See accompanying notes to the unaudited condensed
consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 — THE BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Business– Enochian
BioSciences, Inc. (“Enochian”, or “Registrant”, and together with its subsidiaries 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.
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. At December 31, 2019, 1,438,122 Contingent Shares remained unissued.
Basis 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 December 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. 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 December 31, 2019 and 2018 are not necessarily indicative of the operating results for the full year.
Consolidation–For
the three months and six months ended December 31, 2019 and 2018, the consolidated financial statements include the accounts and
operations of the Registrant, Enochian Denmark, and Enochian Biopharma. All material inter-company transactions and accounts have
been eliminated in the consolidation.
Reclassification–Certain
amounts in the prior period financial statements have been reclassified to conform to the current presentation. For the three months
and six months period December 31, 2018, we reclassified the stock-based compensation expense of $1,780,059 and $1,866,225 and
consulting expense of $32,725 and $94,760, respectively to general and administrative expenses.
Functional Currency
/ Foreign currency translation — The functional currency of Enochian Denmark is the Danish Kroner (“DKK”).
The Company’s reporting currency is the U.S. Dollar for the purpose of these financial statements. The Company’s balance
sheet accounts are translated into U.S. dollars at the period-end exchange rates and all revenue and expenses are translated into
U.S. dollars at the average exchange rates prevailing during periods ended December 31, 2019, June 30, 2019 and December 31, 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, 2019 using the prospective transition method allowed per ASU 2018-11, and applied
the standard only to leases that existed on that date. Under the prospective transition method, the Company does not need
to restate the comparative period in transition and will continue to present financial information and disclosures for periods
before July 1, 2019 in accordance with Accounting Standard Codification (“ASC”) Topic 840. The Company has elected
the package of practical expedients allowed under ASC Topic 842, which permits the Company to account for its existing operating
leases as operating leases under the new guidance, without reassessing the Company’s prior conclusions about lease identification,
lease classification and initial direct cost. As a result, of the adoption of the new lease accounting guidance the Company recognized,
on July 1, 2019, operating lease right–of–use assets and operating lease liabilities of $1,961,544, and $2,054,295,
respectively. On December 31, 2019, the right-of-use assets and the operating lease liabilities included in the unaudited condensed
consolidated balance sheet are $1,833,933 and $1,930,982, 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.
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
—The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash
equivalents. The Company had balances held in financial institutions in Denmark and in the United States in excess of federally
insured States amounts at December 31, 2019 and June 30, 2019 of $8,626,677 and $1,282,224, respectively.
Property and Equipment
— Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs are charged to
expense as incurred. Depreciation is computed for financial statement purposes on a straight-line basis over the estimated useful
lives of the assets which range from four to ten years (See Note 3).
Intangible Assets —Definite
life intangible assets include patents. The Company accounts for definite life intangible assets in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, “Goodwill and Other
Intangible Assets”. Intangible assets are recorded at cost. Patent costs consist of costs incurred to acquire the underlying
patent. If it is determined that a patent will not be issued, the related remaining capitalized patent costs are charged to expense.
Intangible assets are amortized on a straight-line basis over their estimated useful life. The estimated useful life of patents
is twenty years from the date of application.
Indefinite life intangible
assets include license agreements and goodwill. The Company accounts for indefinite life intangible assets in accordance with ASC
350, “Goodwill and Other Intangible Assets”. License agreement cost represents the fair value of the license agreement
on the date acquired and are tested annually for impairment at the end of each fiscal year. The fair value analysis performed on
the license agreements, and the fair value analysis performed on goodwill supported that both indefinite life intangible assets
are not impaired as of June 30, 2019 (See Note 4).
Goodwill —Goodwill
is not amortized but is evaluated for impairment annually in the fiscal fourth quarter or whenever events or changes in circumstances
indicate the carrying value may not be recoverable.
We test for goodwill impairment
at the reporting unit level, which is one level below the operating segment level. Our detailed impairment testing involves comparing
the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant
would be willing to pay in a potential sale of the reporting unit and is based on discounted cash flows or relative market-based
approaches. If the fair value exceeds carrying value, then it is concluded that no goodwill impairment has occurred. If the carrying
value of the reporting unit exceeds its fair value, a second step is required to measure possible goodwill impairment loss. The
second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the
reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit's goodwill is compared
to the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of
the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value.
