EDGAR 10-K Filing

Company CIK: 1527728
Filing Year: 2021
Filename: 1527728_10-K_2021_0001731122-21-001565.json

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ITEM 1. BUSINESS
Item 1 Business

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ITEM 1A. RISK FACTORS
Item 1A Risk Factors

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B Unresolved Staff Comment

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ITEM 2. PROPERTIES
Item 2. Properties
The Company currently leases the following properties:
Location
Use
Terms
5901 W. Olympic Blvd, Suite 419
Los Angeles, CA 90036
Physical office space
On November 13, 2017, the Company entered into a Lease Agreement for a term of five years and two months from November 1, 2017. The Leased Premises consist of approximately 2,325 rentable square feet. The base rent for such leased premises increases by 3% each year over the term, and ranges from approximately $8,719 per month for the first year to $10,107 per month for the two months of the sixth year. The Company was entitled to $70,800 in tenant improvement allowance in the form of free rent applied over 10 months in equal installments from January 2018.
2080 Century Park East, Suite 906
Los Angeles, CA 90067
Headquarters
The Company entered into a Lease Agreement on June 19, 2018 for our corporate headquarters located at Century City Medical Plaza. We have a ten-year lease that was for approximately 2,453 square feet at this location. In February 2019, we extended our corporate headquarters to encompass the adjoining suite for approximately 1,101 square feet, bringing the total workspace to 3,554 square feet. The new base rent for this leased premises increases by 3% each year over the term, and ranges from $17,770 per month as of the date of the amendment until the end of the first year to $ 23,186 per month for the tenth year. The additional suite was in the form of an amendment to the original lease and will expire on the same date as the original lease. The Company was entitled to a total of $148,168 in contributions toward tenant improvements for both spaces.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any legal proceeding that we believe would have a material adverse effect on our business, financial condition or operating results.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders of our Common Stock
Our Common Stock trades on the Nasdaq Capital Market under the symbol “ENOB”.
As of September 28, 2021, the Company had 52,219,661 shares of Common Stock issued and outstanding and approximately 227 stockholders of record. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Recent Sales of Unregistered Securities
From March 18, 2021 through June 9, 2021, the Company issued 408,164 shares of Common Stock at a price of $3.92 per share pursuant to a private placement for total proceeds to the Registrant of $1,600,000.
Company Purchases of Equity Securities
[None]
Dividends
The Company has not declared or paid any cash dividends on its Common Stock and does not intend to declare or pay any cash dividend in the foreseeable future. The payment of dividends, if any, is within the discretion of the Board and will depend on the Company’s earnings, if any, its capital requirements and financial condition and such other factors as the Board may consider.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements, and the related notes to those statements included elsewhere in this report. In addition to the historical financial information, the following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements.
Our Business
Enochian BioSciences, Inc. is a biopharmaceutical company focused on developing innovative platforms for gene-modified cellular and immune therapies to potentially cure and treat deadly diseases. The company’s gene-modified cell and immune therapy platforms can potentially be applied to multiple indications, including HIV/AIDS, Hepatitis B, all Corona and Influenza viruses, and Oncology.
To date, our operations have been funded by sales of our securities and debt financing. 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.
Recent Developments
On August 11, 2021, and with an effective date of July 1, 2021, the Company and Dr. Dybul entered into an Employment Agreement, the form of which was approved and recommended by the Board on October 30, 2019 and approved by stockholders of the Company with a majority of the voting power of all shares of the Company’s capital stock entitled to vote on the matter on October 31, 2019. The material terms of the Employment Agreement are as set forth in the Company’s Information Statement filed with the Securities and Exchange Commission on November 12, 2019.
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.
RESULTS OF OPERATIONS
Year ended June 30, 2021 compared to the year ended June 30, 2020.
The following table sets forth our revenues, expenses and net income for the years ended June 30, 2021 and 2020. The financial information below is derived from our audited consolidated financial statements included elsewhere in this Annual Report.
For the Year Ended
June 30, Increase/(Decrease)
$ %
Operating Expenses
General and administrative expenses $ 7,740,130 $ 7,120,835 $ 619,295 9 %
Research and development expenses 15,538,122 4,694,349 10,843,773 231 %
Depreciation and amortization 123,535 108,584 14,951 14 %
Total Operating Expenses 23,401,787 11,923,768 11,478,019 96 %
LOSS FROM OPERATIONS (23,401,787 ) (11,923,768 ) (11,478,019 ) (96 )%
Other Income (Expenses)
Change in fair value of contingent consideration (3,048,033 ) 274,566 (3,322,599 ) (1,210 )%
Interest expense (379,608 ) (104,280 ) (275,328 ) 264 %
Gain (Loss) on currency transactions (32,634 ) 146,828 (179,462 ) (122 )%
Gain on settlement - 140,000 (140,000 ) (100 )%
Interest income 13,179 50,296 (37,117 )) (74 )%
Total Other Income (Expenses) (3,447,096 ) 507,410 (3,954,506 ) (779 )%
Loss Before Income Taxes (26,848,883 ) (11,416,358 ) (15,432,525 ) 135 %
Income Tax Benefit 125,276 - 125,276 100 %
NET LOSS $ (26,723,607 ) $ (11,416,358 ) $ (15,307,249 ) 134 %
For the Year Ended
June 30,
Net Loss $ (26,723,607 ) $ (11,416,358 )
Other Comprehensive Income (Loss)
Foreign Currency Translation Gain (Loss), Net of Taxes 30,582 (143,234 )
Comprehensive Loss $ (26,693,025 ) $ (11,559,592 )
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.
Operating Expenses
Our operating expenses for the years ended June 30, 2021 and 2020 were $23,401,787 and $11,923,768, respectively, representing an increase of $11,478,019, or 96%. The largest contributor to the increase in operating expenses for the year ended June 30, 2021, was the increase in research and development expenses of $10,843,773 in connection with the continued growth in our research and development efforts, and an increase in general and administrative expenses of $619,295.
General and administrative expenses for the years ended June 30, 2021 and 2020 were $7,740,130 and $7,120,835, respectively, representing an increase of $619,295, or 9%. General and administrative expenses include audit fees, non-cash compensation expenses, consulting expenses, board compensation, filing fees, corporate taxes, security expenses, legal fees, office leases, insurance, patent fees, salaries, investor relations, travel expenses and other general and administrative expenses. The increase in general and administrative expenses are primarily related to increases of $416,076 in stock-based compensation, $254,512 in salaries, $179,363 related to insurance, and $99,880 in investor relations, partially offset by decreases in legal and security fees and laboratory costs totaling approximately $420,862.
Research and development expenses for the years ended June 30, 2021, and June 30, 2020, were $15,538,122 and $4,694,349, respectively, representing an increase of $10,843,773 or 231%. Overall research and development expenses remained consistent with the exception of the $10 million upfront fees related to the Coronavirus and Influenza License Agreement discussed above, and approximately $657,000 in collaboration partner costs in the development of our product lines ENOB-HV-12 and DC-11 in the year ended June 30, 2021.
Other Income (Expense)
Net other income (expense) for the years ended June 30, 2021 and 2020 was $(3,447,096) and $507,410, respectively, representing an increase of 3,954,506 or 779%. The increase in other expense was due primarily to the change in the fair value of contingent consideration of $3,322,000, which is impacted by contingent shares issued during the period and the mark to market adjustments on the remaining contingent consideration liability, as well as an increase in interest expense of approximately $275,000.
Net Loss
Net loss for the years ended June 30, 2021 and June 30, 2020 was $26,723,607 and $11,416,358, respectively, representing an increase in net loss of $15,307,249, or 134%. The increase in net loss was primarily due to the upfront fees of $10 million related to the Coronavirus and Influenza License Agreement recorded in research and development costs, an approximate increase in the change in fair value of contingent consideration of $3,332,599 and $619,295 increase in general and administrative expenses.
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-HV11/12 and ENOB-DC11 and ENOB-FL-01 and -11 and ENOB-CV-11, to fund the Coronavirus and Influenza Indications License Agreement in furtherance of the 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.
As of June 30, 2021, the Company had $20,664,410 in cash and working capital of $19,013,100 as compared to $8,696,361 in cash and working capital of $7,606,411 as of June 30, 2020. The increase in cash of $11,968,049 is primarily due to the proceeds from the various equity raises throughout the year that totaled approximately $33,066,148, partially offset by the cost of operations primarily related to research and development costs of $15,500,000 (see Note 8 of the Financial Statements.)
Equity
On July 8, 2020, we entered into a purchase agreement (the “LPC Purchase Agreement”) with Lincoln Park Capital Fund, LLC, (“LPC”), pursuant to which LPC is committed to buy, and we have the right, but not the obligation, to sell to LPC up to an aggregate of $20,000,000 of our Common Stock, subject to certain limitations and conditions set forth in the LPC Purchase Agreement, including a limitation on the number of shares of Common Stock we can put to LPC and the pricing parameters for the sales. For the year ended June 30, 2021, the Company issued 200,000 shares of Common Stock for proceeds of $1,221,350 (see Note 7 of the Financial Statements.)
Pursuant to a private placement offering, the Company issued 1,275,719 shares of Common Stock resulting in proceeds of $5,000,800. The Company effected the issuances of the shares of Common Stock from March 15, 2021 to June 9, 2021. The private placement was made directly by the Company in reliance upon Regulation S of the Securities Act of 1933. No underwriter or placement agent was engaged by the Company for this private placement (see Note 7 of the Financial Statements.)
