U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31,September 30, 2019

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission file number 001-38758

 

Enochian Biosciences, Inc.

(Exact name of registrant as specified in its charter)

 

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

 

Enochian Biosciences, Inc.

2080 Century Park East, Suite 906

Los Angeles, CA 90067

+1(786) 888-1685

 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 Large accelerated filerAccelerated filer
 Non-accelerated filerSmaller reporting company
 (Do not check if a smaller reporting company)Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

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

 

As of  May 16,November 13, 2019, the number of shares of the registrant’s common stock outstanding was 38,789,310.46,273,924.


1

 

 

 

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

 

- INDEX -

 

  Page
PART I – FINANCIAL INFORMATION:3
   
Item 1.Financial Statements (Unaudited):3
   
 Condensed Consolidated Balance Sheets as of March 31,September 30, 2019 (Unaudited) and June 30, 201820194
   
 Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended March 31,September 30, 2019 and March 31,September 30, 2018 (Unaudited)5
   
 Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the Three and Nine Months Ended March 31, 2019September 30,2019 and March 31, 2018September 30,2018 (Unaudited)6
   
 Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the NineThree Months Ended March 31,2019September 30, 2019 and March 31,September 30, 20187
   
 Condensed Consolidated Statements of Cash Flows (Unaudited) for the NineThree Months Ended March 31,September 30, 2019 and March 31,September 30, 2018 (Unaudited)98
   
 Notes to the Consolidated Financial Statements109
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations2524
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk3229
   
Item 4.Controls and Procedures3229
   
PART II – OTHER INFORMATION:3330
   
Item 1.Legal Proceedings3330
   
Item 1A.Risk Factors3330
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds3330
   
Item 3.Defaults Upon Senior Securities3330
   
Item 4.Mine Safety Disclosures3330
   
Item 5.Other Information3330
   
Item 6.Exhibits3431
   
Signatures3532

 


2

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

 

In the opinion of management, the financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.

 

The results for the period ended March 31,September 30, 2019 are not necessarily indicative of the results of operations for the full year. These financial statements and related footnotes should be read in conjunction with the financial statements and footnotes thereto included in the Company’s Form 10-K for the fiscal year ended June 30, 2018,2019, filed with the Securities and Exchange Commission on October 1, 2018, as amended.September 30, 2019.

 


 

3

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  March 31, June 30,
  2019 2018
   (Unaudited)     
ASSETS        
Current Assets:        
Cash $10,272,198  $15,600,865 
Other receivables  1,941   122,866 
Prepaid expenses  232,383   38,284 
Total Current Assets  10,506,522   15,762,015 
         
Property and Equipment, Net  743,522   27,402 
         
OTHER ASSETS        
Definite Life Intangible Assets, Net  146,277,564   152,095,459 
Deposits  138,084   137,550 
Goodwill  11,640,000   11,640,000 
Total Other Assets  158,055,648   163,873,009 
         
TOTAL ASSETS $169,305,692  $179,662,426 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
CURRENT LIABILITIES:        
Accounts Payable – Trade $1,035,329  $571,809 
Accounts Payable - Related Party  235,000   235,000 
Accrued Expenses  248,799   66,913 
Total Current Liabilities  1,519,128   873,722 
         
Contingent Consideration Liability  23,818,000   22,891,000 
         
Total Liabilities $25,337,128  $23,764,722 
         
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, 38,789,310        
shares issued and outstanding at March 31, 2019;36,163,924 issued and outstanding         
at June 30, 2018 $3,878  $3,616 
Additional Paid-In Capital  206,361,883   193,283,798 
Accumulated Deficit  (62,596,019)  (37,595,389)
Other Comprehensive Income  198,822   205,679 
Total Stockholders’ Equity  143,968,564   155,897,704 
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  169,305,692   179,662,426 

  September 30, June 30,
  2019 2019
   (Unaudited)     
ASSETS        
Current Assets:        
Cash $11,138,252  $12,282,224 
Other receivables  14,696   20,794 
Prepaid expenses  56,176   191,969 
Total Current Assets  11,209,124   12,494,987 
         
Property and Equipment, Net  734,651   687,517 
         
OTHER ASSETS        
Definite life Intangible assets, net  89,412   93,299 
Indefinite life intangible assets  154,824,000   154,824,000 
Goodwill  11,640,000   11,640,000 
Deposits and other assets  137,550   137,550 
Right of use assets  1,985,134   —   
Total Other Assets  168,676,096   166,694,849 
         
TOTAL ASSETS $180,619,871  $179,877,353 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
CURRENT LIABILITIES:        
Accounts payable – trade $609,585  $538,563 
Accounts payable – non-trade  235,000   235,000 
Accrued expenses  200,429   336,853 
Lease liabilities, current  256,132   —   
Total Current Liabilities  1,301,146   1,110,416 
         
NON-CURRENT LIABILITIES:        
Contingent consideration liability  5,399,000   5,667,000 
Lease liabilities, non-current  1,737,611   —   
Total Liabilities $8,437,757  $6,777,416 
         
STOCKHOLDERS’ EQUITY:        
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding. $—    $—   
         
Common stock, par value $0.0001, 100,000,000 shares authorized, 46,273,924 and 45,273,924 shares issued and outstanding at September 30, 2019 and June 30, 2019  4,627   4,527 
Additional Paid-In Capital  229,209,342   225,765,432 
Accumulated deficit  (56,855,017)  (52,771,840)
Accumulated other comprehensive (loss) income  (176,838)  101,818 
Total Stockholders’ Equity  172,182,114   173,099,937 
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $180,619,871  $179,877,353 

 

See accompanying notes to the unaudited condensed consolidated financial statements.


4

  

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES CONDENSED

CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS (UNAUDITED)

 

  For the Three Months
  Ended
  September 30,
  2019 2018
    (As Revised)
Revenues $—    $—   
         
Cost of Goods Sold $—    $—   
         
Gross profit (Loss) $—    $—   
         
Operating Expenses        
General and administrative expenses  1,868,962   1,251,874 
Research and development expenses  520,192   493,555 
Depreciation and amortization  21,481   5,410 
Consulting expenses  31,850   62,035 
Total Operating Expense $2,442,485  $1,812,874 
         
LOSS FROM OPERATIONS $(2,442,485) $(1,812,874)
         
Other Income (Expense)        
Change in fair value of contingent consideration  (1,942,000)  1,468,000 
Interest income (expense)  —     (44)
Gain (loss) on currency transactions  286,755   (31,978)
Interest and other income  14,553   26,815 
Total Other (Expense) Income  (1,640,692)  1,462,793 
         
Loss Before Income Taxes  (4,083,177)  (350,081)
         
Income Tax Benefit $—    $—   
         
NET LOSS $(4,083,177) $(350,081)
         
BASIC AND DILUTED LOSS PER SHARE $(0.09) $(0.01)
         
WEIGHTED AVERAGE NUMBER OF        
COMMON SHARES        
OUTSTANDING - BASIC AND DILUTED  46,241,315   36,170,882 

  For the Three Months For the Nine Months
  Ended Ended
  March 31, March 31,
  2019 2018 2019 2018
         
Revenues $—    $—    $—    $—   
                 
Cost of Goods Sold $—    $—    $—    $—   
                 
Gross profit (Loss) $—    $—    $—    $—   
                 
Operating Expenses                
General and Administrative Expenses  1,951,685   1,979,609   6,750,939   3,049,393 
Research and Development Expenses  730,255   137,916   2,012,778   511,537 
Depreciation and Amortization  1,979,701   761,250   5,834,817   769,150 
Consulting Expenses  —     359,783   94,760   815,881 
Total Operating Expense $4,661,641  $3,238,558  $14,693,294  $5,145,961 
                 
LOSS FROM OPERATIONS $(4,661,641) $(3,238,558) $(14,693,294) $(5,145,961)
                 
Other Income (Expense)                
Change in Fair Value of Contingent Consideration  (217,000)  —     (10,342,390)  —   
Interest Income (Expense)  (43)  1,183   (130)  (12,060)
Interest Income (Expense) – Related Party  —     183,511   —     779,943 
Gain (Loss) on Currency Transactions  164,114   87,817   (37,347)  87,817 
Interest and Other Income  8,724   1,153   72,531   16,081 
Total Other (Expense) Income  (44,205)  273,664   (10,307,336)  871,781 
                 
Loss Before Income Taxes  (4,705,846)  (2,964,894)  (25,000,630)  (4,274,180)
                 
Income Tax Benefit $—    $(4,729) $—    $(11,301)
                 
NET LOSS $(4,705,846) $(2,960,165) $(25,000,630) $(4,262,879)
                 
BASIC AND DILUTED LOSS PER SHARE $(0.13) $(0.12) $(0.67) $(0.25)
                 
WEIGHTED AVERAGE NUMBER OF                
COMMON SHARES                
OUTSTANDING - BASIC AND DILUTED  37,070,152   24,790,153   37,070,152   17,303,255 


 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 


5

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
         
  For the Three Months For the Nine Months
  Ended Ended
  March 31, March 31,
  2019 2018 2019 2018
         
Net Loss $(4,705,846) $(2,960,165) $(25,000,630) $(4,262,879)
Foreign Currency Translation, Adjustments  139,710   (235,960) $(6,857) $(620,542)
                 
Other Comprehensive Loss $(4,566,136) $(3,196,125) $(25,007,487) $(4,883,421)

 

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES CONDENSED

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS (UNAUDITED)

     
  For the Three Months
  Ended
  September 30,
  2019 2018
    ( As Revised)
Net Loss $(4,083,177) $(350,081)
Foreign Currency Translation, Adjustments  (278,656)  (91,517)
         
Other Comprehensive Loss $(4,361,833) $(441,598)

6

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

 

  Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income Total
July 1, 2018 $3,616  $193,283,798  $(37,595,389) $205,579  $155,897,704 
                   —   
Issuance of Shares  1   39,999             40,000 
Stock-Based Compensation       46,166             46,166 
Comprehensive Loss                  —   
Net Loss            (2,303,233)       (2,303,233)
Other Comprehensive Loss                  —   
Currency Translations, Net of Taxes            —     (91,517)  (91,517)
September 30, 2018 $3,617  $193,369,963  $(39,898,622) $114,062  $153,589,120 
                     
Issuance of Shares  262   11,115,127   —     —     11,111,467 
Stock-Based Compensation  —     1,780,060   —     —     1,783,881 
Comprehensive Loss                  —   
Net Loss          (17,991,551)      (17,991,551)
Other Comprehensive Loss                  —   
Currency Translations, Net of Taxes  —     —     —     224,470   224,470 
December 31, 2018 $3,879  $206,265,150  $(57,890,173) $338,532  $148,717,387 
                     
Issuance of Shares          —     —     —   
Stock-Based Compensation  —     96,733   —     —     96,733 
Stock issued in exchange for services                    
Stock issued related to conversion of convertible promissory note                    
Comprehensive Loss                  —   
Net Loss  —     —     (4,705,846)      (4,705,846)
Other Comprehensive Loss                  —   
Currency Translations, Net of Taxes  —     —     —     (139,710)  (139,710)
March 31, 2019 $3,879  $206,361,883  $(62,596,019) $198,822  $143,968,564 

See accompanying notes to the unaudited condensed consolidated financial statements.


ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES TO SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 2018
 
   Common Stock   Additional Paid-In Capital   Accumulated Deficit   Accumulated Other Comprehensive Income   Total 
July 1, 2017 $1,243  $29,622,183  $(28,443,524) $352,832  $1,532,734 
                   —   
Issuance of Shares  130   1,595,134           1,595,264 
Stock-Based Compensation      112,837           112,837 
Comprehensive Loss                  —   
Net Loss          (225,775)      (225,775)
Other Comprehensive Loss                  —   
Currency Translations, Net of Taxes          —     (255,181)  (255,181)
September 30, 2017 $1,373  $31,330,154  $(28,669,299) $97,651  $2,759,879 
Issuance of Shares  18   299,116           299,134 
Stock-Based Compensation                  —   
Comprehensive Loss                  —   
Net Loss          (1,076,346)      (1,076,346)
Other Comprehensive Loss                  —   
Currency Translations, Net of Taxes  —     —     (593)  (129,401)  (129,994)
December 31, 2017 $1,391  $31,629,270  $(29,746,238) $(31,750) $1,852,673 
Issuance of Shares                  —   
Stock-Based Compensation                  —   
Stock issued in exchange for services  2   104,998           105,000 
Stock issued related to conversion of convertible promissory note  8   120,292           120,300 
Stock issued pursuant to warrants exercised  240   3,294,760           3,295,000 
Stock issued pursuant to private placement  167   13,416,873           13,417,040 
Stock issued pursuant to Acquistion Agreement  1,808   127,762,629           127,764,437 
Comprehensive Loss                    
Net Loss          (2,960,165)      (2,960,165)
Other Comprehensive Loss                  —   
Currency Translations, Net of Taxes  —     —         (235,960)  (235,960)
March 31, 2018 $3,616  $176,328,822  $(32,706,403) $(267,710) $143,358,325 

  Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income Total
July 1, 2019 $4,527  $225,765,432  $(52,771,840) $101,818  $173,099,937 
                     
Stock issued pursuant to warrants exercised  50   999,950   —     —     1,000,000 
Contingent Shares issued pursuant to Acquisition Agreement  50   2,209,950   —     —     2,210,000 
Stock-Based Compensation  —     234,010   —     —     234,010 
Net Loss  —     —     (4,083,177)  —     (4,038,177)
Currency Translations, Net of Taxes  —     —     —     (278,656)  (278,656)
September 30, 2019 $4,627  $229,209,342  $(56,855,017) $(176,838) $172,182,114 

 

 

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

  Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income Total
July 1, 2018 (As Revised) $3,616  $193,283,798  $(34,755,360) $205,680  $158,737,734 
                     
Stock issued in exchange for services  1   39,999   —     —     40,000 
Stock-Based Compensation  —     46,166   —     —     46,166 
Net Loss  —     —     (350,081)  —     (350,081)
Currency Translations, Net of Taxes  —     —     —     (91,517)  (91,517)
September 30, 2018 (As Revised) $3,617  $193,369,963  $(35,105,441) $114,163  $158,382,302 

  For the Nine Months Ended
  March 31,
  2019 2018
     
NET LOSS $(25,000,630) $(4,262,879)
         
ADJUSTMENT TO RECONCILE NET LOSS TO NET        
CASH USED IN OPERATING ACTIVITIES:        
Depreciation and Amortization  5,842,448   769,150 
Change in Contingent Consideration Liability  10,342,390   —   
Stock Based Compensation Expense  1,962,958   217,837 
Accrued Interest on Notes Receivable  —     (10,874)
Loss on Forgiveness on Note Receivable  —     457,813 
Gain on Forgiveness of Debt, Related Party  —     (87,817)
Accretion of Discount on Notes Payable  —     11,997 
CHANGES IN ASSETS AND LIABILITIES:        
Other Receivables  120,391   192,507 
Prepaid Expenses/Deposits  (194,101)  (11,874)
Accounts Payable  463,520   219,507 
Accrued Expenses  181,890   (222,111)
NET CASH USED IN OPERATINGACTIVITIES $(6,281,134) $(2,726,744)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Cash held in escrow  —     2,067 
Notes receivables  —     (250,799)
Purchase of property and equipment  (733,176)  (30,000)
NET CASH USED IN INVESTING ACTIVITIES $(733,176) $(278,732)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from stock issuances  —     16,712,715 
Proceeds from exercise of options by related party  1,700,000   —   
NET CASH PROVIDED BY FINANCING ACTIVITIES $1,700,000  $16,712,715 
         
(Loss) on Currency Translation $(14,357) $(630,548)
         
NET CHANGE IN CASH $(5,328,667)  13,076,781 
         
CASH, BEGINNING OF PERIOD $15,600,865   3,941,712 
         
CASH, END OF PERIOD $10,272,198  $17,018,493 
         
         
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW        
INFORMATION        
Non-cash investing and financing Activities:          
Contingent Shares issued in connection with Acquisition Agreement  9,415,388   —   
Amortization of discount on Convertible Notes Payable  —     11,997 
Stock issued in exchange for services  —     217,837 
Convertible notes payable converted to 183,356 common shares  —     401,673 
Common stock issued and contingent common shares to acquire EBI  —     127,764,437 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

9

7

 

 

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

  For the Three Months Ended
  September 30,
  2019 2018
    (As Revised)
NET LOSS $(4,083,177) $(350,081)
         
ADJUSTMENT TO RECONCILE NET LOSS TO NET        
CASH USED IN OPERATING ACTIVITIES:        
Depreciation and Amortization  21,481   5,409 
Change in Contingent Consideration Liability  1,942,000   (1,468,000)
Right to Use Asset  68,866   —  
Stock Based Compensation Expense  234,010   86,166 
CHANGES IN ASSETS AND LIABILITIES:        
Other Receivables  6,098   117,707 
Prepaid Expenses/Deposits  135,793   (99,790)
Accounts Payable  71,022   (93,042)
Accrued Expenses  (136,424)  4,844 
Operating Lease Liabilities  (60,256)  —   
NET CASH USED IN OPERATING ACTIVITIES $(1,800,587) $(1,796,724)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of property and equipment  (68,616)  (308,186)
NET CASH USED IN INVESTING ACTIVITIES $(68,616) $(308,186)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from exercise of warrants  1,000,000   —   
NET CASH PROVIDED BY FINANCING ACTIVITIES $1,000,000  $—   
         
         
(Loss) on Currency Translation $(274,769) $(90,770)
         
NET CHANGE IN CASH $(1,143,972)  (2,195,680)
         
CASH, BEGINNING OF PERIOD $12,282,224  $15,600,865 
         
CASH, END OF PERIOD $11,138,252  $13,405,185 
         
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW        
INFORMATION        
Non-cash operating, investing and financing Activities:        
         
Contingent Shares issued in connection with Acquisition Agreement $2,210,000  $—   
Right of use assets obtained in exchange for operating lease liabilities upon adoption of ASC 842-Leases $2,054,000  $—   

See accompanying notes to the unaudited condensed consolidated financial statements.

8

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARY 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying financial statements are unaudited. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 31, 2019 and 2018 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s June 30, 2018 audited financial statements. The results of operations for the periods ended March 31, 2019 and 2018 are not necessarily indicative of the operating results for the full year.

Business and Basis of Presentation –Business–Enochian BioSciences, Inc., formerly DanDrit Biotech USA, Inc. (“Enochian”, or “Registrant”, and together with its subsidiaries,subsidiaries— Enochian Biopharma, Inc. (“Enochian Biopharma”), and Enochian Biosciences Denmark ApS (“Enochian Denmark”), the “Company”, “we” or “us”) engages in the research and development, manufacturing and clinical trials of pharmaceutical and biological products for the treatment of HIV and cancer in humans. The Registrant was originally incorporated in the State of Delaware on January 18, 2011. On March 2, 2018, the Registrant amended its articles of incorporation changing the name of the Company to Enochian BioSciences, Inc.

 

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, 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 (the “Field”). The accompanying financial statements include the accounts of Enochian Biopharma from the date of the acquisition which was completed on February 16, 2018.

Enochian BioSciences Denmark ApS, formerly DanDrit BioTech ApS, a Danish corporation was incorporated on April 1, 2001 (“DanDrit Denmark”) and is a 100% owned subsidiary of the Registrant (subject to 86,490 shares of common stock of DanDrit Denmark or 2.20% of outstanding shares to be acquired with the 129,596 shares of common stock of the Registrant (“Common Stock”) held in escrow according to Danish law (the “Escrow Shares”)). DanDrit Denmark engages in the research and development, manufacturing and clinical trials of pharmaceutical and biological products for the treatment of cancer in humans. On November 15, 2018, the Company changed the name of DanDrit BioTech ApS to Enochian BioSciences Denmark ApS.

Acquisition of Enochian Biopharma-On January 12, 2018, the Registrant, DanDrit Acquisition Sub, Inc., (“Acquisition Sub”), Enochian Biopharma and Weird Science, LLC (“Weird Science”) entered into an agreement to acquire Enochian Biopharma (the “Acquisition Agreement”), pursuant to which on February 16, 2018, Enochian Biopharma became a wholly owned subsidiary of the Registrant (the “Acquisition”).  As consideration for the Acquisition, the stockholders of Enochian Biopharma received (i) 18,081,962 shares of the Common Stock of the Registrant and (ii) the right to receive earn-out shares of Common Stock (“Contingent Shares”) pro rata upon the exercise or conversion of warrants, which were outstanding at closing. As of JuneAt September 30, 2018, 6,488,122 Contingent Shares are contingently issuable in connection with the Acquisition of Enochian Biopharma. On December 27, 2018, 1,307,693 Contingent Shares were issued to the stockholders of Enochian Biopharma in accordance with the Acquisition Agreement. At March 31, 2019, 5,180,4291,438,122 Contingent Shares remained unissued. No contingent share activity occurred in the quarter-end March 31, 2019.

 

ConsolidationBasis of Presentation–The accompanying financial statements are unaudited. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30,2019 and 2018 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accompanying unaudited condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s June 30, 2019 audited financial statements. The results of operations for the periods ended September 30, 2019 and 2018 are not necessarily indicative of the operating results for the full year.

Consolidation–For the three months and nine months ended March 31,September 30, 2019 and 2018, the consolidated financial statements include the accounts and operations of the Registrant, Enochian BioSciences Denmark, ApS, and Enochian Biopharma. All material inter-company transactions and accounts have been eliminated in the consolidation.


ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSReclassification–Certain amounts in the prior period financial statements have been reclassified to conform to the current presentation. For the period ended September 30, 2018, we reclassified the stock-based compensation expense of $0.086 million to general and administrative expenses.

 

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Functional Currency / Foreign currency translation— The functional currency of Enochian BioSciences Denmark ApS is the Danish Kroner (“DKK”). The Company’s reporting currency is the U.S. Dollar for the purpose of these financial statements. The Company’s balance sheet accounts are translated into U.S. dollars at the period-end exchange rates and all revenue and expenses are translated into U.S. dollars at the average exchange rates prevailing during periods ended March 31,September 30, 2019, June 30, 20182019 and March 31,September 30, 2018. Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statements of operations as incurred. 

 

Recent Adopted Accounting Pronouncements -

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheet. The new standard is effective for fiscal years beginning after December 15, 2018. Originally, entities were required to adopt ASU 2016-02 using a modified retrospective transition method. However, in July 2018, the FASB issued ASU No. 2018-11, Targeted Improvements to Leases (Topic 842), which provides entities with an additional transition method. Under ASU No. 2018-11, entities have the option of recognizing the cumulative effect of applying the new standard as an adjustment to beginning retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Leases (Topic 842), which clarifies how to apply certain aspects of ASU 2016-02. Additionally, in March 2019, the FASB issued ASU No. 2019-01, Codification Improvements to Leases (Topic 842), which clarifies the transition disclosure requirements. The Company adopted this guidance on July 1, 2019using the prospective transition method allowed per ASU 2018-11, and applied the standard only to leases that existed on that date. Under the prospective transition method, the Company does not need to restate the comparative period in transition and will continue to present financial information and disclosures for periods before July 1, 2019 in accordance with Accounting Standard Codification (“ASC”) Topic 840. The Company has elected the package of practical expedients allowed under ASC Topic 842, which permits the Company to account for its existing operating leases as operating leases under the new guidance, without reassessing the Company’s prior conclusions about lease identification, lease classification and initial direct cost. As a result, of the adoption of the new lease accounting guidance the Company recognized, on July 1, 2019, operating lease right–of–use assets and operating lease liabilities of $2.054 million. On September 30, 2019, the right-of-use assets and the operating lease liabilities included in the unaudited condensed consolidated balance sheet are $1.985 million and $1.993 million, respectively. The adoption of the standard did not have a material impact on the unaudited condensed consolidated statement of operations and the unaudited condensed consolidated statement of cash flows.

New Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. This ASU includes additional disclosures requirements for recurring Level 3 fair value measurements including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income, disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and narrative description of measurement uncertainty related to Level 3 measurements. Early adoption is permitted. This ASU will be effective for us on July 1, 2020. We are evaluating the impact of the adoption of this ASU on our financial condition, results of operations and cash flows, and, as such, we are not able to estimate the effect the adoption of the new standard will have on our financial statements

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

Accounting Estimates— The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated. Significant estimates include the fair value and potential impairment of intangible assets, depreciation of fixed assets, and fair value of equity instruments issued.

9

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

NOTE 1 — THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash and Cash Equivalents—The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company had balances held in financial institutions in Denmark and in the United States in excess of federally insured States amounts at March 31,on September 30, 2019 and June 30, 20182019, of $10,272,198$11.138 million and $15,600,865$12.282 million, respectively.

 

Property and Equipment— Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful lives of the assets, which range from four to ten years (See Note 2)3).

 

Intangible Assets—Definite life intangible assets include patents and licenses.patents. The Company accounts for definite life intangible assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)ASC Topic 350, “Goodwill and Other Intangible Assets”. Intangible assets are recorded at cost. Patent costs consist of costs incurred to acquire the underlying patent. If it is determined that a patent will not be issued, the related remaining capitalized patent costs are charged to expense. License agreements cost represent the Fair Value of the license agreement on the date acquired. Intangible assets are amortized on a straight-line basis over their estimated useful life. The estimated useful life of patents is twenty years from the date of application.

 

Goodwill—Goodwill is not amortized but is evaluatedIndefinite life intangible assets include license agreements and goodwill. The Company accounts for indefinite life intangible assets in accordance with ASC 350, “Goodwill and Other Intangible Assets”. License agreement cost represents the fair value of the license agreement on the date acquired and are tested annually for impairment annually inat the end of each fiscal fourth quarter or whenever events or changes in circumstances indicateyear. The fair value analysis performed on the carryinglicense agreements, and the fair value mayanalysis performed on goodwill supported that both indefinite life intangible assets are not be recoverable.impaired as of June 30, 2019 (See Note 4). 

 

We test for goodwill impairment at the reporting unit level, which is one level below the operating segment level. Our detailed impairment testing involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit and is based on discounted cash flows or relative market-based approaches. If the fair value exceeds carrying value, then it is concluded that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit's goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value.

 

The carrying value of goodwill at March 31,September 30, 2019, was $11.6$11.640 million. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for impairment losses on goodwill. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.


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

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

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

 

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

10

Value Added TaxENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

LeasesIn Denmark, Value Added Tax (“VAT”)- The Company determines the initial classification and measurement of 25%its right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified. 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 invoice amountfuture payments.

Rent expense for operating leases is collectedrecognized 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 respectoperating expense in the unaudited condensed consolidated statement of operations. For operating leases that reflect impairment, the Company will recognize the amortization of the sales of goodsoperating lease right-of-use assets on behalf of tax authorities. The VAT collected is not revenue ofa straight-line basis over the Company; instead, the amount is recorded as a liability on the balance sheet until such VAT is paid to the authorities. VAT of 25% is also paid to Danishremaining lease term with rent expense still included in general and EU vendors on invoices. These amounts are refundable from the respective governmental authority and recorded as other receivablesadministrative expenses in the accompanying financial statements.unaudited condensed consolidated statements of operations.

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

Research and Development Expenses— The Company expenses research and development costs incurred in formulating, improving, validating, and creating alternative or modified processes related to and expanding the use of the HIV and cancer therapies and technologies for use in the prevention, treatment, amelioration of and/or therapy for HIV and cancer. Research and development expenses for the three months ended March 31, 2019 and 2018, respectively amounted to $730,255 and $137,916, respectively and for the nine months ended March 31,September 30, 2019 and 2018, amounted to $2,012,778$0.520 million and $511,537,$0.493 million, respectively.


11

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

 

NOTE 1 — THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

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.

 

Loss Per Share— The Company calculates earnings/earnings and (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 under basic EPS) and potentially dilutive shares of Common Stock. Potential shares of Common Stock included in the diluted earnings per share calculation include in-the-money stock options that have been granted but have not been exercised. Because of the net loss for the three and nine months ended March 31,September 30, 2019 and 2018, the dilutive shares for both periods were excluded from the Diluted EPS calculation as the effect of these potential shares of Common Stock is anti-dilutive. The Company had 5,583,520 3,441,475 and13,061,156potential shares of Common Stock excluded from the Diluted EPS calculation as of March 31, 2019.September 30, 2019 and 2018, 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”. The authoritative guidance, which, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

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

 

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

 

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

 

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

 

The following table sets forth the liabilities at March 31,September 30, 2019, which is recorded on the balance sheet at fair value on a recurring basis by level within the fair value hierarchy. As required, these are classified based on the lowest level of input that is significant to the fair value measurement:

 


    Fair Value Measurements at Reporting Date Using
     Quoted Prices in Significant Other Significant Other 
  Active Markets forObservableUnobservable
 Identical AssetsInputsInputs
    (Level 1) (Level 2) (Level 3)
          
Contingent Consideration Liability      
          
The roll forward of the contingent consideration liability is as follows:     
          
Balance June 30, 20182019       $               22,891,000              5,667,000
Contingent shares issued pursuant to the Acquisition Agreement$       (2,210,000)
Fair value adjustment, net       $                    927,000             1,942,000
Balance March 31,September 30, 2019     $          $               23,818,0005,399,000

The fair value adjustment, net for the ninethree months ended March 31,September 30, 2019 is comprised of the issuance of contingent shares pursuant to the Acquisition Agreement in the amount of $9,415,390,amounting to $2.210 million, offset by the change in fair value for the period in the amount of $10,342, 390. amounting to $1.942 million. 

 

Stock Options and Warrants- The Company has granted stock options to certain employees, officers and directors that were subsequently converted to Grant Warrants (see Note 5)6). During the three and nine month periods presented in the accompanying condensed 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.Compensation (“ASC 718Stock Compensation”.) Non-cash compensation costs for the vesting of options and warrants granted to officers, board members, employees and consultants forconsultants. For the three months ended March 31,September 30, 2019 and 2018 were $96,733$0.234 million and $105,000, respectively, and for the nine months ended March 31, 2019 and 2018 were $1,962,958 and $217,837,$0.046 million, respectively.

Stock-Based Compensation -The Company records stock-based compensation in accordance withASC 718 Compensation—Stock Compensation and ASC 505 - 50 Equity-Based Payments to 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 employees 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 employeesemployee's required service period, which is generally the vesting period. During the three months ended September 30, 2018, 10,000 shares of common stock were issued in exchange for services valued at $0.040 million. No shares were issued for services for the three months ended September 30, 2019.

 


12

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

 

NOTE 12SUMMARYREVISION OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2018 FINANCIAL STATEMENTS

Accounting EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptionsCompany discovered that affectit had incorrectly classified the reported amounts ofintangible assets and liabilities, the disclosures of contingent assets and liabilities at the datethat were purchased as part of the financial statements and the reported amountacquisition of revenues and expenses during the reporting period. Actual results could differ from those estimated. Significant estimates include the fair value and potential impairment ofEnochian Biopharma, Inc. as finite-lived (amortizable), rather than indefinite-lived intangible assets depreciation of fixed(not amortized).ASC 350-Intangibles- Goodwill and Other requires that all intangible assets and fair value of equity instruments issued.

Recent Accounting Pronouncements - On January 5, 2017 FASB issued Accounting Standards Update (“ASU”) 2017-01, Clarifying the Definition of a Business. This update amended the definition ofacquired in a business which is fundamental to the determinationcombination that are used in research and development activities (i.e., in-process research and development (IPR&D) assets) be capitalized as indefinite-lived intangible assets, regardless of whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. That distinction impacts how the acquisition is treated in thethey have an alternative future use.

The Company has revised its previously issued consolidated financial statements for instance, whether deal costs are capitalized or expensed. The primary goalthe year ended June 30, 2018 to correct the error that occurred during that fiscal year. Management assessed the materiality of ASU 2017-01 was to narrowthe error identified in accordance with ASC 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements and concluded based on qualitative and quantitative considerations that definition, which is generally expected to result in fewer transactions qualifying as business combinations. The Company isthe effect of the correction in the process of evaluatingperiod in which the related misstatement originated was not material.

The following table sets forth the impact of this new guidance.

In February 2016, the FASB issued ASU No. 2016-02 - Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a financed purchaselines impacted by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The standard is effective for financial statements in fiscal years beginning after December 15, 2018. The Company is in the process of evaluating the impact of this new guidance, which would take effect at the beginning of the Registrant’s fiscal year on July 1, 2019.

In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification, as updated. These amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules. Among the amendments is the requirement to present an analysis of changes in stockholders’ equity in the interim financial statements included in quarterly reports on Form 10-Q. The analysis, which can be presented as a footnote or separate statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after November 5, 2018. As such, the Company adopted these SEC amendments as of this period and has presented the analysis of changes in stockholders’ equity in these interim financial statements for March 31, 2019 and 2018 presented in this Quarterly Report on Form 10-Q. The Company’s adoption of these SEC amendments has no material effectcorrection on the Company’s reportingfinancial statements as of financial position, results of operations, cash flows or stockholders’ equity.September 30, 2018.

  For the Quarter Ended  September 30, 2018  Adjustments For the Quarter Ended September  30, 2018
Balance Sheet: (As Reported)  (As Revised)
Definite life intangible assets, net $108,959  $108,959  —  
Indefinite life intangible assets $150,028,841  $4,793,181  $154,822,022 
Total Assets $175,797,002   4,793,181  $180,590,183 
Statement of Operations:            
Depreciation & Amortization $1,958,562  $(1,953,152) $5,410 
Total Operating Expense $3,766,026  $(1,953,152) $1,812,874 
Loss Before Income Taxes $(2,303,233) $1,953,152  $(350,081)
Net Income (Loss) $(2,303,233) $1,953,152  $(350,081)
Basic & Diluted Loss per Share $(0.06) $0.05  $(0.01)
Consolidated Statement of Other Comprehensive Income            
Other Comprehensive Income $(2,394,750) $1,953,152  $(441,598)
Consolidated Statement of Changes to Shareholders’ Equity            
Accumulated Deficit $(39,898,622) $4,793,181  $(35,105,441)

 

On March 30, 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.  For public business entities, the ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. For all other entities, the ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual reporting periods beginning after December 15, 2018. The Company’s adoption of these SEC amendments has no material effect on the Company’s reporting of financial position, results of operations, cash flows or stockholders’ equity.

13

 

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

Reclassification— Certain amounts in the prior period financial statements have been reclassified to conform to the current presentation.


 

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

 

NOTE 23 — PROPERTY AND EQUIPMENT

 

 Useful Life March 31, 2019 

June 30,

2018

 Useful Life September 30,2019 

June 30,

2019

Lab Equipment and Instruments  4-7  $499,755  $202,197   4-7  $524,079  $479,145 
Leasehold Improvements  10  $194,778    10 $216,279 194,788 
Furniture Fixtures and Equipment  4-7  $68,643  $58,977   4-7 $74,926 $72,736 
Total     $763,176  $261,174    $815,284 $746,669 
Less Accumulated Depreciation     $(19,654) $(233,772)    $(80,633) $(59,152)
Net Property and Equipment     $743,522  $27,402     $734,651 $687,517 

 

During the nine-monthsthree months end March 31,September 30, 2019, and 2018, respectivelythe Company had depreciation expense of $17,056,$0.021 million, and $1,101.$0.001 million, respectively.