The carrying value of goodwill
at December 31, 2019, was $11,640,000. We do not believe there is a reasonable likelihood that there will be a material change
in the future estimates or assumptions we use to test for impairment losses on goodwill. However, if actual results are not consistent
with our estimates or assumptions, we may be exposed to an impairment charge that could be material.
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived
Assets — Long-lived assets, such as property, plant, and equipment, patents and licenses are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances
which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; current period cash flow or operating losses combined with a history
of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will
more likely than not be sold or disposed of significantly before the end of its estimated useful life.
Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows,
an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or
fair value less costs to sell and would no longer be depreciated. The depreciable basis of assets that are impaired and continue
in use is their respective fair values.
Leases-
The Company determines the initial classification and measurement of 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 future payments.
Rent
expense for operating leases is recognized on a straight-line basis, unless the operating lease right of use assets have been impaired,
over the reasonably assured lease term based on the total lease payments and is included in operating expense in the unaudited
condensed consolidated statement of operations. For operating leases that reflect impairment, the Company will recognize the amortization
of the operating lease right-of-use assets on a straight-line basis over the remaining lease term with rent expense still included
in general and administrative expenses in the unaudited condensed consolidated statements of operations.
The
Company has elected the practical expedient to not separate lease and non-lease components. The Company’s non-lease components
are primarily related to property maintenance, insurance and taxes, which vary based on future outcomes, and thus are recognized
in general and administrative expenses when incurred. (See Note 5).
Research
and Development Expenses — The Company expenses research and development costs incurred in formulating, improving, validating
and creating alternative or modified processes related to and expanding the use of the HIV 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 December 31, 2019 and 2018, respectively, amounted to $561,468 and $788,968, and for the six months ended
December 31, 2019 and 2018, amounted to $1,081,660 and $1,282,523, respectively.
Income
Taxes — The Company accounts for income taxes in accordance with FASB ASC Topic 740 Accounting for Income Taxes, which
requires an asset and liability approach for accounting for income taxes.
Loss Per Share —
The Company calculates earnings/(loss) per share in accordance with FASB ASC 260 Earnings Per Share. Basic earnings per common
share (EPS) are based on the weighted average number of shares of Common Stock outstanding during each period. Diluted earnings
per common share are based on shares outstanding (computed as 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 six months ended December 31, 2019 and
December 31, 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 3,448,473 potential shares of Common Stock excluded from the Diluted EPS
calculation as of December 31, 2019.
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:
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
●
|
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 December 31, 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
(In thousands)
|
|
|
|
December 31, 2019
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
|
Significant Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration Liability
|
|
$
|
4,317,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,317,000
|
|
The roll forward of the contingent consideration liability is as
follows:
Balance June 30, 2019
|
|
$
|
5,667,000
|
|
Contingent shares issued pursuant to the Acquisition Agreement
|
|
$
|
(2,210,000
|
)
|
Fair value adjustment, net
|
|
$
|
860,000
|
|
Balance December 31, 2019
|
|
$
|
4,317,000
|
|
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 6). The Company accounts for options and warrants in accordance with the provisions of FASB ASC Topic 718, Compensation
- Stock Compensation (“ASC 718-Stock Compensation”.) Non-cash compensation
costs for the vesting of options and warrants granted to officers, board members, employees and consultants for the three months
ended December 31, 2019 and 2018 were $690,061 and $1,780,059, respectively; and for the six months ended December 31, 2019 and
2018 were $924,071 and $1,866,225, respectively. The three and six month ended December 31, 2019, includes the $144,000 expense
related to the 30,000 restricted share units described below.
Stock-Based Compensation
-The Company records stock-based compensation in accordance with ASC 718-Stock
Compensation. All transactions in which goods or services are the consideration received for the issuance of equity instruments are
accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. Equity instruments issued to 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 employees
required service period, which is generally the vesting period. On December 27, 2019, 30,000 restricted share units with immediate
vesting were issued in exchange for consulting services valued at $144,000.