On June 14, 2021, the Company and certain institutional investors entered into a securities purchase agreement (the “Purchase Agreement”), pursuant to which the Company agreed to sell to such investors an aggregate of 3,866,668 shares of Common Stock, in a registered direct offering, for gross proceeds of approximately $29 million (the “Financing”). The purchase price for each share of Common Stock was $7.50. The Company agreed not to issue or enter into any agreement to issue Common Stock from June 14, 2021 until ninety (90) days after the closing of the Financing. The Company entered into a letter agreement dated June 14, 2021 (the “Letter Agreement”) with H.C. Wainwright & Co., LLC, as exclusive placement agent (the “Placement Agent”), pursuant to which the Placement Agent agreed to act as the exclusive placement agent for the Financing. The Company agreed to pay the Placement Agent an aggregate fee equal to 7.0% of the gross proceeds raised in the Financing. The Company also agreed to pay the Placement Agent certain expenses. The Company paid $2,090,000 in commissions and incurred offering expenses, and issuance costs of $66,011, resulting in net proceeds of $26,843,999 in connection with the Financing. The Financing closed on June 16, 2021 (see Note 7 of the Financial Statements.)
Warrant Exercises
On July 3, 2019, certain of our warrant holders exercised warrants to purchase 500,000 shares of Common Stock for total proceeds to the Company of $1,000,000. For the year ended June 30, 2021, the Company issued 63,122 shares of Common Stock for total proceeds of $82,056 upon the exercise of warrants.
Debt
On February 6, 2020, the Company issued two Convertible Notes (the “Convertible Notes”) to an existing stockholder of the Company each with a face value amount of $600,000, convertible into shares of Common Stock. The holder did not exercise the conversion feature that expired on February 6, 2021. The outstanding principal amount of the Convertible Notes is due and payable on February 6, 2023. Interest on the Convertible Notes commenced accruing on the date of issuance at six percent (6%) per annum, computed on the basis of twelve 30-day months, and is compounded monthly on the final day of each calendar month based upon the principal and all accrued and unpaid interest outstanding as of such compound date. The interest is payable in cash on a semi-annual basis. For the years ended June 30, 2021 and 2020, the interest expense amounted to $72,967 and $30,302, respectively (see Note 5 to the Financial Statements.)
On March 30, 2020 (the “Issuance Date”), the Company issued a Promissory Note in the principal amount of $5,000,000 (the “Unsecured Note”) to Paseco APS (the “Holder”), a Danish limited company and an existing stockholder of the Company. The principal amount of the Unsecured Note will be payable on November 30, 2021, and bears interest at a fixed rate of 6% per annum, which was prepaid by the Company in full on the date of issuance through the issuance of 188,485 shares of the Company’s Common Stock based on the closing market price on that date, valued at $501,370. On February 11, 2021, the Company and the Holder amended the original Unsecured Note to extend the maturity date to November 30, 2022. The Company prepaid in full all accrued interest from November 30, 2021 to the new maturity date November 30, 2022, through the issuance of 74,054 shares of Common Stock based on the closing market price on that date, valued at $299,178. (See Note 5 to the Financial Statements).
Cash Flows
Year ended June 30, 2021 compared to the year ended June 30, 2020
Following is a summary of the Company’s cash flows provided by (used by) operating, investing, and financing activities:
For the Year Ended
June 30,
Net Cash Used by Operating Activities $ (20,610,723 ) $ (10,459,422 )
Net Cash Used by Investing Activities (48,892 ) (184,463 )
Net Cash Provided by Financing Activities 32,601,553 7,200,000
Effect of exchange rates on cash 26,111 (141,978 )
Net Increase (Decrease) in Cash $ 11,968,049 $ (3,585,863 )
At June 30, 2021, we had cash and cash equivalents of $20,664,410, an increase of $11,968,049, when compared to the June 30, 2020 balance of $8,696,361. This increase was primarily due to cash provided by financing activities, primarily from equity sale transactions, partially offset by cash used in operating activities.
We plan to use our cash and cash equivalents to fund research and development, specifically to open an Investigational New Drug Application (IND) (the first step in the drug review process by the FDA) for ENOB CV-01, ENOB-HB01, ENOB-HV01, and ENOB-HV21, to continue our research and development of ENOB-HV11/12 and ENOB-DC11, and to fund the Coronavirus and Influenza Indications License Agreement in furtherance of the Treatment, and possible future strategic acquisitions of businesses, products or technologies complementary to our business. These activities will require an increase in staffing and possible additional property, plant and equipment purchases to support the expected growth.
Cash used by operating activities represents the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net income for non-cash items and changes in operating assets and liabilities. Net cash used by operating activities for the years ended June 30, 2021 and 2020 was $20,610,723 and $10,459,422, respectively, representing an increase of $10,151,301. The increase is primarily related to the increase in our net loss as adjusted for non-cash items, partially offset by changes in our operating assets and liabilities of $932,133.
Net cash used by investing activities for the years ended June 30, 2021 and 2020 was $48,892 and $184,463, respectively, representing a decrease of $135,571. The decrease is primarily due to lower costs incurred in purchases of equipment in the current year.
Net cash provided by financing activities for the years ended June 30, 2021 and 2020 was $32,601,553 and $7,200,000, respectively, representing an increase of $25,401,553. The net cash provided by financing activities in the current year consists primarily of $26,843,998 of net proceeds from the issuance of Common Stock as part of a direct offering, $5,000,800 of proceeds from the issuance of Common Stock through a private placement, and $1,221,350 proceeds from issuance of Common Stock related to equity line draws. The prior year net cash from financing activities primarily consisted of $1,200,000 related to a convertible note payable, $5,000,000 related to a long-term note payable, and $1,000,000 related to warrants exercised.
Off-Balance Sheet Arrangements
As of June 30, 2021, and 2020, we had no off-balance sheet arrangements. We are not aware of any material transactions, which are not disclosed in our consolidated financial statements.
Significant Accounting Policies and Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Our most critical accounting estimates are detailed below, and our significant accounting policies are more fully described in Note 1 of the accompanying consolidated financial statements.
Intangible Assets - The Company has both Definite and Indefinite life intangible assets.
Definite life intangible assets relate to 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 capitalized 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. Definite life 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 acquired in a business combination. The Company accounts for indefinite life intangible assets in accordance with ASC 350, License agreement costs represent the fair value of the license agreement on the date acquired and are tested annually for impairment.
Goodwill - Goodwill is not amortized but is evaluated for impairment annually as of June 30 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 IPR&D and goodwill at June 30, 2021, were $154,824,000 and $11,640,000, respectively.
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 less, 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 (see Note 3.)
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. Under the authoritative guidance, 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 established 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 assets that use Level 1, 2 or 3 inputs, nor any liabilities that use Level 1 or 2 inputs as of June 30, 2021.
Liabilities that use Level 3 inputs held as of June 30, 2021 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) 18,081,962 shares of common stock, and (ii) the right to receive contingent shares pro rata upon the exercise of warrants, which were outstanding at closing. The contingent consideration liability was recorded at fair value of $21,516,000 at the time of the Acquisition and is subsequently remeasured to fair value at each reporting date. At June 30, 2021, 1,350,000 contingent shares are issuable in connection with the Acquisition.
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 value of the Company’s underlying stock. The key inputs to valuing the contingent consideration liability on the date of acquisition and as of June 30, 2021 include the Company’s stock price, the exercise price of the warrants of $1.30 per share, the risk-free rate, the expected volatility of the Company’s common stock and the digital call rate. The fair value measurements are highly sensitive to changes in these inputs and significant changes in these inputs could result in a significantly higher or lower fair value.
Stock-Based Compensation - The Company has granted stock options, restricted share units (“RSUs”) and warrants to certain employees, officers, directors and consultants. The Company accounts for options in accordance with the provisions of FASB ASC Topic 718, Compensation - Stock Compensation. Stock based compensation costs for the vesting of options and RSUs granted to certain employees, officers, directors and consultants for the years ended June 30, 2021 and 2020 were $1,444,798 and $1,028,721, respectively (see Note 7 to the Financial Statements).
The Company recognizes compensation costs for stock option awards to employees, officers 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 the expected term of the award, the underlying stock price volatility, the risk-free interest rate and the expected dividend yield.
The Company records stock-based compensation for services received from non-employees in accordance with ASC 718, Compensation-Stock Compensation Non-Employees. 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 consultants’ required service period, which is generally the vesting period (see Note 7 to the Financial Statements.)
Recently Enacted Accounting Standards
For a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see “Note 1: Recent Accounting Pronouncements” in the financial statements included elsewhere in this Annual Report.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Registrant is a smaller reporting company and is not required to provide this information.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at June 30, 2021 and 2020 -
Consolidated Statements of Operations for the Years Ended June 30, 2021 and 2020
Consolidated Statements of Comprehensive Loss for the Years Ended June 30, 2021 and 2020
Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended June 30, 2021 and 2020 -
Notes to the Consolidated Financial Statements -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Enochian Biosciences, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Enochian Biosciences, Inc. (“the Company”) as of June 30, 2021, and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2021 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2021, and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Indefinite-Lived Intangible Asset Impairment Assessment
Critical Audit Matter Description
The Company has an indefinite-lived intangible asset related to an acquired license treated as an in-process research and development asset (“IPR&D”). As of June 30, 2021, the carrying value of the asset is $154,824,000. To assess the carrying value of the IPR&D asset for impairment, management estimated the fair value of IPR&D annually on its elected assessment date of June 30, 2021, using a multi-period excess earnings method, which is a specific discounted cash flow method. The determination of the fair value requires management to make significant estimates including, but not limited to, the discount rate used in the model, the total addressable market for each potential drug, market penetration assumptions, and for the estimated timing of commercialization of the drugs. Changes in these assumptions could have a significant impact on the fair value of the IPR&D and a significant change in fair value could cause a significant impairment.