 

The Company disposed of assets valued at $231,174 in the nine months ended March 31, 2019.

14

 


ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 34 — DEFINITE-LIFE INTANGIBLE ASSETS

 

During February 2018, the Company acquired a License Agreement (as licensee) to the HIV therapy being developed as ENO-1001ENOB-HV01 which consists of a perpetual, fully paid-up, royalty-free, sub-licensable,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, and/or amelioration of and/or therapy exclusively for HIV in humans, and research and development exclusively relating to HIV in humans (the “License”).humans. Because the License Agreement is considered, an IPR&D intangible asset is classified as an indefinite life asset that is tested annually for impairment.

 

At March 31,On September 30, 2019 and June 30, 2018, definite2019, definite-life intangible assets, net of accumulated amortization, consisted of patents on the Company’s products and indefinite-lifeprocesses of $0.089 million and $0.093 million, respectively. The patents are recorded at cost and amortized over twenty years from the date of application. Amortization expense of approximately $15,000 per year is recognized annually.

On September 30, 2019 and June 30, 2019, indefinite life intangibles 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.

On September 30, 2019 and June 30, 2019, definite-life and indefinite intangible assets consisted of the following:

  Useful Life June 30, 2019 Period Change Effect of Currency Translation September 30, 2019
Definite Life Intangible Assets                  
Patents 20 Years $302,371  $—    $(12,595) $289,776 
Less Accumulated Amortization   $(209,072) $—    $8,708  $(200,364)
Net Definite-Life Intangible Assets   $93,299  $—    $(3,887) $89,412 
                   
Indefinite Life Intangible Assets                  
License Agreement   $154,824,000          $154,824,000 
Goodwill   $11,640,000          $11,640,000 
Total   $166,464,000          $166,464,000 
Total Indefinite Life Intangible Assets   $166,464,000          $166,464,000 

 

 

        Effect of Currency
  Useful Life March 31, 2019 Period Change Translation June 30, 2018
Patents 20 Years $298,428      $(12,540)$310,968
License Agreement 20 Years $154,824,000      $—   $154,824,000
               
Goodwill   $11,640,000      $—   $11,640,000
Total   $166,762,428  $—    $(12,540)$166,774,968
Less Accumulated Amortization   $(8,844,864) $(5,825,392) $20,037 $(3,039,509)
Net Definite-Life Intangible Assets   $157,917,564  $(5,825,392) $7,497 $163,735,459

 The Amortization Expected future amortization expense for the three and nine monthsyears ended March 31, 2019, respectively were $3,860,712 and $5,813,864.are as follows:

Year ending June 30,  
 2020  $11,267 
 2021  $15,154 
 2022  $15,154 
 2023  $15,154 
 Thereafter  $32,683 
    $89,412 

 

Year ending June 30,         
2019        $1,939,187
2020        $7,756,790
2021        $7,756,790
2022        $7,756,790
2023        $7,756,790
Thereafter        $113,311,217
           
         $  146,277,564

Impairment – Following the fourth quarter of each year, management performs its annual test of impairment of intangible assets assessing the qualitative factorsby performing a quantitative assessment and determines if it is more than likely than not that, the fair value of the asset is greater than or equal to the carrying value of the asset. The results of the quantitative assessment supported management’s conclusion that an impairment adjustment was not required as of June 30, 2019.


15

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 —5— LEASES

 

Operating Leases— On November 13, 2017, the RegistrantCompany entered into a Lease Agreement for a term of five years and two months from November 1, 2017 (the “Term”) with Plaza Medical Office Building, LLC, a California limited liability company (the “Landlord”), as landlord, pursuant to which the RegistrantCompany agreed to lease from the Landlord certain premises (the “Leased Premises”) located in Los Angeles.

The Leased Premises consist of approximately 2,325 rentable square feet. The base rent for the 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 equalized monthly lease payment for the term of the lease is $8,124. The Registrant is entitled toCompany received $70,800 in tenant improvement allowance in the form of free rent applied over 10 months in equal installments beginning in January of 2018.

 

On March 21, 2018, the Registrant entered into a Sub Lease Agreement for a term of five years commencing on April 2, 2018, with Rodeo Realty, Inc., a California Corporation (the “Lessee”), as lessee, pursuant to which the Lessee agreed to lease the Leased Premises from the Registrant under the same terms and conditions for the Leased Premises between the Registrant and the Landlord. The Sub Lease Agreement was terminated on July 18, 2018.

On June 19, 2018, the RegistrantCompany 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 RegistrantCompany entered into an Addendum to the original Lease Agreement with an effective date of December 1, 2019,2018, where it expanded the lease area to include another 1,101 square feet for a total rentable 3,554 square feet. The base rent increases by 3% each year, and ranges from $17,770 per month for the remainder of the first year to $23,186 per month for the tenth year. The Company is entitled toreceived $108,168 in contributions toward tenant improvements.

 

ForThe Company identified and assessed the threefollowing significant assumptions in recognizing the right-of-use asset and ninecorresponding 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 39 months ended March 31, 2018,and 8 years. As of September 30, 2019, the weighted-average remaining term is 7.03 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 September 30, 2019, the weighted-average discount rate is 3.98%

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.

The components of the Company’s rent expense charged to general and administrative expenses amounted to $62,638 and $236,991, respectively, and $0 and $15,385were $0.102 million for the three and nine months ended March 31, 2018.September 30, 2019. The cash outflows for the operating lease liabilities were $0.081 million for the three months ended September 30, 2019.

Year Ending June 30th Lease Expense
 2020  $247,706 
 2021  $338,345 
 2022  $348,495 
 2023  $298,305 
 2024  $246,004 
 Thereafter  $828,205 
 Less imputed interest  $(313,317)
 Total  $1,993,743 

Prior to the adoption of ASC 842-Leases and for the three months ended September 30, 2018, the Company recognized rent expense on a straight-line basis over the lease period and recorded deferred rent expense for rent expense incurred but not yet paid. The Company also recorded deferred rent attributable to cash incentives received under its lease agreements, which are amortized to rent expense over the lease term. During the three months ended September 30, 2018, the Company recognized total rent expense of $0.004 million.

 

Below areDisclosures related to periods prior to the adoption of the new lease commitments for the next 5 years and thereafter:

Year Ending June 30th Lease Expense
 2019  $81,059 
 2020  $331,787 
 2021  $341,741 
 2022  $351,993 
 2023 and thereafter  $1,672,528 
 Total  $2,779,108 

standard:

 

Under ASC 840, approximate future minimum rental payments due under these leases as of September 30, 2019 would have been as follows:

Year Ending June 30th Lease Expense
 2020  $247,706 
 2021  $338,345 
 2022  $348,495 
 2023  $298,305 
 2024  $246,004 
 Thereafter  $1,106,435 
 Total  $2,585,290 

18

16

 

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

 

NOTE 56 — STOCKHOLDERS’ EQUITY

 

AcquisitionPreferred Stock —The Registrant has 10,000,000 authorized shares of DanDrit Denmark  At March 31,Preferred Stock, par value $0.0001 per share. On September 30, 2019 and June 30, 2019, there were zero shares issued and outstanding.

Common Stock— The Registrant has 100,000,000 authorized shares of Common Stock, par value $0.0001. As of September 30, 2019 and June 30, 2019, there were 46,273,924 and 45,273,924 shares of Common Stock issued and outstanding, respectively.

Voting-Holders of Common Stock are entitled to one vote per 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 our Board from time to time may declare out of funds legally available.

Liquidation Rights- In the event of any liquidation, dissolution or winding-up of affairs of the Company, after payment of all of our debts and liabilities, the holders of Common Stock will be entitled to share ratably in the distribution of any of our remaining assets.

Common Stock Issuances-

On August 28, 2018, the Registrant issued 10,000 shares of Common Stock valued at the price of $4.00 per share or $0.040 million for non-cash consulting compensation.

On July 3, 2019, the Registrant issued 500,000 shares of Common Stock valued at the price of $2.00 strike price per share pursuant to the exercise of vested options for total proceeds of $1.000 million.

On July 3, 2019, the Registrant issued 500,000 shares of Common Stock valued at the price of $4.42 per share pursuant to the Acquisition Agreement. This non-cash transaction impacted shareholders’ equity in the amount of $2.210 million.

Acquisition of Enochian Biopharma / Contingently issuable shares- On February 16, 2018, we completed our acquisition of Enochian Biopharma (the “Acquisition”) pursuant to an acquisition agreement, dated January 12, 2018, by and among the Registrant, its wholly owned subsidiary DanDrit Acquisition Sub, Inc., Enochian Biopharma and Weird Science (the “Acquisition Agreement”). 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 shares of Common Stock (“Contingent Shares”) pro rata upon the exercise or conversion of warrants, which were outstanding at closing. As of September 30, 2019, 1,438,122 Contingent Shares are potentially issuable in connection with the Acquisition of Enochian Biopharma.

Acquisition of Enochian DenmarkOn September 30, 2019 and June 30, 2019, the Registrant maintained a reserve of 129,596 Escrow Shares, respectively,92,237 shares (the “Escrow Shares”), for both periods, all of which are reflected as issued and outstanding in the accompanying financial statements. The Escrow Shares are reserved to acquire the 86,490 and 123,464 shares of Enochian Denmark held by non-consenting shareholders of DanDritEnochian Denmark at March 31,on both September 30, 2019 and 2018, respectively,June 30 2019, in accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark. During the year ended JuneThere have been 97,816 shares of Common Stock issued to non-consenting shareholders of Enochian Denmark as of September 30, 2018, the Registrant issued 55,4572019. No shares of Common Stock to such non-consenting shareholders of DanDrit Denmark. On November 15, 2018,Enochian Denmark were issued during the Company changed the name of DanDrit BioTech ApS to Enochian BioSciences Denmark ApS.three months ended September 30, 2019.

17

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

 

Stock Grants -On September 15, 2016, the Board granted the right to acquire 300,000 shares of Common Stock at a strike price of $2.00 per share in what the Board originally described as “options” (the “Grants”) to each of Eric Leire, APE Invest A/S for Aldo Petersen and N.E. Nielson in consideration of their service to the Registrant. These Grants vested immediately and expire on December 31, 2019.immediately. In October of 2017, the Registrant 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” collectively the “Grant Warrants”) to evidence the Grants for an aggregate of 900,000 Grant Warrants. All Grant Warrants have been exercised as of September 30, 2019.

 

Grant Warrants/ Recognition of Options

The Company recognizes compensation costs for stock option awards to employees and directors based on their grant-date fair value. The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average assumptions used to estimate the fair values of the stock options granted using the Black-Scholes option-pricing model are as follows:

Enochian Biosciences Inc.
Expected term (in years)3-10
Volatility85.44 -98.15%
Risk free interest rate1.62 -3.23%
Dividend yield0%

The Company recognized stock-based compensation expense (excluding other non-cash compensation expense) related to the options of $0.234 million and $0.046 million for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019, the Company had approximately $0.520 million of unrecognized compensation cost related to non-vested options. 

Plan Options

 

On February 6, 2014, the Board adopted the Registrant’s 2014 Equity Incentive Plan (the “Plan”), and the Registrant has reserved 1,206,000 shares of Common Stock for issuance in accordance with the terms of the Plan. To date the Registrant has granted options550,231options under the Plan (“Plan Options”) to purchase 403,091 shares of Common Stock.