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 — REVISION OF 2018 FINANCIAL STATEMENTS
The
Company discovered that it had incorrectly classified the intangible assets that were purchased as part of the acquisition of Enochian
Biopharma, Inc. as finite-lived (amortizable), rather than indefinite-lived intangible assets (not amortized). ASC 350- Intangibles-
Goodwill and Other requires that all intangible assets acquired in a business combination that are used in research and development
activities (i.e., in-process research and development (IPR&D) assets) be capitalized as indefinite-lived intangible assets,
regardless of whether they have an alternative future use.
The Company has revised
its previously issued consolidated financial statements for the year ended June 30, 2018 to correct the error that occurred during
that fiscal year. Management assessed the materiality of the 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 the effect of the correction in the period in which the related misstatement
originated was not material.
The following table sets
forth the impact on the lines impacted by the correction on the Company’s financial statements for the three months ended
December 31, 2018 in thousands.
|
|
For the Three Months Ended December 31, 2018
|
|
Adjustments
|
|
For the Three Months Ended December 31, 2018
|
|
|
|
(As Reported)
|
|
|
|
|
|
|
|
(As Revised)
|
|
Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization
|
|
$
|
1,896,554
|
|
|
$
|
(1,884,488
|
)
|
|
$
|
12,066
|
|
Total Operating Expense
|
|
$
|
6,265,627
|
|
|
$
|
(1,884,488
|
)
|
|
$
|
4,381,139
|
|
Loss Before Income Taxes
|
|
$
|
(17,991,551
|
)
|
|
$
|
1,884,488
|
|
|
$
|
(16,107,063
|
)
|
Net Income (Loss)
|
|
$
|
(17,991,551
|
)
|
|
$
|
1,884,488
|
|
|
$
|
(16,107,063
|
)
|
Basic & Diluted Loss per Share
|
|
$
|
(0.50
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.45
|
)
|
Consolidated Statement of Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income
|
|
$
|
(17,767,181
|
)
|
|
$
|
1,884,488
|
|
|
$
|
(15,882,693
|
)
|
The following table sets
forth the impact on the lines impacted by the correction on the Company’s financial statements as of and for the six months
ended December 31, 2018 in thousands.
|
|
For the Six Months Ended December 31, 2018
|
|
Adjustments
|
|
For the Six Months Ended December 31, 2018
|
Balance Sheet:
|
|
|
(As Reported)
|
|
|
|
|
|
|
|
(As Revised)
|
|
Definite life intangible assets, net
|
|
$
|
109,149
|
|
|
$
|
—
|
|
|
$
|
109,149
|
|
Indefinite life intangible assets
|
|
$
|
148,146,332
|
|
|
$
|
6,677,668
|
|
|
$
|
154,824,000
|
|
Total Assets
|
|
$
|
173,956,807
|
|
|
$
|
6,677,668
|
|
|
$
|
180,634,475
|
|
Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization
|
|
$
|
3,855,116
|
|
|
$
|
(3,837,640
|
)
|
|
$
|
17,476
|
|
Total Operating Expense
|
|
$
|
10,031,653
|
|
|
$
|
(3,837,640
|
)
|
|
$
|
6,194,013
|
|
Loss Before Income Taxes
|
|
$
|
(20,294,784
|
)
|
|
$
|
3,837,640
|
|
|
$
|
(16,457,144
|
)
|
Net Income (Loss)
|
|
$
|
(20,294,784
|
)
|
|
$
|
3,837,640
|
|
|
$
|
(16,457,144
|
)
|
Basic & Diluted Loss per Share
|
|
$
|
(0.56
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.45
|
)
|
Consolidated Statement of Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income
|
|
$
|
(20,163,952
|
)
|
|
$
|
3,837,640
|
|
|
$
|
(16,324,291
|
)
|
Consolidated Statement of Changes to Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Deficit
|
|
$
|
(57,890,173
|
)
|
|
$
|
6,677,668
|
|
|
$
|
(51,212,505
|
)
|
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 — PROPERTY AND EQUIPMENT
Property and equipment
consisted of the following at December 31, 2019 and June 30, 2019 in thousands:
|
|
|
|
December 31,
|
|
June 30,
|
|
|
Useful Life
|
|
2019
|
|
2019
|
Lab Equipment and Instruments
|
|
4-7
|
|
$
|
524,079
|
|
|
$
|
479,155
|
|
Leasehold Improvements
|
|
10
|
|
|
224,629
|
|
|
|
194,778
|
|
Furniture Fixtures and Equipment
|
|
4-7
|
|
|
130,281
|
|
|
|
72,736
|
|
Total
|
|
|
|
|
878,989
|
|
|
|
746,669
|
|
Less Accumulated Depreciation
|
|
|
|
|
(102,300)
|
|
|
|
(59,152
|
)
|
Net Property and Equipment
|
|
|
|
$
|
776,689
|
|
|
$
|
687,517
|
|
Depreciation expense amounted
to $21,667 and $43,148, for the three and six months ended December 31, 2019, respectively, and $9,601 and $17,476 for the three
months and six months ended December 31, 2018, respectively.