How the Critical Audit Matter was Addressed in the Audit
We identified the impairment testing of the IPR&D asset as a critical audit matter because of the significant estimates and assumptions management makes related to the addressable market, market penetration estimates, commercialization dates of the drugs and selection of the discount rate to determine the fair value of the goodwill. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the selection of the discount rate, the reasonableness of the total addressable market and market penetration for each drug, and the reasonableness of management’s forecast of the commercialization dates for IPR&D. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Our audit procedures related to the following:
● Testing management’s process for developing the fair value of the IPR&D.
● Evaluating the reasonableness and consistency of the selected valuation methodology and assumptions utilized by the Company.
● Testing the mathematical accuracy of the model used by management.
● Testing the completeness and accuracy of underlying data used in the fair value estimate.
● Evaluating the significant assumptions provided by management or developed by the third-party valuation specialist related to total addressable market, market penetration, commercialization forecasts, and discount rate to discern whether they are reasonable considering (i) current and past performance of the entity; (ii) their consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.
In addition, professionals with specialized skill and knowledge were utilized by the Firm to assist in the performance of these procedures.
Goodwill Impairment Assessment
Critical Audit Matter Description
As of June 30, 2021, the carrying value of goodwill was $11,640,000. As described in note 1 to the consolidated financial statements, the Company tests goodwill for impairment annually at the reporting unit level, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than it’s carrying amount. To assess the carrying value of the goodwill for impairment, management estimated the fair value of goodwill on its elected assessment date of June 30, 2021, using a discounted cash flow model. The determination of the fair value requires management to make significant estimates including, but not limited to, the discount rate used in the model, the total addressable market for each potential drug, market penetration assumptions, and for the estimated timing of commercialization of the drugs.
How the Critical Audit Matter was Addressed in the Audit
We identified the evaluation of the impairment analysis for goodwill as a critical audit matter because of the significant estimates and assumptions management makes related to the addressable market, market penetration, commercialization dates of the drugs and selection of the discount rate to determine the fair value of the goodwill. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the selection of the discount rate, the reasonableness of the total addressable market and market penetration forecasts for each drug, and the reasonableness of management’s forecast of the commercialization dates for the drugs. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Our audit procedures related to the following:
● Testing management’s process for developing the fair value of the reporting unit.
● Evaluating the reasonableness and consistency of the selected valuation methodology and assumptions utilized by the Company.
● Testing the mathematical accuracy of the model used by management.
● Testing the completeness and accuracy of underlying data used in the fair value estimate.
● Evaluating the significant assumptions provided by management or developed by the third-party valuation specialist related to total addressable market, market penetration, commercialization forecasts, and discount rate to discern whether they are reasonable considering (i) current and past performance of the entity; (ii) their consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.
In addition, professionals with specialized skill and knowledge were utilized by the Firm to assist in the performance of these procedures.
/s/ Sadler, Gibb & Associates, LLC
We have served as the Company’s auditor since 2018.
Draper, UT
September 24, 2021
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS
CURRENT ASSETS:
Cash $ 20,664,410 $ 8,696,361
Other receivables 1,640 1,982
Prepaid expenses 232,943 242,866
Total Current Assets 20,898,993 8,941,209
Property and equipment, net 719,364 778,118
OTHER ASSETS
Definite life intangible assets, net 65,906 77,323
Indefinite life intangible assets 154,824,000 154,824,000
Goodwill 11,640,000 11,640,000
Deposits and other assets 20,984 137,550
Operating lease rights-of-use assets 1,435,978 1,703,859
Total Other Assets 167,986,868 168,382,732
TOTAL ASSETS $ 189,605,225 $ 178,102,059
The accompanying notes are an integral part of these consolidated financial statements.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30,
LIABILITIES
CURRENT LIABILITIES:
Accounts payable - trade $ 320,559 $ 592,877
Accrued expenses 1,182,323 470,636
Other current liabilities 90,602 -
Current portion of operating lease liabilities 292,409 271,285
Total Current Liabilities 1,885,893 1,334,798
NON-CURRENT LIABILITIES:
Contingent consideration liability 6,037,945 3,182,434
Convertible notes payable 1,200,000 1,200,000
Notes payable, net 4,579,114 4,580,787
Operating lease liabilities, net of current portion 1,239,334 1,531,779
Total Non-Current Liabilities 14,942,286 11,829,798
Commitments and Contingencies - -
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding - -
Common stock, par value $0.0001, 100,000,000 shares authorized, 52,219,661 shares issued and outstanding at June 30, 2021; 46,497,409 shares issued and outstanding at June 30, 2020 5,222 4,650
Additional paid-in capital 265,580,356 230,497,225
Accumulated deficit (90,911,805 ) (64,188,198 )
Accumulated other comprehensive (loss) (10,834 ) (41,416 )
Total Stockholders’ Equity 174,662,939 166,272,261
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 189,605,225 $ 178,102,059
The accompanying notes are an integral part of these consolidated financial statements.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
June 30,
Operating Expenses
General and administrative $ 7,740,130 $ 7,120,835
Research and development 15,538,122 4,694,349
Depreciation and amortization 123,535 108,584
Total Operating Expenses 23,401,787 11,923,768
LOSS FROM OPERATIONS (23,401,787 ) (11,923,768 )
Other Income (Expenses)
Change in fair value of contingent consideration (3,048,033 ) 274,566
Interest expense (379,608 ) (104,280 )
Gain (loss) on currency transactions (32,634 ) 146,828
Gain on settlement of debt - 140,000
Interest income 13,179 50,296
Total Other Income (Expenses) (3,447,096 ) 507,410
Loss Before Income Taxes (26,848,883 ) (11,416,358 )
Income Tax Benefit 125,276 -
NET LOSS $ (26,723,607 ) $ (11,416,358 )
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.57 ) $ (0.25 )
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING - BASIC AND DILUTED 47,167,262 46,330,743
The accompanying notes are an integral part of these consolidated financial statements.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Years Ended
June 30,
Net Loss $ (26,723,607 ) $ (11,416,358 )
Other Comprehensive Income (Loss)
Foreign currency translation, net of taxes 30,582 (143,234 )
Other Comprehensive Loss $ (26,693,025 ) $ (11,599,592 )
The accompanying notes are an integral part of these consolidated financial statements.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Years Ended June 30, 2021 and June 30, 2020
# of Shares Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total
Balance July 1, 2019 45,273,924 $ 4,527 $ 225,765,432 $ (52,771,840 ) $ 101,818 $ 173,099,937
Stock issued pursuant to warrants exercised 500,000 999,950 - - 1,000,000
Contingent shares issued pursuant to acquisition agreement 500,000 2,209,950 - - 2,210,000
Restricted shares converted to shares for services rendered 30,000 143,997 - - 144,000
Shares issued in lieu of interest on notes payable 188,485 493,173 - - 493,192
Shares issued for fully vested RSUs 5,000 (1 ) - - -
Stock-based compensation
884,724 - - 884,724
Net Loss - - - (11,416,358 ) - (11,416,358 )
Foreign currency translation loss - - - - (143,234 ) (143,234 )
Balance June 30, 2020 46,497,409 $ 4,650 $ 230,497,225 $ (64,188,198 ) $ (41,416 ) $ 166,272,261
Issuance of commitment shares related to LPC purchase agreement 139,567 (14 ) - - -
Stock issued pursuant to warrants exercised 63,122 82,050 - - 82,056
Contingent shares issued pursuant to acquisition agreement 63,122 192,516 - - 192,522
Shares issued pursuant to 2021 private placement 1,275,719 5,000,672 - - 5,000,800
Shares issued in lieu of interest on $5 million notes payable extension 74,054 298,171 - - 298,178
Shares issued pursuant to LPC equity agreement 200,000 1,221,330 - - 1,221,350
Shares issued pursuant to direct offering, net of issuance costs 3,866,668 26,843,612 - - 26,843,999
Shares issued for fully vested RSUs 5,000 - - - - -
Restricted shares converted to shares for services rendered 35,000 146,996 - - 147,000
Stock-based Compensation - - 1,297,798 - - 1,297,798
Net Loss - - - (26,723,607 ) - (26,723,607 )
Foreign currency translation gain - - - - 30,582 30,582
Balance June 30, 2021 52,219,661 $ 5,222 $ 265,580,356 $ (90,911,805 ) $ (10,834 ) $ 174,662,939
The accompanying notes are an integral part of these consolidated financial statements.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
June 30,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (26,723,607 ) $ (11,416,358 )
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES :
Depreciation and amortization 123,534 108,583
Change in fair value of contingent consideration 3,048,033 (274,566 )
Non-cash stock-based compensation expense 1,444,798 1,028,724
Amortization of right-of-use assets 267,881 257,685
Amortization of discount on note payable 296,505 73,979
Gain on settlement of debt - (140,000 )
Changes in assets and liabilities:
Other receivables 18,812
Prepaid expenses/deposits 733,739 (50,897 )
Accounts payable (272,318 ) 59,314
Accounts payable non-trade - (100,000 )
Other current liabilities 30,004 -
Operating lease liabilities (271,321 ) (251,231 )
Accrued expenses 711,687 226,533
NET CASH USED BY OPERATING ACTIVITIES (20,610,723 ) (10,459,422 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (48,892 ) (184,463 )
NET CASH USED BY INVESTING ACTIVITIES (48,892 ) (184,463 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable - 1,200,000
Proceeds from notes payable
5,272,700
Repayments of finance agreement (546,651 ) -
Repayment of notes payable
(272,700 )
Proceeds from exercise of warrants 82,056 1,000,000
Proceeds from 2021 private placement 5,000,800 -
Proceeds from direct offering, net of issuance costs 26,843,998 -
Proceeds from LPC equity agreement 1,221,350 -
NET CASH PROVIDED BY FINANCING ACTIVITIES 32,601,553 7,200,000
Effect of exchange rates on cash 26,111 (141,978 )
NET INCREASE (DECREASE) IN CASH 11,968,049 (3,585,863 )
CASH, BEGINNING OF PERIOD 8,696,361 12,282,224
CASH, END OF PERIOD $ 20,664,410 $ 8,696,361
The accompanying notes are an integral part of these consolidated financial statements.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid during the year for:
Interest
$ 89,224 $ -
Income Taxes
$ 37 $ -
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Contingent Shares issued pursuant to Acquisition Agreement
$ 192,522 $ 2,210,000
Right-of-use assets in exchange for operating lease liabilities upon adoption of ASC 842-Leases
$ - $ 2,054,295
Shares issued in lieu of interest expense on note payable
$ (298,178 ) $ (493,192 )
Finance agreement entered into in exchange for prepaid assets
$ 607,250 $ -
The accompanying notes are an integral part of these consolidated financial statements.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business- Enochian BioSciences Inc., formerly DanDrit Biotech USA, Inc. (“Enochian”, or “Registrant”, and together with its subsidiaries, the “Company”, “we” or “us”) engages in the 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 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”).
