Lunai Bioworks Inc 10-Q for FY2020 Q2
Lunai Bioworks Inc. (LNAI)
About this 10-Q
Lunai Bioworks Inc filed this 10-Q on February 10, 2020, covering the quarter ended December 31, 2019 (FY2020 Q2).
Headline figures
Quarter ended December 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $1.72M
- compared with a net loss of $16.11M a year earlier
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 December 31, 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 000-54478
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)
Securities registered pursuant to Section 12(b) of the Act:
| 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 |
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 filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller 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 ☒
As of February 10, 2020, the number of shares of the registrant’s common stock outstanding was 46,308,924.
| 1 |
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
- INDEX -
| 2 |
PART I – FINANCIAL INFORMATION
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 December 31, 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, 2019, filed with the Securities and Exchange Commission on September 30, 2019.
| 3 |
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, | June 30, | |||||||
| 2019 | 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 8,626,677 | $ | 12,282,224 | ||||
| Other receivables | 2,998 | 20,794 | ||||||
| Prepaid expenses | 433,630 | 191,969 | ||||||
| Total Current Assets | 9,063,305 | 12,494,987 | ||||||
| Property and Equipment, Net | 776,689 | 687,517 | ||||||
| OTHER ASSETS | ||||||||
| Definite life intangible assets, Net | 84,408 | 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 | 1,833,933 | — | ||||||
| Total Other Assets | 168,519,891 | 166,694,849 | ||||||
| TOTAL ASSETS | $ | 178,359,885 | $ | 179,877,353 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable – trade | $ | 627,980 | $ | 538,563 | ||||
| Accounts payable – non-trade | — | 235,000 | ||||||
| Accrued expenses | 200,988 | 336,853 | ||||||
| Lease liabilities, current | 261,127 | — | ||||||
| Total Current Liabilities | 1,090,095 | 1,110,416 | ||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Contingent consideration liability | 4,317,000 | 5,667,000 | ||||||
| Lease liabilities, non-current | 1,669,855 | — | ||||||
| Total Liabilities | $ | 7,076,950 | $ | 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, 46,303,924 shares issued and outstanding at December 31, 2019; 45,273,924 issued and outstanding at June 30, 2019 | $ | 4,630 | $ | 4,527 | ||||
| Additional paid-in capital | 229,899,400 | 225,765,432 | ||||||
| Accumulated deficit | (58,575,548 | ) | (52,771,840 | ) | ||||
| Accumulated other comprehensive (loss) income | (45,547 | ) | 101,818 | |||||
| Total Stockholders’ Equity | 171,282,935 | 173,099,937 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 178,359,885 | $ | 179,877,353 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended |
For the Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| (As Revised) | (As Revised) | |||||||||||||||
| Revenues | $ | — | $ | — | $ | — | $ | — | ||||||||
| Cost of Goods Sold | — | — | — | — | ||||||||||||
| Gross profit (Loss) | — | — | — | — | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | 2,235,348 | 3,580,105 | 4,136,160 | 4,894,014 | ||||||||||||
| Research and development | 561,468 | 788,968 | 1,081,660 | 1,282,523 | ||||||||||||
| Depreciation and amortization | 21,667 | 12,066 | 43,148 | 17,476 | ||||||||||||
| Total Operating Expense | 2,818,483 | 4,381,139 | 5,260,968 | 6,194,013 | ||||||||||||
| LOSS FROM OPERATIONS | (2,818,483) | (4,381,139 | ) | (5,260,968) | (6,194,013 | ) | ||||||||||
| Other Income (Expense) | ||||||||||||||||
| Change in fair value of contingent consideration | 1,082,000 | (11,593,390 | ) | (860,000) | (10,125,390 | ) | ||||||||||
| Interest expense | — | (43) | — | (87 | ) | |||||||||||
| (Loss) gain on currency transactions | (137,448 | ) | (169,483 | ) | 149,307 | (201,461 | ) | |||||||||
| Gain on settlement | 135,000 | — | 135,000 | — | ||||||||||||
| Interest and other income | 18,400 | 36,992 | 32,953 | 63,807 | ||||||||||||
| Total Other Income (Expense) | 1,097,952 | (11,725,924 | ) | (542,740) | (10,263,131 | ) | ||||||||||
| Loss Before Income Taxes | (1,720,531 | ) | (16,107,063 | ) | (5,803,708) | (16,457,144 | ) | |||||||||