ENOCHIAN BIOSCIENCES,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 4 — DEFINITE-LIFE INTANGIBLE
ASSETS
During February 2018, the
Company acquired a License Agreement (as licensee) to the HIV therapy being developed as ENO-1001 which consists of a perpetual,
fully paid-up, royalty-free, sublicensable, and sole and exclusive worldwide license to research, develop, use, sell, have sold,
make, have made, offer for sale, import and otherwise commercialize certain intellectual property in cellular therapies in the
Field (the “License”).
At December 31, 2019 and
June 30, 2019, definite and indefinite-life intangible assets consisted of the following in thousands:
|
|
Useful
Life
|
|
June
30,
2019
|
|
Period
Change
|
|
Effect
of
Currency
Translation
|
|
December
31,
2019
|
Definite
Life Intangibles
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
20
Years
|
|
$
|
302,371
|
|
$
|
_
|
|
|
$
|
(4,257
|
)
|
|
$
|
298,114
|
|
Less
Accumulated
Amortization
|
|
|
|
$
|
(209,072)
|
|
$
|
(7,578)
|
|
|
$
|
2,943
|
|
|
$
|
(213,707)
|
|
Net
Definite-
Life
Intangible
Assets
|
|
|
|
$
|
93,299
|
|
$
|
(7,578)
|
|
|
$
|
(1,314)
|
|
|
$
|
84,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019 the expected future amortization
expense for the years ended are as follows in thousands:
Year ending June 30,
|
|
|
|
2020
|
|
$
|
7,576
|
|
2021
|
|
$
|
15,154
|
|
2022
|
|
$
|
15,154
|
|
2023
|
|
$
|
15,154
|
|
Thereafter
|
|
$
|
31,369
|
|
|
|
$
|
84,407
|
|
Impairment – Following
the fourth quarter of each year, management performs its annual test of impairment of intangible assets assessing the qualitative
factors 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.
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 5 — LEASES
Operating
Leases — On November 13, 2017, the Company entered into a Lease Agreement for a term of five years and two months from
November 1, 2017 with Plaza Medical Office Building, LLC, pursuant to which the Company agreed to lease
approximately 2,325 rentable square feet. The base rent increases by 3% each year, and ranges from approximately $8,719 per month
for the first year to $10,107 per month for the two months of the sixth year. The Company received $70,800 in tenant improvement
allowance in the form of free rent applied over 10 months in equal installments beginning in January of 2018.
On June 19, 2018, the Company
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 Company entered into an
Addendum to the original Lease Agreement with an effective date of December 1, 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 received $108,168 in contributions
toward tenant improvements.
The Company identified
and assessed the following significant assumptions in recognizing the right-of-use asset and corresponding liabilities:
Expected lease term — The
expected lease term includes both contractual lease periods and, when applicable, cancelable option periods when it is reasonably
certain that the Company would exercise such options. The Company’s leases have remaining lease terms between 36 months and
8 years. As of December 31, 2019, the weighted-average remaining term is 6.88 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 December
31, 2019, the weighted-average discount rate is 3.99%.