Consolidation - For the years ended June 30, 2021 and 2020, the consolidated financial statements include the accounts and operations of the Registrant, and its wholly owned subsidiaries. All material inter-company transactions and accounts have been eliminated in the consolidation.
Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated. Significant estimates include the fair value and potential impairment of intangible assets, the fair value of the contingent consideration liability, and fair value of equity instruments issued.
Subsidiaries- Enochian Biopharma Inc. (“Enochian Biopharma”) was incorporated on May 19, 2017 in Delaware and is a 100% owned subsidiary of the Registrant. Enochian Biopharma owns a perpetual, fully paid-up, royalty-free, sublicensable, and sole and exclusive worldwide license to research, develop, use, sell, have sold, make, have made, offer for sale, import and otherwise commercialize certain intellectual property in cellular therapies for the prevention, treatment, amelioration of and/or therapy exclusively for HIV in humans, and research and development exclusively relating to HIV in humans. As of June 30, 2021 and June 30, 2020, 1,350,000 and 1,438,122 shares of Common Stock, respectively, remain contingently issuable in connection with the acquisition of Enochian BioPharma in February 2018 (the “Contingent Shares”).
Enochian Biosciences Denmark ApS, a Danish corporation was incorporated on April 1, 2001 (“Enochian Denmark”). On February 12, 2014, in accordance with the terms and conditions of a Share Exchange Agreement, the Company acquired Enochian Denmark and it became a 100% owned subsidiary of the Registrant subject to 185,053 shares of common stock of the Registrant held in escrow according to Danish law (the “Escrow Shares”). As of June 30, 2021, there are 17,414, Escrow Shares remaining (see Note 7).
COVID-19 Update
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.
Functional Currency and Foreign Currency Translation - The functional currency of Enochian Denmark is the Danish Kroner (“DKK”). The Company is reporting currency is the U.S. Dollar for the purpose of these financial statements. The Company’s consolidated 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 years ended June 30, 2021 and 2020. 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.
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’s cash balances at June 30, 2021, and 2020, are $20,664,410 and $8,696,361, respectively. The Company had balances held in financial institutions in Denmark and in the United States in excess of federally insured amounts at June 30, 2021 and 2020 of $20,287,212, and $8,160,271, respectively.
Property and Equipment - Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized, 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 2).
Intangible Assets - The Company has both Definite and Indefinite life intangible assets.
Definite life intangible assets relate to 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 capitalized 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. Definite life 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 acquired in a business combination. The Company accounts for indefinite life intangible assets in accordance with ASC 350, License agreement costs represent the fair value of the license agreement on the date acquired and are tested annually for impairment.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Goodwill - Goodwill is not amortized but is evaluated for impairment annually as of June 30 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 IPR&D and goodwill at June 30, 2021, were $154,824,000 and $11,640,000, respectively.
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 less, 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 (see Note 3.)
Impairment of Long-Lived Assets - Long-lived assets, such as property, plant, and equipment and definite 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 expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The depreciable basis of assets that are impaired and continue in use 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 general and administrative expenses in the 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 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 4.)
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 year ended June 30, 2021 and 2020 amounted to $15,538,122 and $4,694,349, respectively.
Income Taxes - The Company accounts for income taxes in accordance with FASB ASC Topic 740 Accounting for Income Taxes, which requires an asset and liability approach for accounting for income taxes (see Note 6.)
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Loss Per Share - The Company calculates earnings (loss) per share in accordance with FASB ASC 260 Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of shares of Common Stock outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as for basic EPS) and potentially dilutive common shares. Potential shares of Common Stock included in the diluted earnings per share calculation include in-the-money stock options that have been granted but have not been exercised. The shares of Common Stock outstanding at June 30, 2021 and 2020 were 52,219,661 and 46,497,409, respectively. Because of the net loss for each of years ended June 30, 2021 and June 30, 2020, dilutive shares for both periods were excluded from the diluted EPS calculation, as the effect of these potential shares of Common Stock is anti-dilutive. The Company had 4,011,653 and 4,091,686 potential shares of Common Stock excluded from the diluted EPS calculation for the years ended June 30, 2021 and 2020, respectively.
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. Under the authoritative guidance, 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 established 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 assets that use Level 1, 2 or 3 inputs, nor any liabilities that use Level 1 or 2 inputs as of June 30, 2021.
Liabilities that use Level 3 inputs held as of June 30, 2021 consisted of a contingent consideration liability related to the February 16, 2018 acquisition of Enochian BioPharma (the “Acquisition”). As consideration for the Acquisition, the stockholders of Enochian Biopharma received (i) 18,081,962 shares of Common Stock, and (ii) the right to receive contingent shares pro rata upon the exercise of warrants, which were outstanding at closing. The contingent consideration liability was recorded at fair value of $21,516,000 at the time of the Acquisition and is subsequently remeasured to fair value at each reporting date. At June 30, 2021, 1,350,000 contingent shares are issuable in connection with the Acquisition of Enochian Biopharma.
The fair value of the contingent consideration liability is estimated using an option-pricing model. The key inputs to the model are all contractual or observable with the exception being volatility, which is computed, based on the Company’s underlying stock. The key inputs to valuing the contingent consideration liability on the date of acquisition and as of June 30, 2021, include the Company’s stock price on the valuation date of $4.97; the exercise price of the warrants of $1.30, the risk-free rate of 0.08%, the expected volatility of the Company’s Common Stock of 79.2%, and the digital call rate of 90%. Fair Value measurements are highly sensitive to changes in these inputs and significant changes in these inputs could result in a significantly higher or lower fair value.
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, prepaid expenses, accounts payable, accrued expenses, and notes payable approximate their recorded values due to their short-term nature.
The following table sets forth the liabilities at June 30, 2021 and 2020, which are recorded on the balance sheet at fair value on a recurring basis by level of input within the fair value hierarchy. As required, these are classified based on the lowest level of input that is significant to the fair value measurement:
Summary of 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)
Contingent Consideration Liability at June 30, 2021 $ - $ - $ 6,037,945
The roll forward of the contingent consideration liability is as follows:
Balance June 30, 2020
3,182,434
Contingent Shares issued pursuant to the Acquisition Agreement
(192,522 )
Fair value adjustment - - 3,048,033
Balance June 30, 2021 $ - $ - $ 6,037,945
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Stock Options and Warrants - The Company has granted stock options to certain employees, officers and directors that were subsequently converted to Grant Warrants. During the years presented in the accompanying consolidated financial statements, the Company has granted stock options and warrants. The Company accounts for options and warrants in accordance with the provisions of FASB ASC Topic 718, Compensation - Stock Compensation. Stock-based compensation costs related to employee compensation and consulting fees for the years ended June 30, 2021 and 2020 were $1,444,798 and $1,028,724, respectively (see Note 7).
Stock-Based Compensation -The Company records stock-based compensation for services received from non-employees in accordance with ASC 718. 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 for goods or services 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 consultants’ required service period, which is generally the vesting period. For the year ended June 30, 2021, the Company issued 35,000 shares at a value of $147,000. For the year ended June 30, 2020, the Company issued 30,000 shares at a value of $144,000 (see Note 7.)
Recent Accounting Pronouncements - The Company adopted ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements, which amends certain disclosures requirements over fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 inputs of the fair value hierarchy or valuation processes for Level 3 inputs in fair value measurements. However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. The Company adopted this guidance on July 1, 2020, and there was no material impact to its consolidated financial statement disclosures (see Note 1-Fair Value of Financial Instruments for more information about the Company’s fair value classifications.)
