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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

**FORM10-Q**

**(MarkOne)**
| **ý**                                                 | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                       |                                                                                          |
| **For the quarterly period ended June 30, 2001**           |
|                                                       |
| **OR**                                                     |
|                                                       |
| **o**                                                      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                       |                                                                                          |
| **For the transition period from ________ to ___________** |
|                                                       |

**Commission file number: 0-21130**

** **

**EnchiraBiotechnology Corporation******(Exact name of registrant as specified inits charter)
| **Delaware**                              | **04-3078857**      |
|-------------------------------------------|---------------------|
| (State or other  jurisdiction of          | (I.R.S. Employer    |
| incorporation or  organization)           | Identification No.) |
|                                      |                |
| **4200  Research Forest Drive**           |                |
| **The  Woodlands, Texas**                 | **77381**           |
| (address of principal  executive offices) | (zip code)          |

**281-419-7000**(Registrant’s telephone number, includingarea code)

             Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý   No o

             Asof August 1, 2001, there were outstanding 9,278,711 shares of Common Stock, parvalue $.01 per share, of the registrant.

 

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**ENCHIRA BIOTECHNOLOGYCORPORATION**

** **

**Form 10-Q for the Quarter EndedJune 30, 2001**

**INDEX**

 
|                                          |                                                                                             |   |
|-----------------------------------------------|--------------------------------------------------------------------------------------------------|--------|
|                                          |                                                                                             |   |
| Factors  Affecting Forward-Looking Statements |                                                                                             |
|                                          |                                                                                             |   |
| PART  I.                                      | FINANCIAL  INFORMATION                                                                           |   |
|                                          |                                                                                             |   |
| Item 1.                                       | Financial Statements                                                                             |   |
|                                          |                                                                                             |   |
|                                          | Balance Sheets as  of June 30, 2001 (Unaudited) and December 31, 2000                            |   |
|                                          |                                                                                             |   |
|                                          | Statements  of Operations for the Three and Six Months Ended June 30, 2001 and 2000  (Unaudited) |   |
|                                          |                                                                                             |   |
|                                          | Statements  of Cash Flows for the Six Months Ended June 30, 2001 and 2000 (Unaudited)            |   |
|                                          |                                                                                             |   |
|                                          | Notes to Financial  Statements                                                                   |   |
|                                          |                                                                                             |   |
| Item  2.                                      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations      |   |
|                                          |                                                                                             |   |
| PART  II.                                     | OTHER  INFORMATION                                                                               |   |
|                                          |                                                                                             |   |
| Item 1.                                       | Legal Proceedings                                                                                |   |
|                                          |                                                                                             |   |
| Item  4.                                      | Submission  of Matters to a Vote of Security Holders                                             |   |
|                                          |                                                                                             |   |
| Item 6.                                       | Exhibits and  Reports on Form 8-K                                                                |   |
|                                          |                                                                                             |   |
| SIGNATURES                                    |                                                                                             |
|                                               |                                                                                                  |        |  |

 

**FACTORS AFFECTINGFORWARD-LOOKING STATEMENTS**

             ThisQuarterly Report on Form 10-Q includes “forward-looking statements” within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section21E of the Securities Exchange Act of 1934, as amended.  The words “anticipate”, “believe”, “expect”,“estimate”, “project” and similar expressions are intended to identifyforward-looking statements.  Suchstatements are subject to certain risks, uncertainties and assumptions.  Should one or more of these risks oruncertainties materialize, or should underlying assumptions prove incorrect,actual results may vary materially from those anticipated, believed, expected,estimated or projected.  These risks anduncertainties include technological uncertainty and risks associated with thecommercialization of the Company’s technology, the pending dispute andarbitration with Maxygen relating to the Company’s rights to its RACHITTTMtechnology, the Company’s history of operating losses and uncertainty of futureprofitability, manufacturing risks and uncertainties, uncertainty of marketacceptance of the Company’s technology, uncertainties as to the protectionoffered by the Company’s patents and proprietary technology, the Company’sdependence on collaborations, the Company’s need for additional funds, limitedmarketing experience and dependence on key personnel, government regulations,competition and other risks and uncertainties described in the Company’sfilings with the Securities and Exchange Commission.  For additional discussion of such risks, uncertainties andassumptions (“Cautionary Statements”), see “Item 2.  Management’s Discussion and Analysis of Financial Condition andResults of Operations - Liquidity and Capital Resources” included elsewhere inthis report and “Item 1.  Business -Risk Factors” in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2000 (“2000 Form 10-K”). All subsequent written and oral forward-looking statements attributableto the Company or persons acting on its behalf are expressly qualified in theirentirety by the Cautionary Statements.
**Part I.  FINANCIAL INFORMATION**