| Income Tax Benefit | — | — | — | — | ||||||||||||
| NET LOSS | $ | (1,720,531) | $ | (16,107,063 | ) | $ | (5,803,708) | $ | (16,457,144 | ) | ||||||
| BASIC AND DILUTED LOSS PER SHARE | $ | (0.04) | $ | (0.45 | ) | $ | (0.13) | $ | (0.45 | ) | ||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED | 46,275,228 | 36,172,403 | 46,258,272 | 36,229,259 | ||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements
| 5 |
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS
(UNAUDITED)
| For the Three Months | For the Six Months | |||||||||||||||
| Ended December 31, | Ended December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| (As Revised) | (As Revised) | |||||||||||||||
| Net Loss | $ | (1,720,531 | ) | $ | (16,107,063 | ) | $ | (5,803,708 | ) | $ | (16,457,144 | ) | ||||
| Foreign Currency Translation, Adjustments | 131,291 | 224,370 | (147,365 | ) | 132,853 | |||||||||||
| Other Comprehensive Loss | $ | (1,589,240 | ) | $ | (15,882,693 | ) | $ | (5,951,073 | ) | $ | (16,324,291 | ) | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | 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 | ) | — | (4,083,177 | ) | |||||||||||||
| Currency translations | — | — | — | (278,656 | ) | (278,656 | ) | |||||||||||||
| September 30, 2019 | $ | 4,627 | $ | 229,209,342 | $ | (56,855,017 | ) | $ | (176,838 | ) | $ | 172,182,114 | ||||||||
| Stock-based compensation | — | 546,061 | — | — | 546,061 | |||||||||||||||
| Shares issued for consulting services | 3 | 143,997 | — | — | 144,000 | |||||||||||||||
| Net loss | — | — | (1,720,531) | — | (1,720,531 | ) | ||||||||||||||
| Foreign currency translation | — | — | — | 131,291 | 131,291 | |||||||||||||||
| December 31, 2019 | $ | 4,630 | $ | 229,899,400 | $ | (58,575,548) | $ | (45,547) | $ | 171,281,935 | ||||||||||
| 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 | — | — | — | (91,517 | ) | (91,517 | ) | |||||||||||||
| September 30, 2018 (As Revised) | $ | 3,617 | $ | 193,369,963 | $ | (35,105,441 | ) | $ | 114,163 | $ | 158,383,302 | |||||||||
| Stock issued pursuant to warrants exercised | 131 | 1,699,870 | — | — | 1,700,001 | |||||||||||||||
| Contingent Shares issued pursuant to Acquisition Agreement | 131 | 9,415,259 | — | — | 9,415,390 | |||||||||||||||
| Stock-based compensation | — | 1,780,060 | — | — | 1,780,060 | |||||||||||||||
| Net loss | — | — | (16,107,063) | — | (16,107,063 | ) | ||||||||||||||
| Currency translations | — | — | — | 224,370 | 224,370 | |||||||||||||||
| December 31, 2018 (As Revised) | $ | 3,879 | $ | 206,265,152 | $ | (51,212,504 | ) | $ | 338,533 | $ | 155,395,060 | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 7 |
ENOCHIAN BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| (As Revised) | ||||||||
| NET LOSS | $ | (5,803,708 | ) | $ | (16,457,144 | ) | ||
| ADJUSTMENT TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES: | ||||||||
| Depreciation and Amortization | 50,726 | 17,476 | ||||||
| Change in Contingent Consideration Liability | 860,000 | 10,125,390 | ||||||
| Stock Based Compensation Expense | 924,071 | 1,866,225 | ||||||
| Right of Use Asset | 127,611 | — | ||||||
| Gain on Settlement for non-trade payable | (135,000 | ) | — | |||||
| CHANGES IN ASSETS AND LIABILITIES: | ||||||||
| Other Receivables | 17,796 | 119,772 | ||||||
| Prepaid Expenses/Deposits | (241,661 | ) | 12,671 | |||||
| Accounts Payable | 90,731 | (52,882 | ) | |||||
| Accounts Payable-Non-Trade | (100,000 | ) | — | |||||
| Accrued Expenses | (43,114 | ) | 817,578 | |||||
| Operating Lease Liabilities | (123,313 | ) | — | |||||
| (4,375,861 | ) | (3,550,914 | ) | |||||
| NET CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (132,321 | ) | (640,544 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | (132,321 | ) | (640,544 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from exercise of warrants | 1,000,000 | 1,700,000 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 1,000,000 | 1,700,000 | ||||||
| (Loss) Gain on Currency Translation | (147,365 | ) | 130,833 | |||||
| NET CHANGE IN CASH | (3,655,547 | ) | (2,360,625 | ) | ||||
| CASH, BEGINNING OF PERIOD | 12,282,224 | 15,600,865 | ||||||
| CASH, END OF PERIOD | $ | 8,626,677 | $ | 13,240,240 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Non-cash investing and financing Activities: | ||||||||
| Contingent Shares issued in connection with Acquisition Agreement | $ | 2,210,000 | $ | 9,415,388 | ||||