New Accounting Pronouncements Not Yet Adopted - 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 consolidated financial statements.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2021 and 2020:
Summary of property and equipment
Useful Life June 30, 2021 June 30, 2020
Lab equipment and instruments 4-7 $ 583,421 $ 534,527
Leasehold improvements 224,629 224,629
Furniture, fixtures and equipment 4-7 171,975 171,975
Total
980,025 931,131
Less accumulated depreciation
(260,661 ) (153,013 )
Net Property and Equipment
$ 719,364 $ 778,118
Depreciation expense amounted to $107,647 and $93,861 for the years ended June 30, 2021 and 2020, respectively.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INTANGIBLE ASSETS AND GOODWILL
At June 30, 2021 and 2020, definite-life intangible assets, net of accumulated amortization, consisted of patents on the Company’s products and processes of $65,906 and $77,323, respectively. The patents are recorded at cost and amortized over twenty years from the date of application. Amortization expense for the year ended June 30, 2021 and 2020 was $15,888 and $14,772, respectively.
At June 30, 2021 and 2020, 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 June 30, 2021 and 2020, definite-life and indefinite-life intangible assets consisted of the following:
Schedule of life intangible assets
Useful Life June 30, 2020 Period Change Effect of Currency Translation June 30, 2021
Definite Life Intangible Assets
Patents 20 Years $ 299,175 $ - 16,940 $ 316,115
Less Accumulated Amortization
(221,852 ) (15,888 ) (12,469 ) (250,209 )
Net Definite-Life Intangible Assets
$ 77,323 $ (15,888 ) $ 4,471 $ 65,906
Indefinite Life Intangible Assets
License Agreement
$ 154,824,000 $ - $ - $ 154,824,000
Goodwill
11,640,000 - - 11,640,000
Total Indefinite Life Intangible Assets
$ 166,464,000 $ - $ - $ 166,464,000
Expected future amortization expense is as follows:
Schedule of expected future amortization expense
Years ended June 30,
$ 15,154
15,154
15,154
15,154
5,290
Thereafter -
Total $ 65,906
During February 2018, the Company acquired a License Agreement (as licensee) to the HIV therapy being developed as ENOB-HV-01 which consists of a perpetual, fully paid-up, royalty-free, sub-licensable, and sole and exclusive worldwide license to research, develop, use, sell, have sold, make, have made, offer for sale, import and otherwise commercialize certain intellectual property in cellular therapies for the prevention, treatment, amelioration of and/or therapy exclusively for HIV in humans, and research and development exclusively relating to HIV in humans. Because the HIV License Agreement is considered an IPR&D intangible asset, it is classified as an indefinite life asset that is tested annually for impairment.
Impairment - Following the fourth quarter of each year, management performs its annual test of impairment of intangible assets by performing a quantitative assessment and determines if it is more than likely than not that, the fair value of the asset is greater than or equal to the carrying value of the asset. The results of the quantitative assessment supported Management’s conclusion that an impairment adjustment was not required as of June 30, 2021.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LEASES
Operating Leases - On November 13, 2017, the Registrant entered into a lease agreement for a term of five years and two months from November 1, 2017 with Plaza Medical Office Building, LLC, pursuant to which the Registrant agreed to lease approximately 2,325 rentable square feet (the “Plaza Lease”). The base rent for the Plaza Lease increases by 3% each year, and ranges from approximately $8,719 per month, for the first year to $10,107 per month for the two months of the sixth year. The equalized monthly lease payment for the term of the lease is $7,862. The Registrant was entitled to $70,800 in tenant improvement allowance in the form of free rent applied over 10 months in equal installments beginning in January 2018.
On June 19, 2018, the Registrant entered into a lease agreement for a term of ten years from September 1, 2018 with Century City Medical Plaza Land Co., Inc., pursuant to which the Company agreed to lease approximately 2,453 rentable square feet. On February 20, 2019, the Registrant entered into an Addendum to the original lease agreement with an effective date of December 1, 2019, where it expanded the lease area to include another 1,101 square feet for a total rentable 3,554 square feet. The base rent increases by 3% each year, and ranges from $17,770 per month as of the date of the amendment to $23,186 per month for the tenth year. The equalized monthly lease payment for the term of the lease is $20,050. The Company was entitled to $148,168 in contributions toward tenant improvements.
The Company identified and assessed the following significant assumptions in recognizing the right-of-use asset and corresponding liabilities:
Expected lease term - The expected lease term includes both contractual lease periods and, when applicable, cancelable option periods when it is reasonably certain that the Company would exercise such options. The Company’s leases have remaining lease terms between 19 months and 74 months. As of June 30, 2021, the weighted-average remaining term is 5.65 years.
Incremental borrowing rate - The Company’s lease agreements do not provide an implicit rate. As the Company does not have any external borrowings for comparable terms of its leases, the Company estimated the incremental borrowing rate based on the U.S. Treasury Yield Curve rate that corresponds to the length of each lease. This rate is an estimate of what the Company would have to pay if borrowing on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. As of June 30, 2021, the weighted-average discount rate is 4%.
Lease and non-lease components - In certain cases the Company is required to pay for certain additional charges for operating costs, including insurance, maintenance, taxes, and other costs incurred, which are billed based on both usage and as a percentage of the Company’s share of total square footage. The Company determined that these costs are non-lease components and they are not included in the calculation of the lease liabilities because they are variable. Payments for these variable, non-lease components are considered variable lease costs and are recognized in the period in which the costs are incurred.
For the years ended June 30, 2021, and 2020, the lease expenses charged to general and administrative expenses amounted to $339,094, and $395,528, respectively.
Below are the lease commitments for the next 5 years:
Lease commitments
Years Ending June 30
Lease Expense
$ 348,495
298,305
246,004
253,384
260,985
Thereafter 313,836
Less imputed interest (189,266 )
Total $ 1,531,743
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE
Convertible Notes Payable- On February 6, 2020, the Company issued two Convertible Notes (the “Convertible Notes”) to an existing stockholder of the Company each with a face value amount of $600,000, convertible into shares of Common Stock, $0.0001 par value per share. The outstanding principal amount of the Convertible Notes is due and payable on February 6, 2023. Interest on the Convertible Notes commenced accruing on the date of issuance at six percent (6%) per annum, computed on the basis of twelve 30-day months, and is compounded monthly on the final day of each calendar month based upon the principal and all accrued and unpaid interest outstanding as of such compound date. The interest is payable in cash on a semi-annual basis.
The holder of the Convertible Notes 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 is equal to $12.00 per share of Common Stock. The holder did not exercise the conversion feature that expired on February 6, 2021. The Company evaluated the Convertible Notes in accordance with ASC 470-20 and identified that they each contain an embedded conversion feature that shall not be bifurcated from the host document (i.e., the Convertible Notes) as they are not deemed to be readily convertible into cash. All proceeds received from the issuance have been recognized as a liability on the balance sheet. The Convertible Notes balance as of June 30, 2021 and June 30, 2020, was $1,200,000. For the year ended June 30, 2021 and 2020, the Company recorded accrued interest in the amount of $24,181 and $30,302, respectively, which is included in accrued expenses. For the years ended June 30, 2021 and 2020, the interest expense related to the Convertible Notes amounted to $72,967 and $30,302, respectively.
Note Payable- On March 30, 2020 (the “Issuance Date”), the Company issued a Promissory Note in the principal amount of $5,000,000 (the “Unsecured Note”) to Paseco APS, a Danish limited company and an existing stockholder of the Company. The principal amount of the Unsecured Note was originally payable on November 30, 2021 (the “Maturity Date”). The Unsecured Note bore interest at a fixed rate of 6% per annum, computed based on the number of days between the Issuance Date and the Maturity Date, which was prepaid by the Company in full on the Issuance Date through the issuance of 188,485 shares of the Company’s Common Stock based on the closing market price on that date for a total value of $501,370. The Company evaluated the Unsecured Note and PIK interest in accordance with ASC 470-Debt and ASC 835-Interest, respectively. Pursuant to ASC 470-20, proceeds received from the issuance are to be recognized at their relative fair value, thus the liability is shown net of the corresponding discount of $493,192, which is the relative fair value of the shares issued for the PIK interest on the closing date using the effective interest method. The discount of $493,192 will be accreted over the life of the Unsecured Note.
On February 11, 2021, the Company entered into an amendment to the Unsecured Note in the principal amount of $5,000,000 that extends the Maturity Date out to November 30, 2022. All other terms of the Unsecured Note remain the same. The change in Maturity Date required an additional year of interest at the fixed rate of 6% per annum, which was prepaid by the Company in full on the date of the amendment through the issuance of 74,054 shares of the Company’s Common Stock based on the closing market price on that date for a total value of $298,178. For the year ended June 30, 2021 and 2020, discount amortization of $296,506 and $73,979 was charged to interest expense. The Unsecured Note balance, net of discount at June 30, 2021 is $4,579,114.
Finance Agreement- On December 4, 2020, the Company entered into a premium finance agreement (“Agreement”) with a principal amount of $607,250 and an interest rate of 4.99% per annum. The repayment of the Agreement will be made in nine equal monthly installments of $62,077. The remaining balance at June 30, 2021 is $60,598. The amount is reflected in other current liabilities. Interest expense related to the Agreement for the year ended June 30, 2021 totaled $10,135.
As of June 30, 2021 and 2020, the Company recorded a total of $24,181 and $30,302 of accrued interest, respectively. Total interest expense recorded for the years ended June 30, 2021 and 2020, was $379,608 and $104,280, respectively.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES
The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes; which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined.