**Item 1.  *FinancialStatement******s***

             Thefollowing unaudited financial statements have been prepared pursuant to therules and regulations of the Securities and Exchange Commission.  Certain information and note disclosuresnormally included in annual financial statements prepared in accordance withgenerally accepted accounting principles have been condensed or omittedpursuant to those rules and regulations, although the Company believes that thedisclosures made herein are adequate to make the information presented notmisleading.  These financial statementsshould be read in conjunction with the 2000 Form 10-K.

             Theinformation presented in the accompanying financial statements is unaudited,but in the opinion of management, reflects all adjustments (which include onlynormal recurring adjustments) necessary to present fairly such information.
**ENCHIRA BIOTECHNOLOGYCORPORATIONBALANCE SHEETS**
 June 30, December 31,  2001 2000     (Unaudited)   ASSETS    Current Assets:     Cash and cash equivalents$9,148,821 $7,524,191  Short-term investments1,285,044 4,475,679  Prepaid expenses and other current assets588,770 900,226     Total current assets11,022,635 12,900,136      Long-term investments― 1,280,937 Furniture, equipment and leasehold improvements, net513,335 638,865 Intangible and other assets, net1,081,915 1,038,175     Total assets$12,617,885 $15,585,113          LIABILITIES &  STOCKHOLDERS' EQUITY         Current liabilities:     Accounts payable and accrued liabilities$566,086 $544,836  Capital lease, short-term12,956 12,304  Deferred revenue813,333 730,000  Note payable56,860 255,867     Total current liabilities1,449,235 1,543,007      Capital lease, long-term50,772 57,991      Stockholders' equity:     Series B Convertible  Preferred Stock, $0.01 par value   (liquidation value $20,863,824; 760,000 shares  authorized, 307,700 and 387,700  shares,  respectively, issued and  outstanding)20,534,576 23,512,474  Common Stock, $0.01 par value (30,000,000 shares  authorized, 9,278,711 and 9,067,700  shares,  respectively, issued and  outstanding)92,787 90,677  Additional paid-in capital77,443,279 73,626,674  Accumulated deficit(86,952,764)(82,972,710)    Total stockholders' equity11,117,878 14,257,115     Total liabilities and stockholders’ equity$12,617,885 $15,858,113    
Theaccompanying notes are an integral part of these financial statements.
**ENCHIRA BIOTECHNOLOGYCORPORATIONSTATEMENTS OF OPERATIONS(Unaudited)**
 Three Months Ended Six Months Ended  June 30, June 30,  2001 2000 2001 2000               Sponsored research and licensing revenues$273,965 $70,468 $530,601 $358,165          Costs and expenses:         Research and development856,998 979,208 1,915,236 1,985,671  General and administrative1,016,807 543,533 1,984,610 1,015,121                Total costs and expenses1,873,805 1,522,741 3,899,846 3,000,792               Interest and investment income126,401 54,463 175,935 125,439      Net loss$(1,473,439)$(1,397,810)$(3,193,310)$(2,517,188)              Net loss per share — basic and diluted$(0.21)(0.28)$(0.46)$(0.55)              Shares used in computing net loss per common share — basic and diluted9,269,029 7,026,388 9,174,254 6,838,391      
Theaccompanying notes are an integral part of these financial statements.
**ENCHIRA BIOTECHNOLOGYCORPORATIONSTATEMENTS OF CASH FLOWS(Unaudited)**
           Six Months Ended  June 30,    2001 2000    CASH FLOWS FROM OPERATING ACTIVITIES:     Net loss$(3,193,310)$(2,517,188) Adjustments to reconcile net loss to net cash provided by (used  in) operating activities:     Depreciation and amortization165,190 233,574  Issuance of common stock for services50,000 25,000  Changes in assets and liabilities:     Decrease (increase) in prepaid expenses and other current assets311,456 (369,510) Increase (decrease) in accounts payable and accrued liabilities21,250 (65,968) Increase in deferred revenue83,333 550,000     Net cash used in operating activities(2,562,081)(2,144,092)        CASH FLOWS FROM INVESTING ACTIVITIES:     Capital expenditures(21,620)(24,496) Patent expenditures(61,740)(113,328) Net sale of investments held to maturity4,471,572 1,945,199     Net cash provided by investing activities4,388,212 1,807,375         CASH FLOWS FROM FINANCING ACTIVITIES:     Payments on capital lease obligations(6,567)―  (Payments) proceeds on notes payable, net(199,007)28,784  Proceeds from exercise of common stock and warrants4,073 188,646     Net cash provided by (used in) financing activities(201,501)217,430         NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS1,624,630 (119,287)CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD7,524,191 2,510,274    CASH AND CASH EQUIVALENTS AT END OF PERIOD$9,148,821 $2,390,987    
Theaccompanying notes are an integral part of these financial statements.
**ENCHIRA BIOTECHNOLOGYCORPORATIONNOTES TO UNAUDITED FINANCIAL STATEMENTS**