Lease and non-lease components
— In certain cases the Company is required to pay for certain additional charges for operating costs, including insurance,
maintenance, taxes, and other costs incurred, which are billed based on both usage and as a percentage of the Company’s share
of total square footage. The Company determined that these costs are non-lease components and they are not included in the calculation
of the lease liabilities because they are variable. Payments for these variable, non-lease components are considered variable lease
costs and are recognized in the period in which the costs are incurred.
The components of the Company’s rent
expense were $89,675 and $182,054 for the three and six months ended December 31, 2019, respectively. The cash outflows for the
operating lease liabilities were $82,389 and $163,173 for the three and six months ended December 31, 2019, respectively.
Year Ending June 30 (in thousands)
|
|
|
|
2020
|
|
|
$
|
165,317
|
|
|
2021
|
|
|
$
|
338,345
|
|
|
2022
|
|
|
$
|
348,495
|
|
|
2023
|
|
|
$
|
298,305
|
|
|
2024
|
|
|
$
|
246,004
|
|
|
Thereafter
|
|
|
$
|
828,205
|
|
|
Less imputed interest
|
|
|
$
|
(293,689
|
)
|
|
Total
|
|
|
$
|
1,930,982
|
|
|
|
|
|
|
|
|
Prior to the adoption
of ASC 842-Leases and for the three and six months ended December 31, 2019, respectively, the Company recognized rent expense on
a straight-line basis over the lease period and recorded deferred rent expense for rent expense incurred but not yet paid. The
Company also recorded deferred rent attributable to cash incentives received under its lease agreements, which were amortized to
rent expense over the lease term. During the three and six months ended December 31, 2018, the Company recognized total rent expense
of $169,962 and $174,353, respectively.
Disclosures related to
periods prior to the adoption of the new lease standard:
Under ASC 840, approximate
future minimum rental payments due under these leases as of December 31, 2019 would have been as follows:
Year Ending June 30 (in thousands)
|
|
|
|
2020
|
|
|
$
|
165,317
|
|
2021
|
|
|
$
|
338,345
|
|
2022
|
|
|
$
|
348,395
|
|
2023
|
|
|
$
|
298,305
|
|
2024
|
|
|
$
|
246,004
|
|
Thereafter
|
|
|
$
|
1,106,435
|
|
Total
|
|
|
$
|
2,502,801
|
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — STOCKHOLDERS’
EQUITY
Preferred Stock — The Registrant
has 10,000,000 authorized shares of Preferred Stock, par value $0.0001 per share. As of December 31, 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 per share. As of December 31, 2019, and June
30, 2019, there were 46,303,924 and 45,273,924 shares issued and outstanding, respectively.
Voting — Holders
of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including
the election of directors, and do not have any right to cumulate votes in the election of directors.
Dividends — Holders
of Common Stock are entitled to receive ratably such dividends as the Board from time to time may declare out of funds legally
available.
Liquidation Rights —
In the event of any liquidation, dissolution or winding-up of affairs of the Company, after payment of all of our debts and liabilities,
the holders of Common Stock will be entitled to share ratably in the distribution of any of our remaining assets.
Common Stock Issuances — On
December 27, 2019, there were 30,000 restricted share units issued that immediately vested and were converted into shares in exchange
for consulting services valued at $144,000.
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 December 31, 2019, 1,438,122 Contingent Shares are potentially issuable in connection
with the Acquisition of Enochian Biopharma.
Acquisition of
Enochian Denmark — On December 31, 2019 and June 30, 2019, the Registrant maintained a reserve of 82,237 and
92,237 shares, respectively (the “Escrow Shares”), all of which are reflected as issued and outstanding in the
accompanying financial statements. The Escrow Shares are reserved to acquire the shares of Enochian Denmark held by
non-consenting shareholders of Enochian Denmark on both December 31, 2019 and June 30, 2019, in accordance with Section 70 of
the Danish Companies Act and the Articles of Association of DanDrit Denmark. There have been 102,816 shares of Common Stock
issued to non-consenting shareholders of Enochian Denmark as of December 31, 2019. There were 10,000 shares of Common Stock
to such non-consenting shareholders of Enochian Denmark were issued during the three and six months ended December 31, 2019.