As of June 30, 2021 and 2020, the Company had net operating loss carryforwards of approximately $51,327,066 and $29,247,919, respectively, giving rise to deferred tax assets of $13,532,665 and $6,944,248, respectively. The net operating loss carryforwards generated prior to January 1, 2018, expire over various dates from 2031 to 2036. All subsequent net operating loss carryforwards are indefinite.
The Company files Danish and U.S. income tax returns and these returns are generally no longer subject to tax examinations for years prior to 2008 for the Danish tax returns and 2012 for the U.S. tax returns.
The temporary differences, tax credits and carry forwards gave rise to the following deferred tax asset (liabilities) at June 30, 2021 and 2020:
Summary of deferred tax asset (liabilities)
June 30
Excess of tax over book depreciation of fixed assets $ (6,100 ) $ (17,628 )
Excess of tax over book depreciation of patents 5,449 2,654
Stock/options compensation 1,192,741 761,613
Depreciation and amortization 81,140 44,278
Net Operating Loss Carryforwards 13,536,884 6,944,248
Change in tax rate - 4,218
Valuation allowance (14,810,114 ) (7,739,383 )
Total Deferred Tax Assets (Liabilities) $ - $ -
In accordance with prevailing accounting guidance, the Company is required to recognize and disclose any income tax uncertainties. The guidance provides a two-step approach to recognizing and measuring tax benefits and liabilities when realization of the tax position is uncertain. The first step is to determine whether the tax position meets the more- likely -than -not condition for recognition, and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which can be difficult to determine and can only be estimated. Management estimates that it is more likely than not that the Company will not generate adequate net profits to use the deferred tax assets; and consequently, a valuation allowance was recorded for all deferred tax assets.
A reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate is as follows for the year ended June 30, 2021 and 2020:
Summary of reconciliation of income tax expense at federal statutory rate
June 30
Computed tax at expected statutory rate $ (7,070,732 ) $ (2,828,885 )
Non-US income taxed at different rates (125,276 ) -
Non-deductible expenses / other items - -
Valuation allowance 7,070,732 2,828,885
Income Tax Expense (Benefit) $ (125,276 ) $ -
The components of income tax expense (benefit) from continuing operations for the year ended June 30, 2021 and 2020 consisted of the following:
Summary of components of income tax expense (benefit) from continuing operations
June 30,
Current Tax Expense
Danish income tax (benefit) $ (125,276 ) $ -
Total Current Tax Expense (Benefit) $ (125,276 ) $ -
Deferred Income Tax Expense (Benefit)
Excess of tax over book depreciation of fixed assets $ (6,100 ) $ (17,628 )
Excess of tax over book depreciation of patents 5,449 2,654
Stock/options compensation 1,192,741 761,613
Depreciation and amortization 81,140 44,278
Net Operating Loss Carryforwards 13,536,884 6,944,248
Change in tax rate - 4,218
Change in the valuation allowance (14,810,114 ) (7,739,383 )
Total Deferred Tax Expense $ - $ -
Deferred income tax expense (benefit) results primarily from the reversal of temporary timing differences between tax and financial statement income.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS’ EQUITY
Preferred Stock - The Company has 10,000,000 authorized shares of Preferred Stock, par value $0.0001 per share. At June 30, 2021 and 2020, there were zero shares issued and outstanding.
Common Stock - The Company has 100,000,000 authorized shares of Common Stock, par value $0.0001 per share. At June 30, 2021 and 2020, there were 52,219,661 and 46,497,409 shares issued and outstanding, respectively.
Voting - Holders of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including the election of directors, and do not have any right to cumulate votes in the election of directors.
Dividends - Holders of Common Stock are entitled to receive ratably such dividends as the Company’s Board of Directors from time to time may declare out of funds legally available.
Liquidation Rights - In the event of any liquidation, dissolution or winding-up of the 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 $20,000,000 of shares of our Common Stock from time to time through August 1, 2023.
Under the Purchase Agreement, we may direct Lincoln Park, at our sole discretion subject to certain conditions, to purchase up to 200,000 shares of Common Stock on any business day (a “Regular Purchase”). The amount of a Regular Purchase may be increased under certain circumstances up to 125,000 shares of Common Stock, provided, that Lincoln Park’s committed obligation for Regular Purchases on any business day shall not exceed $1,000,000. In the event we direct the purchase of the full amount allowed for a Regular Purchase on any given business day, we may also direct Lincoln Park to purchase additional amounts as accelerated and additional accelerated purchases. The purchase price of shares of Common Stock related to the future funding will be based on the then prevailing market prices of such shares at the time of sales as described in the Purchase Agreement.
Our sale of shares of Common Stock to Lincoln Park subsequent to the date of the Purchase Agreement is limited to 12,016,457 shares of Common Stock, representing 19.99% of the shares of the Common Stock outstanding on the date of the Purchase Agreement unless (i) stockholder approval is obtained, (ii) the average price of all applicable sales to Lincoln Park under the Purchase Agreement equals or exceeds the lower of (A) the closing price of the Common Stock on the Nasdaq Capital Market immediately preceding the date of the Purchase Agreement or (B) the average of the closing prices on the Nasdaq Capital Market for the five Business Days immediately preceding the date of the Purchase Agreement or (iii) to the extent it would cause Lincoln Park to beneficially own more than 9.99% of the Company’s outstanding shares of Common Stock at any given time.
In consideration for entering into the Purchase Agreement, we issued 139,567 shares of Common Stock to Lincoln Park as a commitment fee on July 21, 2020.
In June 2021, we issued 200,000 shares of Common Stock to Lincoln Park under the Purchase Agreement for a purchase price of $1,221,350.
Private Placement
Pursuant to a private placement offering, the Company issued 1,275,719 Common Stock resulting in proceeds of $5,000,800. The Company effected the issuances of the shares of Common Stock from March 15, 2021 to June 9, 2021. The private placements was made directly by the Company. No underwriter or placement agent was engaged by the Company for this private placement.
Purchase Agreement Pursuant to Registered Direct Offering
On June 14, 2021, the Company and certain institutional investors entered into a securities purchase agreement (the “Registered Direct Purchase Agreement”), pursuant to which the Company agreed to sell to such investors an aggregate of 3,866,668 shares of Common Stock, in a registered direct offering, for gross proceeds of approximately $29 million (the “Financing”). The purchase price for each share of Common Stock was $7.50. Pursuant to the Registered Direct Purchase Agreement, the Company agreed not to issue or enter into any agreement to issue Common Stock from June 14, 2021 until ninety (90) days after the closing of the Financing. H.C. Wainwright & Co., LLC, acted as the exclusive placement agent (the “Placement Agent”.) The Financing closed on June 16, 2021.
The Company agreed to pay the Placement Agent an aggregate fee equal to 7.0% of the gross proceeds raised in the Financing. The Company also agreed to pay the Placement Agent certain expenses. The Company paid $2,090,000 in commissions and incurred offering expenses, and issuance costs of $66,011, resulting in net proceeds of $26,843,998 in connection with the Financing.
Common Stock Issuances
On June 30, 2021, the Company issued 5,000 shares of Common Stock related to restricted share units that vested on January 7, 2021. These shares were expensed during the period.
On June 16, 2021, the Company issued 3,866,668 shares of Common Stock at a price of $7.50 per share pursuant to the Registered Direct Purchase Agreement for total proceeds to the Company of $26,843,998 net of $2,156,012 of issuance costs.
On June 14, 2021, the Company issued 150,000 shares of Common Stock at an average price of $6.79 per share pursuant to the Purchase Agreement with Lincoln Park for total proceeds to the Company of $1,018,500.
On June 11, 2021, the Company issued 50,000 shares of Common Stock at an average price of $4.057 per share pursuant to the Purchase Agreement with Lincoln Park for total proceeds to the Company of $202,850.
From March 18, 2021 through June 9, 2021, the Company issued 1,275,719 shares of Common Stock at a price of $3.92 per share pursuant to a private placement for total proceeds to the Company of $5,000,800.
On February 18, 2021, there were 35,000 restricted share units issued that immediately vested and were converted into shares of Common Stock in exchange for consulting services valued at $147,000.
On February 11, 2021, the Company issued 74,054 shares of Common Stock valued at $298,178 based on the closing price on that date, issued in lieu of prepaid interest related to an amendment that extended the maturity date of the Unsecured Note to November 30, 2022 (see Note 5).
On December 14, 2020, the Company issued 63,122 shares of Common Stock valued at the price of $1.30 strike price per share pursuant to the exercise of vested warrants for total proceeds of $82,056.
On December 14, 2020, the Company issued 63,122 shares of Common Stock valued at the price of $3.05 per share in connection with the acquisition of Enochian Biopharma Inc. This non-cash transaction impacted stockholders’ equity in the amount of $192,522.
On March 30, 2020, the Company issued 188,485 shares valued at $501,370 based on the closing share price on that date, in lieu of prepaid interest related to the $5 million in principal of the Unsecured Note, which is recorded against the Unsecured Note at its computed relative fair value of $493,192 (see Note 5).
On January 9, 2020, the Company issued 5,000 shares of Common Stock related to restricted share units that vested on January 7, 2020. These shares were expensed during the period.
On December 27, 2019, there were 30,000 restricted share units (RSUs) issued with immediate vesting were converted into shares of Common Stock in exchange for consulting services valued at $144,000.