| Right of uses obtained in exchange for operating lease liabilities upon adoption of ASC 842 - Leases | $ | 2,054,295 | $ | — | ||||
| Disposition of fully depreciated assets | — | $ | 231,174 | |||||
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
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.
| 9 |
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.
| 10 |
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:
| 11 |
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.
| 12 |
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 | ) | ||||
| 13 |
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.
| 14 |
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.
| 15 |
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 | |||
| 16 |
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.
| 17 |
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.
| 18 |
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 | |||||||||
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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.
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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 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. We 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 interventions, immunotherapy is 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, or T-cells. Left untreated, HIV reduces the number of T-cells in the body, leading to AIDs, a condition where the body cannot fight off common infections and disease.
Currently there are over 30 antiretroviral drugs, or ART, approved by the 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 to ART or lack of access. Today there are no treatments which can eliminate the reservoir of cells that contain HIV from the body. In other words, treatment is life-long.
There have been several efforts to cure HIV by re-engineering a person’s own T-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 enter T-cells. A mutation that blocks expression of CCR5 on T-cells occurs in a small percentage of people with no known adverse effects. The “Berlin patient” is an HIV-positive person who developed cancer and was treated with a bone marrow transplant with cells derived from a person with a naturally occurring deletion of CCR5. The Berlin patient seems to be effectively cured from HIV. Therefore, several researchers and companies have attempted to replicate the experience of the Berlin patient by genetically modifying the T-cells of HIV-positive patients and reinfusing them with T-cells that do not express CCR5. However, the uptake, or engraftment of the modified, reinfused cells 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-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. Results from an array of in vitro studies and an in vivo mouse model have exceeded expectations. Based on the strength of those data, a request has been made to the US FDA for an INTERACT meeting to discuss pathways to pre-IND and IND. Additional in vitro and in vivo studies potentially to support a pre-IND and IND submission are in process.
We also plan to develop ENOB-HV-11 and ENOB-HV-12 that will utilize a novel cellular- and immunotherapy approach to potentially provide for a preventative vaccine and a therapeutic vaccine, respectively. A non-human primate study is in process, beginning with ENOB-12. Vectors and being prepared and the animals are being identified.
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Cancer
We have designed an innovative therapeutic vaccination platform that could potentially be used to induce life-long remissions from some of the deadliest solid tumors. 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 impact against a broad array of solid tumors. As with HIV, our approach would potentially allow for outpatient therapy without ablating or significantly impairing the patient’s immune system, as many current approaches require.
Corporate History
Enochian was originally incorporated in Delaware on January 18, 2011 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 the Share Exchange Agreement, the Registrant acquired 100% (including the Escrow Shares) of the issued and outstanding capital stock of Enochian Denmark (formerly DanDrit BioTech Aps) and as a result became Enochian 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 Enochian 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 Enochian 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.