**June30, 2001**

**Note 1.  Basis ofPresentation and Significant Accounting Policies**

             EnchiraBiotechnology Corporation (“Enchira” or the “Company”), formerly EnergyBioSystems Corporation, was incorporated in the State of Delaware on December20, 1989, and commenced operations in January 1990. Enchira is a biotechnologycompany incorporating genetic recombination, high throughput screening (“HTS”)and bioprocessing in an integrated, directed evolution technologyplatform.  The Company believes that itsproprietary platform technology can be used to generate libraries of novelgenes for the creation of improved enzymes for a broad range of applications,such as protein-based pharmaceuticals, agricultural crop enhancement andprotection products, and industrial enzymes for the manufacture of specialtychemicals, fine chemicals and pharmaceutical intermediates.

             OnApril 27, 2000, Enchira received notice from Maxygen Inc. (“Maxygen”) that theyhad elected to seek arbitration under the License and Development Agreementdated May 19, 1997 (the “Development Agreement”) between Enchira andMaxygen.  Maxygen claims that Enchiraused their confidential information to develop the RACHITTÔ technology, which theyallege was provided to Enchira under the Development Agreement.  The arbitration hearing was held in November2000.

             OnMarch 6, 2001, Enchira received an unfavorable ruling from the arbitrator inits arbitration proceeding with Maxygen. The arbitrator’s opinion found that Enchira breached several provisionsof the Development Agreement with respect to Enchira’s RACHITTTM and HTStechnologies, but remedies for such breaches were not specified in theruling.  The arbitrator directed thatthe parties attempt to arrive at an agreement for an appropriate remedy.  To that end, Enchira met with Maxygen and madecertain proposals, but an agreement was not reached.  Enchira is currently awaiting a hearing before the arbitrator,scheduled for August 31, 2001, to determine an appropriate remedy.  While Enchira continues to deny all ofMaxygen’s allegations and believes that its technology was independentlydeveloped after the collaboration terminated, the ultimate resolution of thearbitrator’s ruling could require Enchira to pay costly licensing or royaltyfees or result in an outright prohibition of Enchira’s use of such technology.