There is no impact on outstanding shares as these shares are reflected as issued and outstanding.
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. 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 December 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:
|
|
Enochian Biosciences Inc.
|
|
Expected term (in years)
|
|
|
3-10
|
|
Volatility
|
|
|
85.13-98.15
|
%
|
Risk free interest rate
|
|
|
1.88-3.23
|
%
|
Dividend yield
|
|
|
0
|
%
|
The Company recognized
stock-based compensation expense (excluding other non-cash compensation expense) related to the options of $690,061 and $1,780,059
for the three months ended December 31, 2019 and 2018, respectively, and $924,071 and $1,866,225 for the six months ended December
31, 2019 and 2018, respectively. At December 31, 2019, the Company had approximately $368,231 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 602,230 options
under the Plan (“Plan Options”) to purchase shares of Common Stock.
On October 30, 2019, the
Board approved and on October 31, 2019, the Company’s shareholders adopted the Registrant’s 2019 Equity Incentive Plan
(the “2019 Plan”), which replaced the 2014 Plan. The 2019 Plan authorized options to be awarded to not exceed the sum
of (1) 6,000,000 new shares, and (2) the number of shares available for the grant of awards as of the effective date under the
2014 Plan that, after the effective date of the 2019 Plan, expires, or is terminated, surrendered, or forfeited for any reason
without issuance of shares. The remaining shares available for grant related to the 2014 Plan was of 655,769 as of the effective
date, this amount along with the new 6,000,000 shares totals 6,655,769 shares available to grant immediately after the effective
date of the 2019 Plan.
Pursuant to the 2019 Plan,
on December 27, 2019, the Company granted options of 21,999 to employees with a three-year vesting period. Options will be exercisable
at the market price of the Company’s common stock on the date of the grant.
A summary of the status
of the Plan Options and Grant Warrants outstanding at December 31, 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
|
|
|
|
8.59
|
|
|
$
|
3.95
|
|
|
|
5,063
|
|
|
|
8.59
|
|
|
$
|
3.95
|
|
|
|
$
|
4.63
|
|
|
|
20,000
|
|
|
|
9.65
|
|
|
$
|
4.63
|
|
|
|
20,000
|
|
|
|
9.65
|
|
|
$
|
4.63
|
|
|
|
$
|
4.80
|
|
|
|
21,999
|
|
|
|
10.00
|
|
|
$
|
4.80
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
4.85
|
|
|
|
4,124
|
|
|
|
9.65
|
|
|
$
|
4.85
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
$
|
4.90
|
|
|
|
3,346
|
|
|
|
9.65
|
|
|
$
|
4.90
|
|
|
|
3,346
|
|
|
|
9.65
|
|
|
$
|
4.90
|
|
|
|
$
|
5.00
|
|
|
|
6,000
|
|
|
|
9.65
|
|
|
$
|
5.00
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
$
|
5.72
|
|
|
|
13,112
|
|
|
|
8.84
|
|
|
$
|
5.72
|
|
|
|
4,371
|
|
|
|
8.84
|
|
|
$
|
5.72
|
|
|
|
$
|
5.74
|
|
|
|
15,679
|
|
|
|
8.72
|
|
|
$
|
5.74
|
|
|
|
15,679
|
|
|
|
8.72
|
|
|
$
|
5.74
|
|
|
|
$
|
5.80
|
|
|
|
7,759
|
|
|
|
8.78
|
|
|
$
|
5.80
|
|
|
|
7,759
|
|
|
|
8.78
|
|
|
$
|
5.80
|
|
|
|
$
|
6.15
|
|
|
|
60,000
|
|
|
|
9.44
|
|
|
$
|
6.15