On January 12, 2018, the Registrant, Acquisition Sub, 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, with Enochian Biopharma as the surviving corporation. As consideration for the Acquisition, the stockholders of Enochian Biopharma received (i) 50% of the number of 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 Stock pro rata upon the exercise or conversion of any of the Registrant’s stock options and warrants which were outstanding at closing.
On March 2, 2018, the Registrant changed its name from DanDrit BioTech USA, Inc. to Enochian BioSciences, Inc.
Emerging Growth Company
As a company 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, 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, 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.
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Results of Operations for the three months and six months ended December 31, 2019 compared to the three months and six months ended December 31, 2018
The following table sets forth our revenues, expenses and net loss for the three and six months ended December 31, 2019 and December 31, 2018. The financial information below is derived from our unaudited condensed consolidated financial statements.
| For the Three Months Ended |
For the Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| (As Revised) | (As Revised) | |||||||||||||||
| Revenues | $ | — | $ | — | $ | — | $ | — | ||||||||
| Cost of Goods Sold | — | — | — | — | ||||||||||||
| Gross profit (Loss) | — | — | — | — | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative expenses | 2,235,348 | 3,580,105 | 4,136,160 | 4,894,014 | ||||||||||||
| Research and development expenses | 561,468 | 788,968 | 1,081,660 | 1,282,523 | ||||||||||||
| Depreciation and amortization | 21,667 | 12,066 | 43,148 | 17,476 | ||||||||||||
| Total Operating Expense | 2,818,483 | 4,381,139 | 5,260,968 | 6,194,013 | ||||||||||||
| LOSS FROM OPERATIONS | (2,818,483) | (4,381,139 | ) | (5,260,968) | (6,194,013 | ) | ||||||||||
| Other Income (Expense) | ||||||||||||||||
| Change in fair value of contingent consideration | 1,082,000 | (11,593,390 | ) | (860,000) | (10,125,390 | ) | ||||||||||
| Interest expense | — | (43) | — | (87 | ) | |||||||||||
| (Loss) gain on currency transactions | (137,448 | ) | (169,483 | ) | 149,307 | (201,461 | ) | |||||||||
| Gain on settlement | 135,000 | — | 135,000 | — | ||||||||||||
| Interest and other income | 18,400 | 36,992 | 32,953 | 63,807 | ||||||||||||
| Total Other Income (Expense) | 1,097,952 | (11,725,924 | ) | (542,740) | (10,263,131 | ) | ||||||||||
| Loss Before Income Taxes | (1,720,531 | ) | (16,107,063 | ) | (5,803,708) | (16,457,144 | ) | |||||||||
| Income Tax Benefit | — | — | — | — | ||||||||||||
| NET LOSS | $ | (1,720,531) | $ | (16,107,063 | ) | $ | (5,803,708) | $ | (16,457,144 | ) | ||||||
| BASIC AND DILUTED LOSS PER SHARE | $ | (0.04) | $ | (0.45 | ) | $ | (0.13) | $ | (0.45 | ) | ||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED | 46,275,228 | 36,172,403 | 46,258,272 | 36,229,259 | ||||||||||||
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Revenues
Revenues from operations for the three and six months ended December 31, 2019, and December 31, 2018 were $0 and $0, respectively.
Cost of Goods Sold
Our cost of goods sold was $0 and $0 during the three and six months ended December 31, 2019, and December 31, 2018, respectively.
Gross profit (Loss)
Gross profit for the three and six months ended December 31, 2019, and December 31, 2018 was $0 and $0, respectively.
Expenses
Our operating expenses for the three months ended December 31, 2019, and December 31, 2018 were $2,818,483 and $4,381,139, respectively, representing a decrease of $1,562,656, or approximately 35.7%. The largest contributors to the decrease in operating expenses were the decrease in stock-based compensation of $1,002,598, the decrease in R&D expenses of $227,500, and the decrease in severance costs of $317,000. The reduction in stock based compensation was due to decreased options granted during the current year when compared to prior year. The reduction in R&D results from large expenditures for the laboratory build out during the prior year. The decrease in severance costs results from not having any of these costs during the current period.
