incurred in the prior period for a total of $785,000 that was not incurred in the current period.
The Company recorded other expense of $2,166,909 for three months ended March 31, 2022, compared to other expense of $977,629 for the three months ended March 31, 2021, representing an increase in other expense of $1,189,280 or 122%. The variance is primarily due to the change in fair value of the contingent consideration liability expense of $1,196,496.
The Company recorded other expense of $5,326,321 for the nine months ended March 31, 2022, compared to other expense of $267,474 for the nine months ended March 31, 2021, representing an increase in other expense of $5,058,847 or 1,891%. The variance is primarily due to the change in fair value of the contingent consideration liability expense of $5,109,204.
Net Loss
Net loss for the three months ended March 31, 2022, and 2021, was $6,201,465 and $4,030,710, respectively, representing an increase in loss of $2,170,755 or approximately 54%. The increase in net loss was primarily due to an increase in general and administrative expenses of $886,554, an increase in research and development expenses of $93,177, and an increase in expense related to the change in fair value of contingent consideration of $1,196,496.
Net loss for the nine months ended March 31, 2022, and 2021, was $23,196,375 and $9,360,576, respectively, representing an increase in loss of $13,835,799 or approximately 148%. The increase in net loss was primarily due to the increase in general and administrative expenses of $5,618,393, an increase in research and development costs of $3,030,509, and an increase in expense related to the change in fair value of contingent consideration of $5,109,204.
Liquidity and Capital Resources
We have historically satisfied our capital and liquidity requirements through funding from shareholders, the sale of our Common Stock and warrants, and debt financing. We have never generated any sales revenue to support our operations and we expect this to continue until our therapies or products are approved for marketing in the United States and/or Europe. Even if we are successful in having our therapies or products approved for sale in the United States and/or Europe, we cannot guarantee that a market for the therapies or products 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. We may need additional funds for (a) the purchase of equipment, (b) increases in personnel, and (c) research and development, specifically to advance towards an Investigational New Drug Application (IND) following Pre-IND readouts from the FDA for ENOB-CV-01, ENOB-HB-01, ENOB-HV-01, and ENOB-HV-21. We will also require additional funding to continue our research and development of ENOB-HV-11/12, ENOB-DC-11, ENOB-FL-01 and -11 and ENOB-CV-11, to fund the Coronavirus and Influenza Indications License Agreement in furtherance of treatment related to all coronaviruses, and for possible future strategic acquisitions of businesses, products, or technologies complementary to our business. If additional funds are required, we may raise such funds from time to time through public or private sales of our equity or debt securities. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely affect our growth plans and our financial condition and results of operations.
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As of March 31, 2022, the Company had $11,150,917 in cash and working capital of $4,184,007 as compared to $20,664,410 in cash and working capital of $19,013,100 as of June 30, 2021, a decrease of 46% and 78%, respectively.
Assets
Total assets at March 31, 2022, were $180,100,613 compared to $189,605,225 as of June 30, 2021. The decrease in total assets was primarily due to the decrease in cash of $9,513,493. The change in cash is primarily attributed to $6,605,038 in research and development costs related to the HBV license agreement, costs related to ENOB-CV-01 for related CDMO and CRO costs, and ENOB-HV-21 studies along with approximately $5,820,781 in general and administrative expenses, net of non-cash items, partially offset by an increase in funding totaling $3,630,039 related to drawdowns from the LPC equity line and warrants exercised during the period.
Liabilities
Total liabilities at March 31, 2022, were $18,857,916 compared to $14,942,286 as of June 30, 2021. The increase in total liabilities was primarily related to an increase of $4,272,891 in the contingent consideration liability as a result of mark-to-market adjustment, an increase in other current liabilities of $187,106 related to a financing arrangement for a new insurance policy and an increase in accounts payable of $166,457 due to timing, partially offset by the reduction in accrued expenses of $715,999.
The following is a summary of the Company’s cash flows (used by) or provided by operating, investing, and financing activities:
| Nine Months Ended March 31, 2022 |
Nine Months Ended March 31, 2021 | |||||||
| Net Cash (Used in) Operating Activities | $ | (12,681,849 | ) | $ | (7,582,676 | ) | ||
| Net Cash (Used in) Investing Activities | (5,156 | ) | (10,721 | ) | ||||
| Net Cash Provided by Financing Activities | 3,180,274 | 3,398,599 | ||||||
| Effect of exchange rates on cash | (6,762 | ) | 24,721 | |||||
| Change in Cash and Cash Equivalents | $ | (9,153,493 | ) | $ | (4,170,077 | ) | ||
Cash Flows
Cash used in operating activities for the nine months ended March 31, 2022, and 2021 was ($12,681,849) and ($7,582,676), respectively. Cash used in operating activities during the current period included $6,605,038 in research and development costs related to the HBV license agreement, costs related to ENOB-CV-01 for related CDMO and CRO costs, and ENOB-HV-21 studies along with approximately $5,820,781 in general and administrative expenses, net of non-cash items.
Cash provided by financing activities for the nine months ended March 31, 2022, was $3,180,274 as compared to cash provided by financing activities of $3,398,599 during the nine months ended March 31, 2021. During the nine months ended March 31, 2022, the Company received financing from the drawdown of its LPC equity line of $3,500,039 and the exercise of warrants held by shareholders of $130,000.
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.
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Significant Accounting Policies and Critical Accounting Estimates
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.
For a summary of our accounting policies, see Note 1 to the unaudited condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our 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 and used the “Internal Control over Financial Reporting Integrated Framework” issued by the 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 March 31, 2022, 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 deficiency is attributed to the fact that the Company does not have an adequate 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. This control deficiency will be monitored, and attention will be given to this matter as we increase our personnel.
The Certifying Officers based their conclusion on the fact that the Company has identified a material weakness in controls over financial reporting, detailed above. We expect to be deficient in our disclosure controls and procedures until sufficient capital is available to hire the appropriate internal accounting staff.
Changes in Internal Controls
There have been no changes in our internal controls over financial reporting during the three months ended March 31, 2022, that have materially affected or are reasonably likely to materially affect our internal controls.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
There are presently no material pending legal proceedings other than in the ordinary course of business to which the Company or any of its subsidiaries, is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
Item 1A. Risk Factors.
Risk factors that may affect our business and financial results are discussed within Item 1A ”Risk Factors” of our annual report for the fiscal year ended June 30, 2021, on Form 10-K (“2021 Form 10-K”) filed with the SEC on September 24, 2021. There have been no material changes to the disclosures relating to this item from those set forth in our 2021 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
| (a) | Exhibits required by Item 601 of Regulation S-K. |
| Exhibit No. | Description | |
| 31.1** | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 | |
| 31.2** | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 | |
| 32.1*** | Certification of Principal Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 | |
| 32.2*** | Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
| ** | Filed herewith. |
| *** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: May 12, 2022 | ENOCHIAN BIOSCIENCES INC. | |
| By: | /s/ Mark Dybul | |
| Mark Dybul | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Luisa Puche | |
| Luisa Puche | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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