On July 3, 2019, the Registrant issued 500,000 shares of Common Stock valued at the strike price of $2.00 per share pursuant to the exercise of vested grant warrants for total proceeds of $1.0 million.
On July 3, 2019, the Registrant issued 500,000 shares of Common Stock valued at the price of $4.42 per share in connection with the acquisition of Enochian Biopharma. This non-cash transaction impacted stockholders’ equity in the amount of $2.2 million.
Acquisition of Enochian Biopharma / Contingently issuable shares
On February 16, 2018, the acquisition of Enochian Biopharma was completed. As part of the acquisition, the stockholders of Enochian Biopharma received (i) 18,081,962 shares of Common Stock, and (ii) the right to receive Contingent Shares of Common Stock pro rata upon the exercise or conversion of warrants, which were outstanding at closing. As of June 30, 2021, 1,350,000 Contingent Shares are potentially issuable (see Note 1).
Acquisition of Enochian Denmark
At June 30, 2021 and 2020, the Company maintained a reserve of 17,414 and 82,237 Escrow Shares, respectively, all of which are reflected as issued and outstanding in the accompanying financial statements. The Escrow Shares are reserved to acquire the shares of Enochian Denmark held by non-consenting shareholders of Enochian Denmark on both June 30, 2021 and 2020, in accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark. There have been 167,639 shares of Common Stock issued to non-consenting shareholders of Enochian Denmark as of June 30, 2021. During the year ended June 30, 2021, the Company issued 59,835 shares of Common Stock to such non-consenting shareholders of Enochian Denmark with no impact on the number of outstanding shares as all Escrow Shares are reflected as issued and outstanding.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS’ EQUITY (continued)
Stock-based Compensation
The Company recognizes compensation costs for stock option awards to employees 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. In the year ended June 30, 2021, 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:
Summary of weighted-average assumptions used to estimate the fair values of the stock options granted
Enochian Biosciences Inc.
Expected term (in years) 5.5 - 6.50
Volatility 79.77 - 87.77%
Risk free interest rate 0.26%- 0.99%
Dividend yield 0%
The Company recognized stock-based compensation expense related to all equity instruments of $1,444,798 and $884,724 for the years ended June 30, 2021 and 2020, respectively. At June 30, 2021, the Company had approximately $388,800 of unrecognized compensation cost related to non-vested options.
Grant Warrants
In October of 2017, the Company issued warrants to APE Invest A/S and N.E. Nielsen, and in January 2018, the Registrant issued a warrant to Eric Leire (each a “Grant Warrant” and collectively the “Grant Warrants”) for an aggregate of Grant Warrants to purchase 900,000 shares of Common Stock. During the year ended June 30, 2020, there were 500,000 Grant Warrants exercised at the strike price of $2.00 per share, for total proceeds of $1,000,000. As of June 30, 2021, all Grant Warrants have been exercised.
Plan Options
On February 6, 2014, the Board adopted the Company’s 2014 Equity Incentive Plan (the “2014 Plan”), and the Company had reserved 1,206,000 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 stockholders 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, and (2) the number of shares available for the grant of awards as of the effective date under the 2014 Plan plus any options related to awards that expire, are terminated, surrendered, or forfeited for any reason without issuance of shares under the 2014 Plan after the effective date of the 2019 Plan.
Pursuant to the 2019 Plan, the Company granted options to purchase 31,700 shares to employees with a three-year vesting period during the year ended June 30, 2021. For the year ended June 30, 2020, the Company granted options to purchase 41,999 shares with a 3 three-year vesting period under the 2019 Plan. Options are exercisable at the market price of the Company’s Common Stock on the date of the grant.
During the years ended June 30, 2021, and 2020 the Company granted options to purchase 184,509 and 587,296 shares, respectively, to the Board of Directors and Scientific Advisory Board Members with a one-year vesting period. 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 1,329,153 shares of Common Stock.
The Company issued options to purchase 15,000 shares with immediate vesting for services rendered with a Black-Scholes value of $27,990, during the year ended June 30, 2021.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Plan Options outstanding at June 30, 2021 is presented below:
Summary of stock options outstanding
Options Outstanding
Options Exercisable
Exercise
Price Ranges Number Outstanding Weighted Average Remaining Contractual Life (years) Weighted Average Exercise Price Number Exercisable Weighted Average Remaining Contractual Life (years) Weighted Average Exercise Price
$ 2.00-4.50 288,543 9.2 $ 3.24 106,940 8.72 $ 2.98
$ 4.51-6.50 506,495 7.74 $ 6.13 451,999 7.59 $ 6.18
$ 6.51-8.00 534,115 8.64 $ 7.97 534,115 8.64 $ 7.97
Total
1,329,153 8.42 $ 6.24 1,093,053 8.21 $ 6.74
A summary of changes since July 1, 2020 are presented below:
Summary of stock option activity
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Remaining Life Intrinsic Value
Outstanding at July 1, 2020 1,105,442 $ 6.78 9.19 $ 107,931
Granted 231,209 3.65 10.00 -
Exercised - - - -
Forfeited - - - -
Expired (7,499 ) - - -
Outstanding at June 30, 2021 1,329,153 $ 6.24 8.42 $ 511,239
Exercisable at June 30, 2021 1,093,053 $ 6.74 8.21 $ 233,670
At June 30, 2021, the Company has 1,093,053 exercisable Plan Options. The total intrinsic value of options exercisable at June 30, 2021 was $233,670. Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) and at June 30, 2021 (for outstanding options), less the applicable exercise price.
Common Stock Purchase Warrants
A summary of the warrants outstanding at June 30, 2021, and changes in the warrants in the year ended June 30, 2021 are presented below:
Summary of common stock purchase warrants outstanding
Weighted Average Weighted Average
Underlying Shares Exercise Price Remaining Life
Outstanding at July 1, 2020 1,438,122 $ 1.42 1.99
Granted - - -
Exercised (63,122 ) 1.30 -
Cancelled/Expired (25,000 ) - -
Outstanding at June 30, 2021 1,350,000 $ 1.30 1.02
Exercisable at June 30, 2021 1,350,000 $ 1.30 1.02
Summary of common stock purchase warrants
Outstanding Equivalent Shares Exercisable
Exercise Prices Underlying Shares Weighted Average Remaining Contractual Life (years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price
$ 1.30 1,350,000 1.02 $ 1.30 1,350,000 $ 1.30
The exercise price of certain warrants and the number of shares underlying the warrants are subject to adjustment for stock dividends, subdivisions of the outstanding shares of Common Stock and combinations of the outstanding shares of Common Stock. For so long as the warrants remain outstanding, we are required to keep reserved from our authorized and unissued shares of Common Stock a sufficient number of shares to provide for the issuance of the shares underlying the warrants.
Restricted Stock Units (RSUs)
The Company recognized stock-based compensation expense related to RSUs of $147,000 and $144,000 for the years ended June 30, 2021 and 2020, respectively. On June 30, 2020, the Company issued 5,000 shares of Common Stock related to restricted share units that vested on January 7, 2021. At June 30, 2021, the Company had approximately $6,209 of unrecognized compensation cost related to restricted stock units.
A summary of Restricted Stock Units outstanding at June 30, 2020 and changes in the RSUs in the year ended June 30, 2021 are presented below:
Summary of restricted stock units outstanding
Shares Weighted Average Issuance
Price Weighted Average Remaining Life Weighted Average Intrinsic
Value
Outstanding at July 1, 2020 10,000 $ 6.15 1.02 $ -
Granted 35,000 - - -
Exercised (40,000 ) - - -
Cancelled/Expired - - - -
Outstanding at June 30, 2021 5,000 $ 6.15 .52 $ -
Summary of restricted stock units activity
Restricted Stock Units Outstanding
Shares Weighted Average Remaining Contractual Life (years) Weighted Average Issuance Price
5,000 .52 $ 6.15
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Consulting Agreements - On July 9, 2018, the Company entered into a consulting agreement with G-Tech Bio, LLC, a California limited liability company (“G-Tech”) to assist the Company with the development of the gene therapy and cell therapy modalities for the prevention, treatment, amelioration of HIV in humans, and with the development of a genetically enhanced Dendritic Cell for use as a wide spectrum platform for various diseases (including but not limited to cancers and infectious diseases) (the “G-Tech Agreement”). G-Tech was entitled to consulting fees for 20 months, a monthly consulting fee of not greater than $130,000 per month. Upon the completion of the 20 months, the monthly consulting fee of $25,000 continued for scientific consulting and knowledge transfer on existing HIV experiments, and will continue until the services are no longer rendered or the agreement is terminated G Tech is controlled by certain members of Weird Science. For the years ended June 30, 2021 and 2020, $275,000 and $1,125,000, respectively, was charged to research and development expenses in the accompanying consolidated statements of operations related to this consulting agreement.
On January 31, 2020, the Company entered into a Statement of Work and 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.
The HBV License Agreement states that in consideration for the HBV License, the Company shall provide cash funding for research costs and equipment and certain other in-kind funding related to the Treatment over a 24 month period, and provides for an up-front payment of $1.2 million within 7 days of January 31, 2020, along with additional payments upon the occurrence of certain benchmarks in the development of the technology set forth in the HBV License Agreement, in each case subject to the terms of the HBV License Agreement. Additionally, the HBV License Agreement provides for cooperation related to the development of intellectual property related to the Treatment and for a 2% royalty to G Tech on any net sales that may occur under the HBV License. On February 6, 2020, the Company paid the $1.2 million up-front payment. 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.