Our operating expenses for the six months ended December 31, 2019, and December 31, 2018 were $5,260,968 and $6,194,013, respectively, representing a decrease of $933,045, or approximately 15.1%. The largest contributors to the decrease in operating expenses were the decrease in stock-based compensation of $942,155, the decrease in R&D expenses of $200,863, and the decrease in severance costs of $317,000. The reduction in stock based compensation was due to decreased options granted during the current year when compared to prior year. The reduction in R&D is a result of the slowdown of infrastructure expenses during the current year as the laboratory was built out offset by the continued expenditures related to the development of studies for our genetically modified cellular and immune-therapy technologies. The decrease in severance costs results from not having any of these types costs during the current period.
General and administrative expenses for the three months ended December 31, 2019 and 2018 are $2,235,348 and $3,580,105, respectively, representing a decrease of $1,344,757 or 37.6%. The largest contributors to the decrease in general and administrative expenses were the decrease in stock based compensation of $1,089,999 and the decrease in severance costs of $317,000. The reduction in stock based compensation was due to decreased options granted during the current year when compared to prior year and the decrease in severance costs results from not having any of these types of costs during the current period.
General and administrative expenses for the six months ended December 31, 2019, and December 31, 2018 were $4,136,160 and $4,894,014, respectively, representing a decrease of $757,854 or approximately 15.5%. The largest contributors to the decrease in general and administrative expenses were the decrease in stock based compensation of $942,155 and the decrease in severance costs of $317,000. The reduction in stock based compensation was due to decreased options granted during the current year when compared to prior year and the decrease in severance costs results from not having any of these costs during the current year.
Research and development expenses for the three months ended December 31, 2019 and December 31, 2018 were $561,468 and $788,968, respectively, representing a decrease of $227,500 or approximately 28.8%. The reduction in R&D is a result of the slowdown of infrastructure expenses during the current year as the laboratory has been primarily built out, offset by the continued expenditures related to the development of studies for our genetically modified cellular and immune-therapy technologies.
Research and development expenses for the six months December 31, 2019, and December 31, 2018 were $1,081,660 and $1,282,523, respectively, representing an increase of $200,863 or approximately 15.7%. The reduction in R&D is a result of the slowdown of infrastructure expenses during the current year as the laboratory has been primarily built out, offset by the continued expenditures related to the development of studies for our genetically modified cellular and immune-therapy technologies.
Depreciation and amortization for the three months ended December 31, 2019, and December 31, 2018, were $21,667 and $12,066, respectively, representing an increase of $9,601 or 79.6%. The increase in depreciation and amortization expenses primarily related to the additional fixed assets purchased during the past year.
Depreciation and amortization expenses for the six months ended December 31, 2019, and December 31, 2018, were $43,148 and $17,476, respectively, representing an increase of $25,672 or 146.9%. The increase in depreciation and amortization expenses primarily related to the additional fixed assets purchased during the past year.
Other income (expense) for the three months ended December 31, 2019, and December 31, 2018, was $1,097,952 and ($11,725,924) respectively, representing an increase of $12,823,876. The significant increase in other income is mainly attributable to the change in fair value of the contingent consideration liability of $12,675,390. This contingent consideration is related to the Contingent Shares in connection with the Acquisition of Enochian Biopharma, which is impacted by warrants exercised and the mark to market quarterly valuation that is performed (see Note 1 to the unaudited condensed consolidated financial statements).
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Other income (expense) for the six months ended December 31, 2019, and December 31, 2018, was ($542,740) and ($10,263,131), respectively representing an increase of $9,720,391 or 94.7%. This significant increase in other income is mainly attributable to the change in fair value of the contingent consideration of $9,265,390. This contingent consideration is related to the Contingent Shares in connection with the Acquisition of Enochian Biopharma, which is impacted by warrants exercised and the mark to market quarterly valuation that is performed (see Note 1 to the unaudited condensed consolidated financial statements).