 

On September 19, 2018, the Company increased the compensation of the Board’s existing independent directors who are members of committees of the Board to $60,000 per year, along with an increase of the annual compensation to the Chair of the Audit Committee to $15,000 per year and the addition of cash retainers in the amount of $7,500, $5,000 and $4,000 to the members of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, respectively. In addition, the Company granted additional options to the existing independent directors who are members of committees of the Board to increase their non-cash compensation to $75,000 per annum. All newly granted options will have exercise prices as of the market price of the Company’s common stock on the date of grant.

 

On October 30, 2018,August 22, 2019, the Company granted annual options to a new independent director in the amount of $75,000,10,124 with a three-yearone-year vesting period andto two of the Scientific Advisory Board (SAB) members pursuant to their contracts. Options will be exercisable at the market price of the Company’s common stock on the date of the grant.

 

On November 21, 2018,August 22, 2019, the Company granted 300,000 fully vestedannual options of 3,346 that will vest on December 10, 2019, to the newly named Executive Vice-Chaira board of the Boarddirector pursuant to their contract. Options will be exercisable at the market price of the Company’s common stock on the date of the grant.

 

NoOn August 22, 2019, the Company granted 20,000 fully vested options were granted, exercised or expired duringto senior employees. Options will be exercisable at the quarter-ended March 31, 2019.market price of the Company’s common stock on the date of the grant.

 

18

ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of the status of the Plan Options and Grant Warrants outstanding at March 31,September 30, 2019 is presented below:

 

Options Outstanding  Options Exercisable  
   Exercise Prices   Number Outstanding   Weighted Average Remaining Contractual Life (years)   Weighted Average Exercise Price   Number Exercisable   Weighted Average Remaining Contractual Life (years)   Weighted Average Exercise Price 
  $3.95   5,063   8.84  $3.95   5,063   8.84  $3.95 
  $4.63   20,000   9.90  $4.63   20,000   9.90  $4.63 
  $4.85   4,124   9.90  $4.85   —     —    $—   
  $4.90   3,346   9.90  $4.90   —     —    $—   
  $5.00   6,000   9.90  $5.00   —     —    $—   
  $5.72   13,113   9.09  $5.72   —     —    $—   
  $5.74   15,679   8.98  $5.74   15,679   8.98  $5.74 
  $5.80   7,759   9.03  $5.80   —     —    $—   
  $6.15   60,000   9.69  $6.15   —     —    $—   
  $6.25   18,346   9.44  $6.25   —     —    $—   
  $6.50   300,000   9.15  $6.50   300,000   9.15  $6.50 
  $6.95   4,317   9.53  $6.95   —     —    $—   
  $7.10   8,248   9.42  $7.10   —     —    $—   
  $8.00   69,235   8.57  $8.00   42,155   8.66  $8.00 
Total $—     535,230   9.19  $6.47   382,897   9.13  $6.50 

Options Outstanding Options Exercisable
 Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life (years) Weighted Average Exercise Price Number ExercisableWeighted Average Exercise Price
  $                  8.00                  69,235                       9.07  $                  8.00                        12,350  $                         8.00
                      5.74                  15,679                       9.48                      5.74                        15,679                             5.74
                      3.95                    5,064                       9.34                      3.95                                -                                   -   
                      2.00                650,000                       0.75                      2.00                      650,000                             2.00
                      5.72                  13,113                       9.59                      5.72                                -                                   -   
  $                  6.50                300,000                       9.65  $                  6.50                      300,000  $                         6.50
Total $                     -                1,053,091                       4.12  $                  3.79                      978,029  $                         3.38

19

 

Preferred StockENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
— The Registrant has 10,000,000 authorized shares of Preferred Stock, par value $0.0001 per share. At March 31, 2019, and June 30, 2018 there were zero shares issued and outstanding.

 

Common Stock
NOTE 6 The Registrant has 100,000,000 authorized shares of Common Stock, par value $0.0001 per share. At March 31, 2019, and June 30, 2018, there were 38,789,310 and 36,163,924 shares issued and outstanding, respectively.STOCKHOLDERS’ EQUITY (Continued)

Voting —Holders of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including the election of directors, and do not have any right to cumulate votes in the election of directors.

Dividends —Holders of Common Stock are entitled to receive ratably such dividends as the Board from time to time may declare out of funds legally available.

Liquidation Rights — In the event of any liquidation, dissolution or winding-up of affairs of the Company, after payment of all of our debts and liabilities, the holders of Common Stock will be entitled to share ratably in the distribution of any of our remaining assets.

Acquisition of EBI / Contingently issuable sharesOn February 16, 2018, the Acquisition was completed when the Acquisition Sub merged with and into Enochian Biopharma, with Enochian Biopharma as the surviving corporation. As consideration for the Acquisition, the stockholders of Enochian Biopharma received (i) 18,081,962 shares of Common Stock, and (ii) the right to receive Contingent Shares pro rata upon the exercise or conversion of warrants which were outstanding at closing. At March 31, 2019, 5,180,429 Contingent Shares are issuable in connection with the Acquisition of Enochian Biopharma.

Common Stock Issuances — On December 27, 2018, the Company issued 1,307,693 shares of Common Stock in exchange for an equal number of warrants exercisable at $1.30. Proceeds received by the Company amounted to $1.7 million. In addition, on December 27, 2018, in accordance with the Acquisition Agreement, the Company issued an equal number of shares , 1,307,693, of Common Stock to the stockholders of Enochian Biopharma. . These Contingent Shares, as defined, were valued at the closing market stock price on date of issuance of $7.20 per share. The Company recorded a charge of $9.4 million to change in fair value of contingent consideration. No Common Stock was issued during the quarter-ended March 31, 2019.

Recognition of Options

The Company recognizes compensation costs for stock option awards to employees and directors based on their grant-date fair value. The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average assumptions used to estimate the fair values of the stock options granted using the Black-Scholes option-pricing model are as follows:

Recognition of Options
Enochian Biosciences Inc.
Expected term (in years)3-10
Volatility94.37-98.15%
Risk free interest rate3.06-3.23%
Dividend yield0%

The Company recognized stock-based compensation expense (excluding other non-cash compensation expense) related to the options of $96,733 and $105,000 for the three months ended March 31, 2019 and 2018, respectively, and $1,962,958 and $217,837 for the nine months ended March 31, 2019 and 2018, respectively. At March 31, 2019, the Company had approximately $201,959 of unrecognized compensation cost related to non-vested options. 


A summary of the status of the Plan Options and the Grant Warrants at March 31,on September 30, 2019 and changes during the the three monththree-month period are presented below:

 

      Weighted Average Average Weighted Average
 Shares Exercise Price Remaining Life Intrinsic Value  Weighted Average  Average Weighted Average
         Shares Exercise Price Remaining Life Intrinsic Value
Outstanding at beginning of periodOutstanding at beginning of period              1,053,091 3.79 4.36 $3,451,984  1,001,760  $4.30   4.96  $1,252,785 
GrantedGranted                           -                             -                                   -                                   -     33,470  $4.75   9.90   —   
ExercisedExercised                           -                             -                                   -                                   -     (500,000) $2.00   —     —   
ForfeitedForfeited                           -                             -                                   -                                   -     —     —     —     —   
ExpiredExpired                           -                             -                                   -                                   -     —     —     —     —   
Outstanding at end of periodOutstanding at end of period              1,053,091                      3.79                            4.12  $                3,392,952  535,230  $6.47   9.19  $32,396 
Vested and expected to vestVested and expected to vest                 978,029                      3.38                            3.52  $                3,348,725  382,897  $6.50   9.13  $25,248 
Exercisable end of periodExercisable end of period                 978,029                      3.38                            3.52  $                3,348,725  382,897  $6.50   9.13  $25,248 

 

At March 31,

On September 30, 2019, all Grant Warrants are exercisable, and 328,029382,897 Plan Options are exercisable. The total intrinsic value of options at March 31,on September 30, 2019 was $3,392,592.$0.033 million.  Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) at March 31,on September 30, 2019 (for outstanding options), less the applicable exercise price.


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

NOTE 5 — STOCKHOLDERS’ EQUITY (Continued) 

Common Stock Purchase Warrants

 

A summary of the status of shares of Common Stock, which can be purchased underlyingand underlies the warrants outstanding for the three monththree-month period at March 31,as of September 30, 2019, is presented below:

 

         Weighted Average Weighted Average
       Shares Exercise Price Remaining Life
            
Outstanding at beginning of period               1,438,122  $                        1.42 3.00
Granted                              -                                   -                                   -   
Exercised                              -                                   -                                   -   
Cancelled/Expired                              -                                   -                                   -   
Outstanding at end of period   1,438,122  $                        1.42                             2.74
Exercisable end of period    1,438,122  $                        1.42                             2.74
            
            
   Equivalent Shares Underlying Warrants Outstanding Equivalent Shares Exercisable
 Exercise Prices Equivalent Shares Weight Average Remaining Contractual Life (years) Weight Average Exercise Price Number Exercisable Weighted Average Exercise Price
  $                  1.30             1,413,122 2.77  $                  1.30                   1,413,122  $                         1.30
  $                  8.00                  25,000 1.38  $                  8.00                        25,000  $                         8.00
            
 Total             1,438,122 2.74  $                  1.42                   1,438,122  $                         1.42

         Weighted Average Weighted Average
       Shares Exercise Price Remaining Life
            
Outstanding at beginning of period               4,530,429  $                        1.34 3.38
Granted                              -                                   -                                   -   
Exercised                              -                                   -                                   -   
Cancelled/Expired                              -                                   -                                   -   
Outstanding at end of period               4,530,429  $                        1.34                             3.12
Exercisable end of period                4,530,429  $                        1.34                             1.34
            
            
   Equivalent Shares Underlying Warrants Outstanding Equivalent Shares Exercisable
 Exercise Prices Equivalent Shares Weight Average Remaining Contractual Life (years) Weight Average Exercise Price Number Exercisable Weighted Average Exercise Price
  $                  1.30             4,505,429 3.13  $                  1.30                   4,505,429  $                         1.30
  $                  8.00                  25,000 1.88  $                  8.00                        25,000  $                         8.00
            
 Total             4,530,429 3.12  $                  1.34                   4,530,429  $                         1.34

 

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.

 


20

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

 

NOTE 66— STOCKHOLDERS’ EQUITY (Continued) 

 

 

Restricted Stock Units (RSUs)

        
         
A summary of the status of Restricted Stock Units outstanding at September 30, 2019 is presented below:  
   
    Weighted Average Weighted Average Weighted Average 
  Shares Exercise Price Remaining Life Intrinsic Value
         
Outstanding at beginning of period  15,000  $6.15   2.68  $—   
Granted  —    $—     —    $—   
Exercised  —    —     —    —   
Cancelled/Expired  —    —     —    —   
Outstanding at end of period  15,000  $6.15   2.68  $—   
Exercisable end of period  —    $—     —    $—   

           
     Restricted Stock Units  Outstanding   Restricted Stock Units Exercisable 
 Grant Price   Stock Units   Weight Average Remaining Contractual Life (years)   Weight Average Exercise Price   Number Exercisable   Weighted Average Exercise Price 
$6.15   15,000   2.68  $6.15   —    $—   
 Total   15,000   2.68  $6.15   —    $—   

21

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

NOTE 7 — 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, (includingincluding but not limited to cancers and infectious diseases)diseases, (the G-Tech Agreement“G-Tech Agreement”). G-Tech is entitled to consulting fees for 20 months, with a monthly consulting fee of not greater than $130,000 per month. G-Tech is controlled by certainCertain members of Weird Science.Science control G-Tech. For the three and nine months ended March 31,September 30, 2019, $375,000 and $1,125,000, respectively,$0.375 million was charged to research and development expenses in our Condensed Consolidated Statements of Operations related to this consulting agreement.