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
$
|
6.25
|
|
|
|
18,346
|
|
|
|
9.19
|
|
|
$
|
6.25
|
|
|
|
18,346
|
|
|
|
9.19
|
|
|
$
|
6.25
|
|
|
|
$
|
6.50
|
|
|
|
300,000
|
|
|
|
8.90
|
|
|
$
|
6.50
|
|
|
|
300,000
|
|
|
|
8.90
|
|
|
$
|
6.50
|
|
|
|
$
|
6.95
|
|
|
|
4,317
|
|
|
|
9.28
|
|
|
$
|
6.95
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
$
|
7.10
|
|
|
|
8,248
|
|
|
|
9.17
|
|
|
$
|
7.10
|
|
|
|
8,248
|
|
|
|
9.17
|
|
|
$
|
7.10
|
|
|
|
$
|
8.00
|
|
|
|
69,235
|
|
|
|
8.32
|
|
|
$
|
8.00
|
|
|
|
42,155
|
|
|
|
8.41
|
|
|
$
|
8.00
|
|
Total
|
|
$
|
—
|
|
|
|
557,229
|
|
|
|
8.98
|
|
|
$
|
6.47
|
|
|
|
424,967
|
|
|
|
8.90
|
|
|
$
|
6.47
|
|
A summary of the status
of the Plan Options and the Grant Warrants at December 31, 2019 and changes during the period are presented below:
|
|
|
|
Weighted Average
|
|
Average
|
|
Weighted Average
|
|
|
Shares
|
|
Exercise Price
|
|
Remaining Life
|
|
Intrinsic Value
|
Outstanding at beginning of period
|
|
|
1,001,760
|
|
|
$
|
4.30
|
|
|
|
4.96
|
|
|
$
|
1,252,785
|
|
Granted
|
|
|
55,469
|
|
|
$
|
4.77
|
|
|
|
9.90
|
|
|
|
—
|
|
Exercised
|
|
|
(500,000
|
)
|
|
$
|
2.00
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at end of period
|
|
|
557,229
|
|
|
$
|
6.41
|
|
|
|
8.98
|
|
|
$
|
19,280
|
|
Vested and expected to vest
|
|
|
424,967
|
|
|
$
|
6.47
|
|
|
|
8.90
|
|
|
$
|
13,619
|
|
Exercisable end of period
|
|
|
424,967
|
|
|
$
|
6.47
|
|
|
|
8.90
|
|
|
$
|
13,619
|
|
On December 31, 2019,
424,967 Plan Options are exercisable. The total intrinsic value of options on December 31, 2019 was $13,619. Intrinsic value
is measured using the fair market value at the date of exercise (for shares exercised) on December 31, 2019 (for outstanding options),
less the applicable exercise price.
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — STOCKHOLDERS’ EQUITY
(Continued)
Common Stock Purchase Warrants
A summary of the status
of shares of Common Stock, which can be purchased and underlies the warrants outstanding for the six-month period as of December
31, 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
|
|
2.49
|
Exercisable end of period
|
|
|
|
|
1,438,122
|
|
$ 1.42
|
|
2.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
2.52
|
|
$ 1.30
|
|
1,413,122
|
|
$ 1.30
|
|
$ 8.00
|
|
25,000
|
|
1.12
|
|
$ 8.00
|
|
25,000
|
|
$ 8.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
1,438,122
|
|
2.49
|
|
$ 1.42
|
|
1,438,122
|
|
$ 1.42
|
The exercise price of certain
warrants and the number of shares underlying the warrants are subject to adjustment for stock dividends, subdivisions of the outstanding
shares of Common Stock and combinations of the outstanding shares of Common Stock. For so long as the warrants remain outstanding,
we are required to keep reserved from our authorized and unissued shares of Common Stock a sufficient number of shares to provide
for the issuance of the shares underlying the warrants.
Restricted Stock Units (RSUs)
On December 27, 2019, the Company granted 30,000 restricted stock
units vesting immediately for consulting services valued at $144,000.