Net Loss
Net loss for the three months ended December 31, 2019, and December 31, 2018, was ($1,720,531) or ($0.04) per share and ($16,107,063) or ($0.45) per share, respectively, representing a decrease in loss of $14,386,532. The net decrease in loss was primarily due to the decrease in the general and administrative expense of $1,344,757, and the increase in other income of $12,675,390 related to the reduction of the contingent consideration liability related to the earn-out shares as part of the Enochian BioPharma Acquistion Agreement.
Net loss for the six months December 31, 2019, and December 31, 2018, was ($5,803,708) or ($0.13) per share and ($16,457,144) or ($0.45) per share, respectively, representing a decrease in loss of $10,653,436. The net decrease in loss was primarily due to the decrease in the general and administrative expense $757,854 and the increase in other income of 9,265,390 related to the reduction of the contingent consideration liability related to the earn-out shares as part of the Enochian BioPharma Acquistion Agreement.
Liquidity and Capital Resources
We have historically satisfied our capital and liquidity requirements through funding from shareholders, the issuance of convertible notes and the sale of our Common Stock and warrants. We currently have no sales revenue to 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. At this time, we believe we have sufficient liquidity to fund our operations for the next twelve months.
We may 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 FDA) for ENOB-HV01, to continue our research and development of ENOB-HV11/12, and possible future strategic acquisitions of businesses, products or technologies complementary to our business. If additional funds are required, we may raise such funds from time to time through public or private sales of our equity or debt securities. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely affect our growth plans and our financial condition and results of operations.
As of December 31, 2019, the Company had $8,627,677 in cash and working capital of $7,973,210 as compared to $12,282,224 in cash and working capital of $11,384,571 as of June 30, 2019, a decrease of 29.8% and 30.0%, respectively.
Assets
Total assets at December 31, 2019 were $178,359,885 compared to $179,877,353 as of June 30, 2019. Total current liabilities decreased to $1,090,095 at December 31, 2019 compared to $1,110,416 as of June 30, 2019. The decrease in total assets is mainly due to the growth in 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.
Following is a summary of the Company’s cash flows (used in) provided by operating, investing, and financing activities:
| Six Months Ended December 31, 2019 |
Six Months Ended December 31, 2018 | |||||||
| Net Cash (Used by) Operating Activities | $ | (4,375,861) | $ | (3,550,914 | ) | |||
| Net Cash (Used by) Investing Activities | (132,321) | (640,544 | ) | |||||
| Net Cash Provided by Financing Activities | 1,000,000 | 1,700,000 | ||||||
| (Loss) Gain on Currency Translation | (147,365) | 130,833 | ||||||
| (Decrease) in Cash and Cash Equivalents | $ | (3,655,547) | $ | (2,360,625 | ) | |||
Cash Flows
Net cash used by operating activities for the six months ended December 31, 2019, and December 31, 2018 was $4,375,861 and $3,550,914, respectively, representing an increase $824,947 or 23.2%.
Net cash used by investing activities for the six months ended December 31, 2019 and December 31, 2018 was $132,321 and $640,544, respectively, representing a decrease of $508,223 or 79.3%. The six months ended December 31, 2018 included purchases related to the build out of the corporate offices and labs. Our current expenditures of our operations as we move forward with our pipeline and contemplate new product lines.
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Net cash provided by financing activities for the six months ended December 31, 2019 and December 31, 2018, was $1,000,000 and $1,700,000, representing a decrease of $700,000 or 41.2%. The decrease is due to a smaller amount of warrants being exercised during the current period
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 December 31, 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.
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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 six months ended December 31, 2019, that have materially affected or are reasonably likely to materially affect our internal controls.
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.
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.
| 27 |
| (a) | Exhibits required by Item 601 of Regulation S-K. |
| Exhibit No. | Description | |
| 10.1 | Enochian Biosciences, Inc. 2019 Equity Incentive Plan | |
| 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. |
| 28 |
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: February 10, 2020 | ENOCHIAN 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) | ||
| 29 |
Exhibit 10.1
ENOCHIAN BIOSCIENCES, INC.