   

On February 16, 2018, the Registrant entered into a consulting agreement with Carl Sandler, a board member and shareholder of the Registrant (through his holdings in Weird Science) for services related to clinical development and new business opportunities. In consideration for services actually rendered, the Registrant paid $10,000 per month for 6 months. For the three and nine months ended March 31, 2019, Carl Sandler was paid $0 and $15,000, respectively, for consulting services. The agreement with Mr. Sandler terminated pursuant to its terms on August 16, 2018. This amount was charged to consulting expenses in our Condensed Consolidated Statements of Operations.

Shares held for non-consenting shareholdersIn connection with the Share Exchange 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 the DanDrit Denmark equity interests owned by such Non-Consenting Shareholders 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, 2018, the Registrant issued 55,457 shares of Common Stock to such non-consenting shareholders of DanDrit Denmark. The 129,59692,237 remaining shares have been reflected as issued and outstanding in the accompanying financial statements. 

22

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

NOTE 6 — COMMITMENTS AND CONTINGENCIES (Continued) 

Food and Drug Administration (FDA) -The FDA has extensive regulatory authority over biopharmaceutical products (drugs and biological products), manufacturing protocols and procedures and the facilities in which they will be manufactured. Any new bio product intended for use in humans is subject to rigorous testing requirements imposed by the FDA with respect to product efficacy and safety, possible toxicity and side effects. FDA approval for the useNo shares of new bio products (which can never be assured) requires several rounds of extensive preclinical testing and clinical investigations conducted by the sponsoring pharmaceutical company prior to sale and use of the product. At each stage, the approvals granted by the FDA include the manufacturing process utilized to produce the product. Accordingly, the Company’s cell systems used for the production of therapeutic or bio therapeutic products are subject to significant regulation by the FDA under the Federal Food, Drug and Cosmetic Act, as amended.

Product liability-The contract production services for therapeutic products offered exposes an inherent risk of liability as bio therapeutic substances manufactured, at the request and to the specifications of customers, could foreseeably cause adverse effects. The Company seeks to obtain agreements from contract production customers indemnifying and defending the Company from any potential liability arising from such risk. There can be no assurance, however, that the Company will be successful in obtaining such agreements in the future or that such indemnification agreements will adequately protect the Company against potential claims relatingCommon Stock were issued to such contract production services. The Company may also be exposed to potential product liability claims by users of its products. A successful partial or completely uninsured claim againstnon-consent shareholders during the Company could have a material adverse effect on the Company’s operations. three months period ended September 30, 2019 (See Note 6).

 

Employment and Service Agreements-The Company hadhas a director’s agreement with Mark Dybul, the Executive Vice-Chair where he fulfills the duties as prescribed by the Company’s bylaws and receives annual compensation in the amount of $430,000, plus 300,000 options that vested immediately. The Company has an employment agreement with Eric Leire,Luisa Puche, the former Chief ExecutiveFinancial Officer with a base annual compensation of $313,775. The Company also had a services agreement with Crossfield, Inc. an entity controlled by Robert Wolfe, the former acting Chief Financial officer with a base compensation$200,000 plus 60,000 options and 15,000 shares of $240,000.restricted stock. The Company maintains employment agreements with other staff in the ordinary course of business. As of January 7, and 9, 2019, respectively, Eric Leire and Robert Wolfe are no longer with the Company.

 

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.


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

 

NOTE 78 — RELATED PARTY TRANSACTIONS

  

On September 15, 2016, the Registrant recorded $626,487 in stock-based compensation for the grant of 900,000 Grant Warrants to employees, officers, and certain directors of the Registrant, which were fully vested upon grant, to purchase shares of Common Stock at $2.00 per share which expire on December 31, 2019. The Grant Warrants contain certain anti-dilution provisions applicable in the discretion of the Company. At March 31, 2019, there were 650,000 Grant warrants outstanding.

On December 29, 2017, the Registrant entered into a consulting agreement with RS Group ApS, a company owned and controlled by 2 directors, for consulting services from October 1, 2017 through March 31, 2018. In consideration for the consulting services in connection with the negotiation and structuring of the acquisition of Enochian Biopharma, the Registrant paid RS Group ApS $367,222, this amount was charged to consulting expenses in the nine months ended March 31, 2018.

On February 16, 2018, the Registrant entered into a consulting agreement with Carl Sandler, who subsequently became a board member and shareholder of the Registrant (through his holdings in Weird Science) for services related to clinical development and new business opportunities. In consideration for services actually rendered, the Registrant paid $10,000 per month for 6 months. For the three and nine months ended March 31, 2019, Carl Sandler was paid $0 and $15,000, respectively, for consulting services. The agreement with Mr. Sandler terminated pursuant to its terms on August 16, 2018. This amount was charged to consulting expenses in our Condensed Consolidated Statements of Operations.

 Consulting Agreements – On July 9, 2018, the Company entered into a consulting agreement withthe 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”).Agreement. G-Tech is entitled to consulting fees for 20 months, with a monthly consulting fee of not greater than $130,000 per month. G-Tech is controlled by certainCertain members of Weird Science.Science control G-Tech. For the three and nine months ended March 31,September 30, 2019, $375,000 and $1,125,000, respectively, was chargedthe company made payments of $0.375 million pursuant to research and development expenses in our Condensed Consolidated Statements of Operations related to this consulting agreement.the G-Tech Agreement (See Note 7).

 

On January 4, 2019, the Company entered into a consulting agreement, effective July 28, 2018, with DCA Advisory Services, LLC, who subsequently changed its name to Ferndale Advisors, LLC (FA). The agreement is for advisory and management services related to all Intellectual Property (IP) activities, as well as business development and strategic advice at a monthly fee of $12,500. FA is wholly owned by Christine Mikail, a shareholder of Enochian Biosciences, Inc. The Company paid $25,000 for the three months ended September 30, 2019. Effective September 1, 2019, the contract with FA was modified to be on an as-needed basis at an hourly rate.

NOTE 89 — SUBSEQUENT EVENTS

 

In accordance with ASC 855-10, Company management reviewed all material events through the date of this report. There have been no subsequent events of a significant and reportable nature as of May 10,November 13, 2019.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward Looking Statement Notice

 

Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Enochian Biosciences, Inc. formerly DanDrit Biotech USA, Inc. (“Enochian”, or “Registrant”, and together with its subsidiaries, the “Company”, “we” or “us”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The Company’s plans and objectives are based, in part, on assumptions involving the continued expansion of the business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

 

Our Business

We are a pre-clinical stage biotechnology company committed to using our genetically modified cellular and immune-therapy technologies to prevent or potentially cure HIV and to potentially provide life-long cancer remission of some of the deadliest cancers. WeIn the event our technologies are approved for use, we plan to do this by genetically modifying, or re-engineering, different types of cells, depending on the therapeutic area, and then injecting or reinfusing the re-engineered cells back into the patient to provide treatment. In some of our planned interventions, immunotherapy iscould be used.

Human Immunodeficiency Virus, or HIV, and Acquired Immunodeficiency Syndrome, or AIDS

HIV attacks the body’s own immune system, specifically killing off CD4+ cells, orT-cells.Left untreated, HIV reduces the number ofT-cellsinthebody,leading to AIDs, a condition where the body cannot fight off common infections and disease.

Currently there are over 30 antiretroviral drugs, orART,approved by the FDAU.S. Food and Drug Administration (“FDA”) to treat HIV patients but these drugs are expensive, require daily adherence and can have significant side effects over time. In addition, approximately 1 million people, including in high-income countries, continue to die from HIV/AIDS due to resistance toARTor lack of access.Todaythere are no treatments whichthat can eliminate the reservoir of cells that contain HIV from thebody.In other words, treatment is life-long.

There have been several efforts to cure HIV by re-engineering a person’s ownT-cells so that such cells no longer express C-C chemokine receptor type 5, also known as CCR5, which is an essential co-receptor for HIV to enterT-cells. A mutation that blockstheexpression of CCR5 onT-cells occurs in a small percentage of people with no known adverse effects. The “Berlin patient” is an HIV-positive person, and more recently the “London patient” areHIV-positive persons who developed cancer and waswere treated with a bone marrow transplant with cells derived from a personpersons with a naturally occurring deletion of CCR5. TheBerlin patient seemsand London patients seem to be effectively cured of HIV providing a proof of concept that HIV can be cured. However, because the transplanted cells come from HIV. Therefore,another person, such transplants are highly toxic and can result in death in a significant proportion of patients. Given the success with these two patients, several researchers and companies have attempted to replicate the experience of the Berlin patientsuch patients by genetically modifying theT-cellsof the HIV-positive patients themselves and reinfusing them withT-cells that do not express CCR5. However,Because the transplanted cells are from the same person, the risks to the patient are much lower. The uptake, or engraftment of the modified, reinfused cells, however, has not been optimal, leading to a failure to achieve a cure. In addition, the transplant conditioning that has been used is myeloablative chemotherapy, wiping out the patient’s immune system, which has inherent risks and can have long term side-effectslong-term side effects including the risk of developing cancer.

ENOB-HV-01 is a novel, proprietary approach with the potential to overcome the failures of recent efforts. The intervention:

1)        provides gene-modified, reinfused cells with a competitive advantage over non-modified cells in the HIV-positive person, with the potential to significantly increase engraftment; and

2)        avoids the need for myeloablative chemotherapy and, in fact, could potentially be given on an outpatient basis.

ENOB-HV-01 is now undergoing additionalin vivoandin vitrostudies intended to support an INTERACT meeting request with the US FDA in the early part of the 2020 calendar year.

Weare also plan to develop developingENOB-HV-11and ENOB-HV-12 that will utilize a novel cellular- and immunotherapy approach tothat could potentially provide for a preventative vaccine and a therapeutic vaccine, respectively.

Cancer Initialin vitro studies have demonstrated the ability of the approach to promote a robust immune response.In vivo studies have been developed and are expected to begin in the early part of the 2020 calendar year.

Based on learning from peer-reviewed publications of Phase I/IIa trials weCancer

We have designed an innovative dendritic-cell based therapeutic vaccination platform that could potentially be used to induce life-long remissions from some of the deadliest solid tumors. We plan to initially target pancreatic cancer, triple negative breast cancer, glioblastoma, and renal cell carcinoma. The platform might also allow for non-specific immune enhancement that could have an impact against a broad array of solid tumors. As with HIV, our approach wouldcould potentially allow for outpatient therapy without ablating or significantly impairing the patient’s immune system, as many current approaches require.

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To date, our operations have been funded by sales of our securities. Sales revenue will not support our current operations and we expect this to be the case until our therapies or products are approved for marketing in the United States and Europe. Even if we are successful in having our therapies or products approved for sale in the United States and Europe, we cannot guarantee that a market for the product will develop. We may never be profitable. 


Recent DevelopmentsCorporate Information

 

On January 7, 2019, the Company’s Board of Directors announced that the operations of the Company would be led by Dr. Mark Dybul as the Executive Vice-Chair of the Board. Dr. Dybul had previously served as Chair of the Company’s Scientific Advisory Board beginning in August of 2017, and as a director since February of 2018.

On January 7, 2019, the Board notified Dr. Eric Leire of his termination as Chief Executive Officer of the Company, effective immediately.

Effective January 7, 2018, the Company hired Luisa Puche as its full-time Chief Financial Officer to support the Company’s growth as an exchange listed Company. Following the appointment of Ms. Puche, on January 9, 2019 the Company terminated the consulting agreement between its wholly-owned subsidiary Enochian BioSciences Denmark ApS and Crossfield, Inc. for the services of Robert Wolfe as part-time Chief Financial Officer of the Company.

On December 5, 2018, the Company received confirmation that its application to list the Company’s common stock on the NASDAQ Capital Market was approved by the NASDAQ Stock Market. On December 10, 2018, the Company’s common stock began trading under the ticker symbol “ENOB”.