             Enchirahas devoted substantially all of its efforts to research and development.  There have been no revenues from operationsother than sponsored research revenues and one site license fee of itsbiodesulfurization technology in 1998 and there is no assurance of futurerevenues.  Enchira has an accumulateddeficit since inception of approximately $87 million and expects that itsexisting financial resources, exclusive of any financial settlement that may berequired as a remedy in the Maxygen arbitration case, will fund operationsthrough the end of 2002. Enchira may seek additional financing through variousalternatives, including:  an equityfinancing, government research funding and alliances with corporate partners.Adequate funds for these purposes, whether obtained through financial marketsor collaborative or other arrangements with corporate partners or from otherresources, may not be available when needed or on terms acceptable toEnchira.  Enchira’s inability to raisefunds when needed may require Enchira to delay, scale back or eliminate some orall of its research and product development programs.  Enchira will also continue to have increased expenses as a resultof its ongoing arbitration with Maxygen. These expenses and any fees associated with any license, cross licensesor other remedies that Enchira may be required to enter into with Maxygen maysignificantly deplete its existing capital and cause Enchira to seek additionalcapital, which may not be available on favorable terms, if at all.
The accompanying unaudited interimfinancial statements reflect all adjustments, which, in the opinion ofmanagement, are necessary for a fair presentation of the results for theinterim periods presented.  These financialstatements should be read in conjunction with the 2000 Form 10-K.

Net Loss Per Common Share

             Netloss per share has been computed by dividing the net loss, which has beenincreased for periodic accretion and accrued dividends on the Series BConvertible Preferred Stock issued in February and March 1997, by the weightedaverage number of shares of common stock outstanding during the period.

**Note 2.  Series BConvertible Preferred Stock**

             Sharesof Series B Preferred Stock are convertible into shares of common stock at anadjusted conversion price currently equal to $16.76 per share, subject tocertain adjustments.  The Series BPreferred Stock may be redeemed by the Company under certain circumstancesafter February 26, 1999 and is required to be redeemed, subject to certainlimitations, on February 26, 2002 at a redemption price of $50.00 per share,plus accrued and unpaid dividends. The redemption price is payable in cash orcommon stock or a combination at the option of the Company.  The Company does not have sufficient fundsavailable at this time to repay such amount in cash.  It is the Company’s present intent to redeem the Series BPreferred Stock for common stock, and accordingly, the Series B Preferred Stockis included in stockholders’ equity. However, such redemption with shares of common stock is subject toseveral requirements, including a requirement that the shares of common stockissued in payment of such redemption price be listed on a national exchange,including the Nasdaq National Market. Additionally, the Company shall use its reasonable best efforts tosubject such shares of common stock to a firm commitment underwritten offeringby an investment banking firm mutually agreeable to the Company and the holdersof shares of Series B Preferred Stock.  Therecan be no assurance that the Company will be able to meet such requirements atsuch time.  Should the ability of theCompany to redeem its Series B Preferred Stock using its shares of common stockbecome outside of its control, the carrying value of the Series B PreferredStock will be classified as a liability in its balance sheet.  In the event the Company is able and electsto redeem the Series B Preferred Stock with shares of its common stock, suchredemption will likely result in a substantial dilution of the Company’scurrent common stockholders.  As of June30, 2001, 394,400 aggregate shares of Series B Preferred Stock have beenconverted to 741,348 shares of common stock.  The remaining 307,700 shares of Series B Preferred Stock are convertibleinto 917,959 shares of common stock.

             Dividendson the Series B Preferred Stock are cumulative from the date of the initialclosing, February 27, 1997, and are payable, at the Company’s election, in cashor common stock of the Company, or a combination thereof, at an annual rateequal to (i) $4.00 per share to the extent the dividend is paid in cash and(ii) $4.50 per share to the extent the dividend is paid in common stock.  The Company has not declared a dividendpayment since November 1998, and since that date, has not paid dividends onSeries B Preferred Stock except on certain conversions of Series B PreferredStock to common stock.  As of June 30,2001, Enchira has paid common stock dividends of 509,451 shares of common stockand cash dividends of $115,522 on Series B Preferred Stock.  The Company is currently obligated to issueapproximately 662,000 shares of its common stock to one of its stockholders whopreviously converted its shares of Series B Preferred Stock but who has not yetbeen issued dividends to which it was entitled at the time of such conversion.
**Item 2.  *Management's Discussion and Analysis of FinancialCondition and Results of Operations***

**Overview**

             Todate, Enchira has devoted substantially all of its efforts to research anddevelopment.  There have been norevenues from operations other than sponsored research revenues and one sitelicense fee of its biodesulfurization technology in 1998 and there is noassurance of future revenues.  TheCompany has incurred cumulative net losses since inception and expects to incursubstantial losses for at least the next several years, due primarily to itsresearch and development activities and the development of its directedevolution technology, organosulfur compounds and biocatalyst development.  The Company expects that losses willfluctuate from quarter to quarter and that such fluctuations may besubstantial.  Enchira has an accumulateddeficit since inception of approximately $87 million and believes that it canconserve its existing financial resources to fund operations through the end of2002, assuming no material change in its development strategy and no additionalmaterial expenditures under the Maxygen processing.