The cash funding for research costs pursuant to the HBV License Agreement consists of monthly payments amounting to $144,500 that cover scientific staffing resources to complete the project as well as periodic payments for materials and equipment needed to complete the project. During the years ended June 30, 2021 and 2020, the Company paid a total of $2,409,000 and $1,022,000, respectively for scientific staffing resources, R&D and IND Enabling studies.
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”).
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 $10 million and a $760,000 payment for expenditures to date prior to the effective date related to research towards the Prevention and Treatment within 60 days of April 18, 2021. The License Agreement provides for additional payments upon the occurrence of certain benchmarks in the development of the technology set forth in the License Agreement, in each case subject to the terms of the License Agreement.
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. As of June 30, 2021, the Company paid the $10 million up-front payment, and the $760,000 related to prior research costs.
G Tech is controlled by Dr. Serhat Gümrükcü and Anderson Wittekind, shareholders of the Company, and SRI is controlled by Dr. Serhat Gümrükcü.
Shares held for non-consenting shareholders - In connection with the share exchange upon the acquisition of Enochian Denmark certain shareholders of DanDrit Denmark had not been identified or did not consent to the exchange of shares. In accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark, the non-consenting Shareholders that did not exchange their DanDrit Denmark equity interests for shares of the Company, will be entitled to receive up to 185,053 shares of Common Stock of the Company that each such non-consenting Shareholder would have been entitled to receive if such shareholder had consented to the Share Exchange. During the year ended June 30, 2021, the Company issued 59,835 shares of Common Stock to such non-consenting shareholders of DanDrit Denmark. The 17,414 remaining shares have been reflected as issued and outstanding in the accompanying financial statements.
Service Agreements - The Company had an agreement with Dr. Dybul, the Company’s Executive Vice-Chair, whereby he fulfilled the duties as prescribed by the Company’s bylaws and received annual compensation in the amount of $430,000, plus options to purchase 300,000 shares of Common Stock that vested immediately. Dr. Dybul was given a one-time grant of options to purchase 450,000 shares of Common Stock at a strike price of $8.00 per share on June 11, 2020. As of July 1, 2021, this agreement was terminated upon Dr. Dybul becoming the Company’s full-time CEO (see Note 10.) The Company has a consulting agreement for services of a Senior Medical Advisor for $210,000 per year on a part-time basis. The Company maintains employment agreements with other staff in the ordinary course of business.
Contingencies - The Company is from time to time involved in routine legal and administrative proceedings and claims of various types. While any proceedings or claim contains an element of uncertainty, management does not expect a material impact on our results of operations or financial position from such proceedings or claims.
ENOCHIAN BIOSCIENCES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTY TRANSACTIONS
On July 9, 2018, the Company entered into a consulting agreement with G-Tech to assist the Company with the development of the gene therapy and autologous and allogenic cell therapy modalities for the prevention, treatment, amelioration of HIV in humans, and with the development of a genetically enhanced Allogenic Dendritic Cell for use as a wide spectrum platform for various diseases (including but not limited to cancers and infectious diseases) (see Note 8.)
On January 31, 2020, the Company entered into the HBV License Agreement by and among the Company, G Tech and SRI, whereby the Company acquired the HBV License for the Treatment (see Note 8.)
On April 18, 2020 the Company entered into the Flu-CoV License Agreement by and among the Company, G Tech and SRI, whereby the Company acquired the Development License to research, develop, and commercialize certain formulations, which are aimed at preventing and treating pan-coronavirus and pan-influenza, including the SARS-coronavirus that causes COVID-19 and pan-influenza (see Note 8.)
NOTE 10 - SUBSEQUENT EVENTS
On August 11, 2021, and with an effective date of July 1, 2021, the Company and Dr. Dybul entered into an Employment Agreement, the form of which was approved and recommended by the Board on October 30, 2019 and approved by the stockholders of the Company with a majority of the voting power of all shares of the Company’s capital stock entitled to vote on the matter on October 31, 2019. The material terms of the Employment Agreement are as set forth in the Company’s Information Statement filed with the Commission on November 12, 2019.
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. Gumrukcu and SRI whereby Dr. Gumrukcu 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. Gumrukcu 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. Gumrukcu 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 $600,000 and agreed to fund future HIV research conducted by Dr. Gumrukcu and SRI, as mutually agreed to by the parties. On September 10, 2021, pursuant to the ALC License Agreement, the Company paid the initial payment of $600,000.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Principal Executive Officer and Principal 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 the Certifying Officers, particularly during the period in which this Report was prepared.
The Certifying Officers conducted a 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 the period covered by this Annual Report (the “Evaluation Date”). Based upon that evaluation, the Certifying Officers concluded that, as of June 30, 2021, 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 SEC Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
Management Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management used the “Internal Control over Financial Reporting Integrated Framework” issued by the Committee of Sponsoring Organizations (“COSO”) to conduct a review of the Company’s internal controls over financial reporting. As of June 30, 2021, Management concluded that internal controls over financial reporting were not effective, based on COSO’s framework. The deficiencies are attributed to the fact that the Company does not have an adequate number of people to whom it can segregate accounting tasks within the Company so as to ensure segregation of duties between those people who approve and issue payment from those people who are responsible for recording and reconciling such transactions within the Company’s accounting system. These control deficiencies will be monitored, and attention will be given to this matter as we continue to accelerate through our current growth stage.
This Annual Report does not include an attestation report from the Company’s registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this Annual Report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
Not Applicable.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 will be included under the captions “Directors and Executive Officers”, “Information as to Nominees and Other Directors”, “Information Regarding Meetings and Committees of the Board”, “Compliance with Section 16(a) of the Exchange Act”, “Code of Ethics”, “Corporate Governance” and as otherwise set forth in the Company’s 2021 Proxy Statement and is incorporated herein by reference or, alternatively will be included, by amendment to this Form 10-K under cover of Form 10-K/A no later than 120-days after the end of our fiscal year covered by this report.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
This information will be contained in our definitive proxy statement for our upcoming Annual Meeting of Shareholders, to be filed with the SEC no later than 120 days after the end of our fiscal year covered by this report, and incorporated herein by reference or, alternatively, will be included by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120-day period.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
This information will be contained in our definitive proxy statement for our upcoming Annual Meeting of Shareholders, to be filed with the SEC no later than 120 days after the end of our fiscal year covered by this report, and incorporated herein by reference or, will be included alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120-day period.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions and Director Independence
This information will be contained in our definitive proxy statement for our upcoming Annual Meeting of Shareholders, to be filed with the SEC no later than 120 days after the end of our fiscal year covered by this report, and incorporated herein by reference or, alternatively, will be included by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120-day period.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
This information will be contained in our definitive proxy statement for our upcoming Annual Meeting of Shareholders, to be filed with the SEC no later than 120 days after the end of our fiscal year covered by this report, and incorporated herein by reference or, alternatively, will be included by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120-day period.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
Exhibit No.
Description
Incorporated by Reference
3.1
Certificate of Incorporation
Incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2018.
3.2
Bylaws
Incorporated herein by reference to exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 16, 2019.
4.1
Form of Warrant
Incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on May 1, 2017.
4.2
Promissory Note
Incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on March 31, 2020.
4.3
Description of Securities
Incorporated herein by reference to Exhibit 4.1 to the Company’s Form 10-K filed with the SEC on September 30, 2020.
10.1
Form of License Agreement
Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on January 17, 2018.
10.2
Equity Incentive Plan
Incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on February 10, 2020.
10.3
Statement of Work and License Agreement
Incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on February 3, 2020.
10.4
Note Purchase Agreement
Incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on March 31, 2020.
10.5
Lease Agreement by and between the Company and Plaza Medical Office Building, LLC dated November 13, 2017
Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 17, 2017.
10.6
General Office Lease by and between the Registrant and Century City Medical Plaza Land Co., Inc. dated June 19, 2018
Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 25, 2018.
10.7
Consulting Agreement by and between the Company and G-Tech Bio, LLC July 9, 2018
Incorporated herein by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K/A filed with the SEC on September 30, 2019.
10.8
Offer Letter from the Company to Luisa Puche, dated December 28, 2018
Incorporated herein by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K/A filed with the SEC on September 30, 2019.
10.9
Amended and Restated Director Agreement by and between the Company and Mark Dybul, as amended, dated May 1, 2019
Incorporated herein by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K/A filed with the SEC on September 30, 2019.
10.10
Purchase Agreement, dated July 8, 2020, by and between the Company and Lincoln Park Capital Fund, LLC
Incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 14, 2020.
10.11
Registration Rights Agreement, dated July 8, 2020, by and between the Company and Lincoln Park Capital Fund, LLC
Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 14, 2020.
10.12
Form of Subscription Agreement
Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 24, 2021.
10.13
Statement of Work and License Agreement, dated April 18, 2021, by and among the Company, G-Tech Bio, LLC, and G Health Research Foundation
Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 22, 2021.
10.14
Form of Securities Purchase Agreement, dated June 14, 2021
Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on June 16, 2021.
10.15
Letter Agreement, dated June 14, 2021, by and between the Company and H.C. Wainwright
Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 16, 2021.
10.16
Employment Agreement, dated August 11, 2021, by and between the Company and Dr. Mark Dybul
Incorporated herein by reference to Exhibit to 10.1 the Company’s Current Report on Form 8-K/A, filed with the SEC on August 16, 2021.
23.1*
Consent of Sadler, Gibb & Associates
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
31.1*
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
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*
*
Provided herewith.
** Furnished herewith.