On October 30, 2018, the Board increased its size from 6 to 7 members and appointed Mr. Debruyne as a director, whom is considered independent under the listing standards of the Nasdaq Capital Market.

On July 18, 2018, the Company appointed David Hardy, MD to its Scientific Advisory Board (SAB). In connection with his appointment to the SAB, Dr. Hardy will be paid $30,000 per year and received options valued at $30,000 under the Company’s Equity Incentive Plan, vesting yearly over three years.

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 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). G-Tech is entitled to service fees for 20 months, with a monthly service fee of not greater than $130,000 per month. G-Tech is controlled by certain members of Weird Science.


Corporate History

Enochian was originallyWe were incorporated in Delaware on January 18, 2011 in the state of Delaware under the name “Putnam Hills Corp.” We filed a Registration Statement on Form 10 with the U.S. Securities and Exchange Commission, or the SEC, on August 12, 2011.

On February 12, 2014, pursuant to thea Share Exchange Agreement, the Registrant acquired 100% (including the Escrow Shares) of the issued and outstanding capital stock of DanDrit Denmark and asDandrit Denmark. As a result, the Registrant changed its name to DanDrit Biotech USA, Inc. and became DanDritEnochian Denmark’s parent company. Prior to the Share Exchange, the Registrant and an existing shareholder agreed to cancel 4,400,000 out of 5,000,000 common shares of DanDrit Denmark outstanding, and the Company issued 1,440,000 shares of Common Stock for legal and consulting services related to the Share Exchange and a future public offering. At the time of the Share Exchange each outstanding share of common stock of DanDrit Denmark was exchanged for 1.498842 shares of Common Stock, for a total of 6,000,000 shares of Common Stock, resulting in 8,040,000 shares of Common Stock outstanding immediately following the Share Exchange, including the Escrow Shares, which are deemed issued and outstanding for accounting purposes.

In June 2015, the Board approved a change to the Registrant’s fiscal year end from March 31 to June 30. company (See Note 1).

 

On February 16, 2018, we completed our acquisition (the “Acquisition”) of Enochian Biopharma, Inc. (“Enochian Biopharma”) pursuant to an acquisition agreement, dated January 12, 2018, by and among the Registrant, its wholly owned subsidiary DanDrit Acquisition Sub, Inc., Enochian Biopharma and Weird Science entered into the Acquisition Agreement. On February 16, 2018, the Acquisition was completed when the Acquisition Sub merged with and into Enochian Biopharma,(the “Acquisition Agreement”), with Enochian Biopharma surviving as a wholly owned subsidiary of the surviving corporation.Registrant. As consideration for the Acquisition,acquisition, the stockholders of Enochian Biopharma received (i) 50% of the number of18,081,962 shares of the Common Stock issued and outstanding as of the effective time of the Acquisition, in the aggregate, after giving effect to the Acquisition, and (ii) the right to receive earn-out shares of Common StockContingent Shares pro rata upon the exercise or conversion of any of the Registrant’s stock options and warrants which were outstanding at closing.closing (See also Note 1 to the Consolidated Financial Statements).

 

On November 15, 2018,Our website is http://www.enochianbio.com.Wemake available freeofcharge, on or through our internet site, our annual, quarterly, and current reports and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Company changedExchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the nameSEC. Information contained in our website is not part of, DanDrit BioTech ApS to Enochian BioSciences Denmark ApS.nor incorporated by reference into, this report. 

 

Emerging Growth Company

 

As a companyCompany with less than $1.0 billion in revenue, during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012. An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

Reduced disclosure about our executive compensation arrangements;

 

No non-binding shareholder advisory votes on executive compensation or golden parachute arrangements;

 

Exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and

 

Reduced disclosure of financial information in this prospectus,report, limited to two years of audited financial information and two years of selected financial information.

 

Each of the foregoing exemptions is currently available to us. We may take advantage of these exemptions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act, of 1933, as amended (the “Securities Act”), which such fifth anniversary will occur on June 30, 2019 or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues as of the end of a fiscal year, if we are deemed to be a large accelerated filer under the rules of the SEC, or if we issue more than $1.0 billion of non-convertible debt over a three-year-period.2020. The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies; provided, however, that an emerging growth company may elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have not elected to opt out of the transition period.

 

Because we have elected to take advantage of certain of the reduced disclosure obligations and may elect to take advantage of other reduced reporting requirements in future filings, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.


25

Results of Operations for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 

The following table sets forth our revenues, expenses and net loss for the three months ended September 30, 2019 and September 30, 2018. The financial information below is derived from our unaudited condensed consolidated financial statements. 

  For the Three Months
  Ended
  September 30,
  2019 2018
    (As Revised)
Revenues $—    $—   
         
Cost of Goods Sold $—    $—   
         
Gross profit (Loss) $—    $—   
         
Operating Expenses        
General and administrative expenses  1,868,962   1,251,874 
Research and development expenses  520,192   493,555 
Depreciation and amortization  21,481   5,410 
Consulting expenses  31,850   62,035 
Total Operating Expense $2,442,485  $1,812,874 
         
LOSS FROM OPERATIONS $(2,442,485) $(1,812,874)
         
Other Income (Expense)        
Change in fair value of contingent consideration  (1,942,000)  1,468,000 
Interest income (expense)  —     (44)
Gain (loss) on currency transactions  286,755   (31,978)
Interest and other income  14,553   26,815 
Total Other (Expense) Income  (1,640,692)  1,462,793 
         
Loss Before Income Taxes  (4,083,177)  (350,081)
         
Income Tax Benefit $—    $—   
         
NET LOSS $(4,083,177) $(350,081)
         
BASIC AND DILUTED LOSS PER SHARE $(0.09) $(0.01)
         
WEIGHTED AVERAGE NUMBER OF        
COMMON SHARES        
OUTSTANDING - BASIC AND DILUTED  46,241,315   36,170,882 

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Revenues

Revenues from operations for the three months ended September 30, 2019, and September 30, 2018 were $0 and $0, respectively. 

Cost of Goods Sold

Our cost of goods sold was $0 and $0 during the three months ended September 30, 2019, and September 30, 2018, respectively.

Gross profit (Loss)

Gross profit for the three months ended September 30, 2019, and September 30, 2018 was $0 and $0, respectively.

Expenses

Our operating expenses for the three months ended September 30, 2019, and September 30, 2018 were $2.442 million and $1.813 million, respectively, representing an increase of $0.629 million, or approximately 34.7%. The largest contributors to the increase in operating expenses were within the general and administrative expense, related to franchise taxes, stock-based compensation, D&O insurance premiums, legal fees, and rent expenses. Research and development expenses were consistent between comparative periods.

 General and administrative expenses for the three months ended September 30, 2019, and September 30, 2018 were $1.869 million and $1.252 million, respectively, representing an increase of $0.617 million, or approximately 49.3%. The increase in general and administrative expenses is primarily due to the additional costs related to the following: franchise taxes of $0.118 million, an increase in stock based compensation expenses of $0.148 million, an increase in D&O insurance of $0.070 million, an increase in legal fees of $0.099 million related to work associated with employment agreements and other corporate matters, an increase in rent of $0.088 million, and the increase of $0.066 million of additional payroll expenses due to an increase in headcount.

Research and development expenses for the three months ended September 30, 2019 and September 30, 2018 were $0.520 million and $0.494 million, respectively, representing an increase of $0.026 million or approximately 5.4%. The overall research and development costs were consistent between comparative periods.

The Company recorded other expense of $1.641 million for the three months ended September 30, 2019, compared to other income of $1.463 million for the three months ended September 30, 2018, resulting in an increase of $3.104 million. This increase is primarily driven by the required accounting treatment (non-cash transaction), representing $3.103 million for the change in fair value of the contingent consideration liability. For the three months ended September 30, 2019, there was a charge of $1.942 million to adjust the contingent liability to fair value, compared to a reduction of $1.468 million for the three months ended September 30, 2018, representing an increase in other expense of $3.410 million or 232.3%. This contingent consideration is related to the issuance of Contingent Shares in connection with the Acquisition of Enochian Biopharma (see Note 1).

Net Loss

Net loss for the three months ended September 30,2019, and September 30,2018, was ($4.083) million or ($0.09) per share and ($0.350) million or ($0.01) per share, respectively, representing an increase in loss of ($3.733) million. The net increase in loss was primarily due to the required accounting treatment for the change in fair value of contingent consideration of $3.410 million, coupled with the increase in general and administrative expenses of $0.617 million. These increases were offset by the gain on currency transaction change of $0.319 million.

27

Liquidity and Capital Resources

 

Wehave historically satisfied our capital and liquidity requirements through funding from shareholders, the issuance of convertible notes (which over time have all been converted into sharesthe issuance and exercise of Common Stock)warrants, and the sale of our Common Stock and warrants. At this time,Stock.Weanticipate continuing to incur operating losses for at least the next several years. While we expect our rate of cash usage to increase in the future, in particular, to support our product development endeavors, we believe we have sufficient liquiditythat the available cash resources will enable us to fundmaintain our currently planned operations forthrough at least the next twelve months.months from the date of this report.

Wemay however need additional funds for (a) purchase of equipment and, (b) research and development, specifically to open an Investigational New Drug Application (“IND”) (The first step in the drug review process by the U.S. Food and Drug Administration)FDA) for ENOB-HV-01 andENOB-HV01, to continue our research and development of ENOB-DB-01ENOB-HV11/12, and ENOB-DC-01 and (c) 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. FinancingSuch financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely impactaffect our growth plans and our financial condition and results of operations.

As of March 31,September 30, 2019, the Company had $10,272,198$11.138 million in cash andas compared to $12.282 million in cash as of September 30, 2018, resulting in a decrease of $1.144 million or 9.31%. The Company had working capital of $8,987,394 as compared to $15,600,865 in cash and working capital of $14,888,293$9.908 million as of June 30, 2019, and $11.385 million as of September 30, 2018 resulting in a decrease of 34.16% and 39.6%$1.477 million or 12.97%, respectively. The decrease was primarily due to cash used by operating activities as we expand our operations, partially offset by an increase in net cash provided by financing activities resulting from exercised Grant Warrants by one of our shareholders.

Cash Flows

 

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

 

    Nine Months Ended March 31, 2019 Nine Months Ended March 31, 2018
Net Cash (Used in) Operating Activities    $6,821,134 $(2,726,744)
Net Cash (Used by) Investing Activities     (733,176) (278,732)
Net Cash Provided by Financing Activities     1,700,000  16,712,715
Gain Loss on Currency Translation     (14,257 (630,548)
Net Change in Cash and Cash Equivalents    $(5,328,667) $13,076,781

 Results of Operations for the three months and nine months ended March 31, 2019 compared to the three months and nine months ended March 31, 2018. The following table sets forth our revenues, expenses and net loss for the three and nine months ended March 31, 2019 and March 31, 2018. The financial information below is derived from our unaudited condensed consolidated financial statements.