             OnApril 27, 2000, Enchira received notice from Maxygen Inc. (“Maxygen”) that theyhad elected to seek arbitration under the License and Development Agreementdated May 19, 1997 (the “Development Agreement”) between Enchira andMaxygen.  Maxygen claims that Enchiraused their confidential information to develop the RACHITTÔ technology, which theyallege was provided to Enchira under the Development Agreement.  The arbitration hearing was held in November2000.

             OnMarch 6, 2001, Enchira received an unfavorable ruling from the arbitrator inits arbitration proceeding with Maxygen. The arbitrator’s opinion found that Enchira breached several provisionsof the Development Agreement with respect to Enchira’s RACHITTTM and HTStechnologies, but remedies for such breaches were not specified in theruling.  The arbitrator directed that theparties attempt to arrive at an agreement for an appropriate remedy.  To that end, Enchira met with Maxygen andmade certain proposals, but an agreement was not reached.  Enchira is currently awaiting a hearingbefore the arbitrator, scheduled for August 31, 2001, to determine anappropriate remedy.  While Enchiracontinues to deny all of Maxygen’s allegations and believes that its technologywas independently developed after the collaboration terminated, the ultimateresolution of the arbitrator’s ruling could require Enchira to pay costlylicensing or royalty fees or result in an outright prohibition of Enchira’s useof such technology.

**Results of Operations**

             TheCompany had sponsored research revenues for the three months ended June 30,2001 and 2000 of  $273,965 and $70,468,respectively.  The increase of $203,497in sponsored research revenues resulted primarily from payments received undera research and development collaboration agreement with Genencor InternationalInc. (“Genencor”) entered into in August 2000.

             TheCompany had sponsored research revenues of $530,601 during the first six monthsof 2001 as compared to $358,165 during the first six months of 2000.  The increase of $172,436 in sponsoredresearch revenues resulted from the collaboration agreement with Genencor.
             TheCompany had research and development expenses for the three months ended June30, 2001 and 2000 of $856,998 and $979,208, respectively, and for the sixmonths ended June 30, 2001 and 2000 of $1,915,236 and $1,985,671, respectively.  The decrease in research and developmentexpenses of $122,210 and $70,435, respectively, for the three and six monthsended June 30, 2001 as compared to the corresponding prior year periodsresulted primarily from a reduction in research and development personnel dueto attrition.  See “Liquidity andCapital Resources” below for additional discussion.  The Company expects its research and development expenses toremain below 2000 levels for the remainder of 2001, reflecting a decrease inthe number of research and development personnel.

             TheCompany had general and administrative expenses for the three months ended June30, 2001 and 2000 of $1,016,807 and $543,533, respectively, and for the sixmonths ended June 30, 2001 and 2000 of $1,984,610 and $1,015,121,respectively.  The increases of $473,274and $969,489, respectively, for the three months and six months ended June 30,2001 as compared to the corresponding periods in 2000, resulted primarily fromincreased legal expenses associated with the arbitration with Maxygen and theaddition of a Vice President for Business Development in September 2000.  The Company expects its general andadministrative expenses to remain at 2000 levels for the remainder of 2001.

             TheCompany had interest and investment income for the three months ended June 30,2001 and 2000 of $126,401 and $54,463, respectively and for the six monthsended June 30, 2001 and 2000 of $175,935 and $125,439, respectively.  The increases of $71,938 and $50,496,respectively, for the three and six months ended June 30, 2001 as compared tothe corresponding prior year periods resulted primarily from an increase in theavailable cash from which interest and other investment income are generated.