A summary of the status of Restricted Stock Units outstanding at December 31, 2019 is presented below:
|
|
|
|
Weighted Average
|
|
Weighted Average
|
|
Weighted Average
|
|
|
Shares
|
|
Issuance
Price
|
|
Remaining Life
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
|
15,000
|
|
|
$
|
6.15
|
|
|
|
2.68
|
|
|
$
|
—
|
|
Granted
|
|
|
30,000
|
|
|
$
|
4.80
|
|
|
|
0.01
|
|
|
$
|
—
|
|
Exercised
|
|
|
(30,000
|
)
|
|
$
|
4.80
|
|
|
|
—
|
|
|
$
|
|
|
Cancelled/Expired
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding at end of period
|
|
|
15,000
|
|
|
$
|
6.15
|
|
|
|
1.02
|
|
|
$
|
—
|
|
Exercisable end of period
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Restricted Stock Units Outstanding
|
|
Grant Price
|
|
|
|
Stock Units
|
|
|
|
Weight Average Remaining Contractual Life (years)
|
|
|
|
Weight Average Issuance
Price
|
|
6.15
|
|
|
|
15,000
|
|
|
|
1.02
|
|
|
$
|
6.15
|
|
Total
|
|
|
|
15,000
|
|
|
|
1.02
|
|
|
$
|
6.15
|
|
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, including but not limited to cancers and infectious diseases, (the “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. Certain members of Weird Science control G-Tech. For the three and six months ended December 31, 2019, $375,000 and
$750,000, respectively, was charged to research and development expenses in our Condensed Consolidated Statements of Operations
related to this consulting agreement.
Shares held for non-consenting
shareholders –The 82,237 remaining shares have been reflected as issued and outstanding in the accompanying
financial statements. There were 10,000 shares of Common Stock issued to such non-consent shareholders during the three- and six-months
period ended December 31, 2019 (See Note 6).
Employment and Service
Agreements – The Company has a director’s agreement with the Executive Vice-Chair where he fulfills the
duties as prescribed by the Company’s bylaws and receives annual compensation in the amount of $430,000, plus 300,000 options
that vested immediately. The Company has an employment agreement with the Chief Financial Officer with a base annual compensation
of $200,000 plus 60,000 options and 15,000 shares of restricted stock. The Company maintains employment agreements with other staff
in the ordinary course of business.
Contingencies -
The Company is from time to time involved in routine legal and administrative proceedings and claims of various types. While any
proceedings or claim contains an element of uncertainty, management does not expect a material impact on our results of operations
or financial position.
NOTE 8 — RELATED PARTY TRANSACTIONS
Consulting Agreement -
On July 9, 2018, the Company entered into the 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. Certain members of Weird Science control G-Tech. For the three and six months
ended December 31, 2019, $375,000 and $750,000, respectively, was charged to research and development expenses in our Condensed
Consolidated Statements of Operations.
NOTE 9 — SUBSEQUENT EVENTS
On January 31, 2020,
the Company entered into a Statement of Work & License Agreement (the “License Agreement”), by and among
the Company, G Tech Bio, LLC, a California limited liability company (“G Tech”) and G Health Research Foundation,
a not for profit entity organized under the laws of California doing business as Seraph Research Institute (“SRI”),
whereby the Company acquired an perpetual, sublicensable, exclusive license (the “License”) for a treatment
under development (the “Treatment”) aimed to treat the Hepatitis B Virus (HBV) infections in accordance with
its agreement in principle with G Tech and SRI announced by the Company on November 25, 2020.
The License Agreement
states that in consideration for the License, the Company shall provide cash funding for research costs and equipment and certain
other in-kind funding related to the Treatment over a 24 month period, and provides for an up front payment of $1.2 million within
7 days of January 31, 2020, along with additional payments upon the occurrence of certain benchmarks in the development of the
technology set forth in the License Agreement, in each case subject to the terms of the License Agreement. Additionally, the License
Agreement provides for cooperation related to the development of intellectual property related to the Treatment and for a 2% royalty
to G Tech on any net sales that may occur under the License. The up front payment of $1.2 million was paid on February 7, 2020.
The License Agreement
contains customary representations, warranties and covenants of the parties with respect to the development of the Treatment and
the License. G Tech and SRI are each controlled by certain members of Weird Science, LLC, a shareholder of the Company, and G Tech
and the Company are party to a consulting agreement, dated July 9, 2018, under which G Tech provides services to the Company unrelated
to the License.
In accordance with ASC
855-10, Company management reviewed all material events through the date of this report.