  For the Three Months For the Nine Months
  Ended Ended
  March 31, March 31,
  2019 2018 2019 2018
         
Revenues $—    $—    $—    $—   
                 
Cost of Goods Sold $—    $—    $—    $—   
                 
Gross profit (Loss) $—    $—    $—    $—   
                 
Operating Expenses                
General and Administrative Expenses  1,951,685   1,979,609   6,750,939   3,049,393 
Research and Development Expenses  730,255   137,916   2,012,778   511,537 
Depreciation and Amortization  1,979,701   761,250   5,834,817   769,150 
Consulting Expenses  —     359,783   94,760   815,881 
Total Operating Expense $4,661,641  $3,238,558  $14,693,294  $5,145,961 
                 
LOSS FROM OPERATIONS $(4,661,641) $(3,238,558) $(14,693,294) $(5,145,961)
                 
Other Income (Expense)                
Change in Fair Value of Contingent Consideration  (217,000)  —     (10,342,390)  —   
Interest Income (Expense)  (43)  1,183   (130)  (12,060)
Interest Income (Expense) – Related Party  —     183,511   —     779,943 
Gain (Loss) on Currency Transactions  164,114   87,817   (37,347)  87,817 
Interest and Other Income  8,724   1,153   72,531   16,081 
Total Other (Expense) Income  (44,205)  273,664   (10,307,336)  871,781 
                 
Loss Before Income Taxes  (4,705,846)  (2,964,894)  (25,000,630)  (4,274,180)
                 
Income Tax Benefit $—    $(4,729) $—    $(11,301)
                 
NET LOSS $(4,705,846) $(2,960,165) $(25,000,630) $(4,262,879)
                 
BASIC AND DILUTED LOSS PER SHARE $(0.13) $(0.12) $(0.67) $(0.25)
                 
WEIGHTED AVERAGE NUMBER OF                
COMMON SHARES                
OUTSTANDING - BASIC AND DILUTED  37,070,152   24,790,153   37,070,152   17,303,255 

  Three Months Ended September 30,2019 Three Months Ended September 30,2018
Net Cash (Used in) Operating Activities $(1,800,587) $(1,796,724)
Net Cash (Used in) Investing Activities  (68,616)  (308,186)
Net Cash Provided by Financing Activities  1,000,000   —   
Gain on Currency Translation  (274,769)  (90,770)
Net Change in Cash and Cash Equivalents $(1,143,972) $(2,195,680)

  

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Revenues

Revenues from operationsNet cash used in operating activities for the nine monthsyears ended March 31,September 30, 2019 and March 31, 2018 were $0 and $0, respectively. 

Cost of Goods Sold

Our cost of goods sold was $0 and $0 during the nine months ended March 31, 2019, and March 31, 2018, respectively.

Gross profit (Loss)

Gross profit for the nine months ended March 31, 2019, and March 31, 2018 was $0$ 1.801 million and $0, respectively.

Expenses

Our operating expenses for the three months ended March 31, 2019, and March 31, 2018 were $4,661,641 and $3,238,558,$1.797 million, respectively, representing an increase of $1,423,084,$0.004, or approximately 43.94%0.22%. The largest contributors to the increase in operating expenses were the increase in depreciation and amortization of $1,218,451 associated with the amortization of intellectual property rights acquired in the Acquisition of Enochian BioPharma, the increase in stock based compensation of $96,377, and an increase in R&D of $592,339 as we continue to develop and innovate our HIV and cancer platforms.

 

Our operating expensesNet cash used in investing activities for the nineyears ended September 30, 2019 and 2018, was $0.068 million and $0.308 million, respectively, representing a decrease of $0.239 million or 77.7%. The three months ended March 31,September 30, 2018, included purchases as we were building out our corporate offices and labs. Our current expenditures reflect ongoing equipment needs of our operations as we move forward with our pipeline and contemplate new product lines.

Net cash provided by financing activities for the years ended September 30, 2019 and March 31, 2018, were $14,693,294was $1.000 million and $5,145,961,$0.0, respectively, representing an increase of $9,547,333,$1.000 million, or approximately 185.5%. The largest contributors to the increase in operating expenses were the increase in depreciation and amortization of $5,065,667 associated with the amortization of intellectual property rights acquired in the Acquisition of Enochian Biopharma, the increase general and administrative expenses of $3,919,383 related to the development of the Company’s infrastructure to support our scientific platforms, the increase in stock based compensation and an increase in R&D as we continue to develop and innovate our HIV and cancer platforms of $1,501,241.

The general and administrative expenses for the three months ended March 31, 2019 and 2018 were consistent quarter over quarter.

 General and administrative expenses for the nine months ended March 31, 2019, and March 31, 2018 were $6,750,939 and $3,049,393, respectively, representing an increase of $3,919,383, or approximately 58.1%100.0%. The increase in general and administrative expenses is primarily due to the costs related to security expenses of $679,504 stock based compensation expenses of $1,962,958, board and committee fees of $125, 950, filing fees of $151,687, offset by the reclassification of $284,574 of service fees previously classified as Consulting to R&D to properly reflect the nature of these costs. 

Research and development expenses for the three months ended March 31, 2019 and March 31, 2018 were $730,255 and $137,916, respectively, representing an increase of $592,339 or approximately 429.5%. The increases in research and development expenses are attributable to expenditures related to the development of and studies for our genetically modified cellular and immune-therapy technologies.

Research and development expenses for the nine months March 31, 2019, and March 31, 2018 were $2,012,778 and $511,537, respectively, representing an increase of $1,501,241 or approximately 293.5%. The increases in research and development expenses are attributable to scientific consulting of $1,125,000, regulatory services of $373,349 and an increase in the purchase of raw material of $331,008 used in various experiment expenditures related to the development of studies for our genetically modified cellular and immune-therapy technologies.

Depreciation and amortization for the three months ended March 31, 2019, and March 31, 2018, were $1,979,701 and $761,250, respectively, representing an increase of $1,218,451 or approximately 160.0%. The significant increase in depreciation and amortization expenses is related to the amortization of intellectual property rights acquired in the Acquisition of Enochian Biopharma.


Depreciation and amortization expenses for the nine months ended March 31, 2019, and March 31, 2018, were $5,834,817 and $769,150, respectively, representing an increase of $5,065,667 or 658.61%. The significant increase in depreciation and amortization expenses is related to the amortization of intellectual property rights acquired in the Acquisition of Enochian Biopharma.

The Company recorded other expense of $44,205 or the three months ended March 31, 2019, compared to other income of $273,664 for the three months ended March 31, 2018, representing an decrease of $317,869. The significant increase in other expense is mainly attributable to the change in fair value of the contingent consideration liability of $217,000. This contingent consideration is related to the Contingent Shares in connection with the Acquisition of Enochian Biopharma.

Other income (expense) for the nine months ended March 31, 2019, and March 31, 2018, was ($10,307,336) and $871,781, respectively representing an increase of ($11,791,117). This significant increase in other expense is mainly attributable to the change in fair value of the contingent consideration of $10,342,390 related to the Contingent Shares in connection with the Acquisition of Enochian Biopharma.

Net Loss

Net loss for the three months ended March 31, 2019, and March 31, 2018, was ($4,705,846) or ($0.13) per share and ($2,960,165) or ($0.12) per share, respectively, representing an increase in loss of ($1,745,681). The net increase in loss was primarily due to the increase in the depreciation and amortization related to the Acquisitionexercise of Enochian Biopharma, which took place in February 2018, and the development of and studies for our genetically modified cellular and immune-therapy technologies, and the additional shares issued as part of the “earn-out” related to the acquisition.

Net loss for the nine months March 31, 2019, and March 31, 2018, was ($25,000,630) or ($0.67) per share and ($4,262,879) or ($0.25) per share, respectively, representing an increase in loss of ($20,737,751). The net increase in loss was primarily due to the increase in the general and administrative expense and depreciation and amortization related to the Acquisition of Enochian Biopharma, which took place in February 2018, and the development of and studies for our genetically modified cellular and immune-therapy technologies, the change in fair value of contingent consideration liability and the increase in loss on currency transactions.Grant Warrants.

 

Cash FlowsAssets

 

Cash used in operating activities for the nine months ended March 31, 2019, and March 31, 2018 was ($6,281,134) and ($2,726,744), respectively. Cash used in operating activities in 2019 included several significant non-cash items that are added back to the net loss. These consisted of $5,842,448 of amortization related to our license agreement, the increase of prepaid insurance of $207,144 a $10,342,390 non-cash charge related to the fair market valuation of the contingent consideration liability and $1,962,825 non-cash stock-based compensation related the Black-Scholes valuation of our outstanding options. In addition, we received $1,700,000 of proceeds from the excercise of stock options by a related party. The net impact of these more significant items and a few others represents a decrease in cash of $5,328,667.

The decrease in cash of $5,328,667 is primarily attributable to $2,012,778 in research and development costs, lab expenditures of $246,486, purchasing of furniture and lab equipment of $733,176, security expenses of $679,504, and compensation and benefit expenses of $1,273,476.

For the nine months ended March 31, 2018, cash used in operating activities amounted to $2,726,744. primarily due to fund raising efforts of the Company and the operations of DanDrit Denmark, formerly named Dandrit Denmark ApS.


 Assets

Total assets at March 31,on September 30, 2019, were $169,305,692$180.620 million compared to $179,662,426 as of$179.877 million on June 30, 2018.2019. Total current liabilities increased to $1,519,128 at March 31,$8.438 million on September 30, 2019 compared to $873,722 as of$6.777 million on June 30, 2018.2019. The decreaseincrease in total assets and increase in total current liabilities were mainlyis primarily due to the growthadditional right-of-use assets and operating lease liabilities of $1.985 million and $1.994 million, respectively that were recorded during the current period in accordance with the Company as we continue to build the administrative and clinical infrastructure to support the development of and studies for our genetically modified cellular and immune-therapy technologies.new accounting pronouncement ASC 842-Leases.

 

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Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Emerging Growth Company

As an “emerging growth company” under the JOBS Act, the Company has elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result, of this election our financial statements may not be comparable to companies that comply with public company effective dates.

 

Significant Accounting Policies and Critical Accounting Estimates

 

The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result, of the need to make estimates regarding matters that are inherently uncertain. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are not choosing to “opt out” of this provision. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. As a result, of our election not to “opt out” of Section 107, our financial statements may not be comparable to companies that comply with public company effective dates.

 

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

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures for the Company.  The Certifying Officers have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which this Report was prepared.

 

The Certifying Officers are responsible for establishing and maintaining adequate internal control over financial reporting for the Company used the “Internal Control over Financial Reporting Integrated Framework” issued by Committee of Sponsoring Organizations (“COSO”) to conduct an extensive review of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act, Rules 13a-15(e) and 15-d-15(e)) as of the end of each of the periods covered by this Report (the “Evaluation Date”).  Based upon that evaluation, the Certifying Officers concluded that, as of March 31,September 30, 2019, our disclosure controls and procedures were not effective in ensuring that the information we were required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The deficiencies are attributed to the fact that the Company does not have adequate resources to address complex accounting issues, as well as an inadequate number of persons to whom it can segregate accounting tasks within the Company so as to ensure the segregation of duties between those persons who approve and issue payment from those persons who are responsible to record and reconcile such transactions within the Company’s accounting system.  These control deficiencies will be monitored and attention will be given to the matter as we continue to accelerate through our current growth stage.


The Certifying Officers based their conclusion on the fact that the Company has identified material weaknesses in controls over financial reporting, detailed below.  In order to reduce the impact of these weaknesses to an acceptable level, the Company has contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  However, even with the added expertise of these consultants, we still expect to be deficient in our internal controls over disclosure and procedures until sufficient capital is available to hire the appropriate internal accounting staff and individuals with requisite GAAP and SEC financial reporting knowledge.  There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Changes in Internal Controls

 

There have been no changes in our internal controls over financial reporting during the three and nine months ended March 31,September 30, 2019, that have materially affected or are reasonably likely to materially affect our internal controls.

29

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

There are presently no material pending legal proceedings to which the Company or any of its subsidiaries, is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.

 

Item 1A. Risk Factors.

 

As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 


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Item 6. Exhibits.

 

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

 

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

 

 

*Filed herewith. 
**Furnished herewith.

 

34

31

 

 

SIGNATURES

 

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

 

Date: May 16,November 13, 2019ENOCHIAN BIOSCIENCES, INC.
   
 By:/s/ Mark Dybul
  Mark Dybul  
  Executive Vice Chair
  (Principal Executive Officer)
   
 By:/s/ Luisa Puche
  Luisa Puche
  Chief Financial Officer
  (Principal Financial and Accounting Officer)

 


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