**Liquidity and Capital Resources**

             Asof June 30, 2001, 394,400 shares of Series B Preferred Stock had been convertedto 741,348 shares of common stock. Dividends on the Series B Preferred Stock are cumulative from the dateof the initial closing, February 27, 1997, and are payable, at the Company’s election,in cash or common stock of the Company, or a combination thereof, at an annualrate equal to (i) $4.00 per share to the extent the dividend is paid in cashand (ii) $4.50 per share to the extent the dividend is paid in common stock.  The Company has not declared a dividendpayment since November 1998, and has not paid dividends on Series B PreferredStock except on certain conversions of Series B Preferred Stock to commonstock.  As of June 30, 2001, Enchira haspaid common stock dividends of 509,451 shares of common stock and cashdividends of $115,522 on Series B Preferred Stock.

             Forthe six months ended June 30, 2001, the Company used $2,562,080 in operatingactivities, incurred $83,360 in capital and patent expenditures and used$201,502 in financing activities.  AtJune 30, 2001, the Company had cash, cash equivalents and short-terminvestments totaling $10,433,865 and working capital of $9,573,400.

             Enchiraexpects to incur substantial additional research and development expenses,including expenses associated with its directed evolution technology platformand analytical and high throughput screening capabilities. Enchira is subjectto cost sharing arrangements under various collaborative agreements, asdiscussed below.  Enchira also expectsits general and administrative expenses to increase as it increases itsbusiness development efforts and continues to pursue a satisfactory resolutionto the dispute with Maxygen.
             InAugust 2000, the Company entered into a collaboration agreement with Genencorfor research and development work on improved industrial proteins.  Under the agreement Genencor will provide $1million of funding to the Company over a two-year period.  Through June 30, 2001, the Company hasreceived $500,000 for research and development under the Genencor agreement,$83,333 of which is currently deferred.

             InMay 2000, the Company entered into a licensing agreement with Genencorinvolving EBC’s proprietary gene shuffling technology for directedevolution.  Under the agreement, Genencorwill use the Company’s proprietary technologies, which may include the RACHITTTMtechnology to develop gene-based products for the cleaning, textiles, grainprocessing, animal feed and food ingredients industries.  To date, the Company has not used its proprietaryRACHITTätechnology to develop products under the Genencor agreement.  An initial licensing fee and an additionalfee for an option to expand the licensing field were paid by Genencor in June2000.  Revenues received during thesecond quarter of 2000 have been deferred.

             InAugust 1997, Enchira was awarded funding by the DOE for a $2.9 million program,as amended and extended to May 2001, dedicated to the development of abiodesulfurization application for gasoline. Through June 30, 2001 the Company has recognized approximately $2.9million in sponsored research revenue from the grant, of which $280,601 wasreceivable at June 30, 2001.  Thereceivable is included in prepaid expenses and other current assets on thebalance sheet.

             TheCompany has experienced negative cash flow from operations since its inceptionand has funded its activities to date primarily from equity financings andsponsored research revenues.  TheCompany will continue to require substantial funds to continue its research anddevelopment activities and to market, sell and commercialize itstechnology.  The Company will alsocontinue to have increased expenses as a result of its ongoing arbitration withMaxygen.  These expenses and any feesassociated with any license, cross licenses or other remedies that the Companymay be required to enter into with Maxygen may significantly deplete itsexisting capital and cause the Company to seek additional captial, which maynot be available on favorable terms, if at all.  The Company believes that its available cash, investments andinterest income will be adequate to fund its operations through 2002, assumingno material change in its development strategy and no additional materialexpenditures under the Maxygen processing.

             TheCompany's capital requirements will depend on many factors, including theoutcome of the Maxygen dispute; the problems, delays, expenses andcomplications frequently encountered by companies developing andcommercializing new technologies; the progress of the Company's research anddevelopment activities; the rate of technological advances; determinations asto the commercial potential of the Company's technology under development; thestatus of competitive technology; the establishment of collaborative relationships;the success of the Company’s sales and marketing programs; the cost of filing,prosecuting and defending and enforcing patents and intellectual propertyrights and of defending the Maxygen claims; and other changes in economic,regulatory or competitive conditions in the Company’s planned business.  Estimates about the adequacy of funding forthe Company’s activities are based upon certain assumptions, includingassumptions that the research and development programs relating to theCompany’s technology can be conducted at projected costs and that progresstowards the commercialization of its technology will be timely andsuccessful.  There can be no assurancethat changes in the Company’s research and development plans, acquisitions orother events will not result in accelerated or unexpected expenditures.
             Tosatisfy its capital requirements, the Company may seek additional fundingthrough various alternatives, including: an equity financing, government funding, and alliances with corporatepartners.  There can be no assurancethat any such funding will be available to the Company on favorable terms or atall.  If adequate funds are notavailable when needed, the Company may be required to delay, scale back or eliminatesome or all of its research and product development programs.  If the Company is successful in obtainingadditional financing, the terms of such financing may have the effect ofdiluting or adversely affecting the holdings or the rights of the holders ofthe Company's Common Stock.

**Item 3.  *Quantitativeand Qualitative Disclosure About Market Risk***

             None

**Part II.  OtherInformation**

**Item1.  Legal Proceedings**

             OnMarch 6, 2001, Enchira received an unfavorable ruling from the arbitrator inits arbitration proceeding with Maxygen. His opinion found that Enchira breached several provisions of theDevelopment Agreement with Maxygen with respect to Enchira’s RACHITTTM and HTStechnologies, but he did not specify a remedy for such breaches in hisruling.  The arbitrator directed thatthe parties attempt to arrive at an agreement for an appropriate remedy.  Enchira met with Maxygen and made certainproposals, but an agreement was not reached. Enchira is currently awaiting a hearing before the arbitrator, scheduledfor August 31, 2001, to determine an appropriate remedy.****Item 4.  Submission of Matters to a Vote of SecurityHolders**

             TheCompany’s Annual Meeting of Stockholders was held on June 5, 2001, to considerand vote on the following proposals:

             Proposal1:       The Election of Directors

             Thefollowing individuals were nominated and elected as directors to hold officeuntil the next annual meeting of the stockholders of the Company or until theirsuccessors have been duly elected and qualified.
 *For**Withheld*Nancy  T. Chang, Ph.D.5,500,321725,645R.  James Comeaux5,499,305726,661G.  Anthony Gorry, Ph.D.5,500,321725,645Thomas  E. Messmore5,499,295726,661Daniel  J. Monticello, Ph.D.5,049,2951,176,671William  E. Nasser5,500,393725,573Peter  P. Policastro, Ph.D.5,049,5231,176,443William  D. Young5,500,493725,473
             Following their re-election to theBoard of Directors, Drs. Chang and Gorry resigned from the Board of Directors,effective June 18, 2001 and June 29, 2001, respectively.

             Proposal2:       Approval of an amendment to theCompany’s 1997 Stock Option Plan, as amended, to increase the number of sharesavailable for grant to 2,000,000 shares.

 
For2,475,202Against1,834,762Abstain22,749
             Proposal3:       Approval of an amendment to theCompany’s Non-Employee Director Option Plan, as amended, to increase the numberof shares available for grant to 400,000 shares.

 
For2,677,380Against1,632,113Abstain23,221
             Proposal4:       Ratification and Approval ofIndependent Public Accountants

With respect to the following resolution:

             Resolved,that the appointment by the Board of Directors of Arthur Andersen LLP as theindependent public accountants of the Company for the year ending December 31,2001 be and hereby is ratified and approved.

 
For6,208,598Against14,565Abstain2,803
 

**Item 6.  Exhibits andReports on Form 8-K**
a.Exhibits   11.1  Statement regarding Computation of Per  Share Earnings.  b.Reports  on Form 8-K None.
 

 

**SIGNATURES**

             Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

Enchira Biotechnology Corporation
By:/s/  Peter P. Policastro Peter  P. Policastro Chief  Executive Officer and President Date:  August 13, 2001  By:/s/  Paul G. Brown III Paul  G. Brown III Vice  President, Finance and Administration and Chief  Financial Officer Date:  August 13, 2001 
 **