2019 EQUITY INCENTIVE PLAN
Enochian BioSciences, Inc. sets forth herein the terms and conditions of its 2019 Equity Incentive Plan.
| 1. | PURPOSE |
The Plan is intended to enhance the Company’s and its Affiliates’ ability to attract and retain employees, Consultants and Non-Employee Directors, and to motivate such employees, Consultants, and Non-Employee Directors to serve the Company and its Affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the Plan provides for the grant of stock options (nonstatutory and incentive), stock appreciation rights, restricted shares, restricted stock units, other stock-based awards, and cash awards. Any of these awards may—but need not—be made as performance incentives to reward attainment of performance goals in accordance with the terms and conditions hereof. Upon becoming effective, the Plan replaces, and no further awards may be made under, the Prior Plan.
| 2. | DEFINITIONS |
For purposes of interpreting the Plan and related documents (including Award Agreements), the following definitions shall apply:
“Affiliate” means any company or other trade or business that “controls,” is “controlled by,” or is “under common control with,” the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including any Subsidiary.
“Award” means a grant, under the Plan, of (i) an Option, (ii) a Stock Appreciation Right, (iii) Restricted Shares, (iv) Restricted Stock Units, (v) an Other Stock-based Award, or (vi) a Substitute Award.
“Award Agreement” means a written agreement (including an agreement transmitted electronically) between the Company and a Grantee, or notice from the Company or an Affiliate to a Grantee that evidences and sets out the terms and conditions of an Award.
“Beneficial Owner” shall have the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular Person, such Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have corresponding meanings.
“Board” means the Board of Directors of the Company.
“Cause” means, unless the applicable Award Agreement states otherwise, (i) the Company or an Affiliate having “cause” to terminate a Grantee’s employment or service, as defined in any applicable document or policy between the Grantee and the Company or an Affiliate or (ii) in the absence of any such document or policy (or the absence of any definition of “Cause” contained therein), (A) the Grantee’s willful failure to perform his or her duties and responsibilities; (B) the Grantee’s commission of any act of fraud, embezzlement, dishonesty or willful misconduct, (C) unauthorized use or disclosure by the Grantee of any proprietary information of the Company or any Affiliate, or (D) Grantee’s willful breach of any of his or her obligations under any agreement with the Company or any Affiliate. The Committee, in its absolute discretion, shall determine the effect of all matters and questions relating to the existence of Cause.
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“Change in Control” shall, in the case of a particular Award, unless the applicable Award Agreement states otherwise or contains a different definition of “Change in Control,” be deemed to occur upon:
(i) An acquisition (whether directly from the Company or otherwise) of any voting securities of the Company (the “Voting Securities”) by any “Person” (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company’s then outstanding Voting Securities.
(ii) Connsumation of any definitive agreement, the consummation of which would cause to occur:
(A) A merger, consolidation or reorganization involving the Company, where either or both of the events described in clause (i) above would be the result;
(B) A liquidation or dissolution of or appointment of a receiver, rehabilitator, conservator or similar person for, or the filing by a third party of an involuntary bankruptcy against, the Company; or
(C) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to an Affiliate).
Solely to the extent required by Section 409A, an event described above shall not constitute a Change in Control for purposes of the payment (but not vesting) terms and conditions of any Award subject to Section 409A unless such event also constitutes a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the Company’s assets within the meaning of Section 409A (a “409A Change in Control Event”); provided, however, that if an event described in clause (ii) above would be a 409A Change in Control Event upon consummation of the event described therein rather than upon approval by the Board, then the consummation of such event rather than approval by the Board shall constitute a Change in Control.
“Code” means the Internal Revenue Code of 1986, as it may be amended from time to time. Any reference to a section of the Code shall be deemed to include a reference to any regulations promulgated thereunder.
“Committee” means a committee of members of the Board appointed by the Board to administer the Plan in accordance with Section 3.
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“Company” means Enochian BioSciences, Inc., a Delaware corporation.
“Common Stock” means the common stock of the Company, par value $0.0001 per share.
“Consultant” means any person, other than an employee or Non-Employee Director, engaged by the Company or any Affiliate to render personal services to such entity, including as an advisor, and who qualifies as a consultant or advisor under Rule 701 of the Securities Act (during any period in which the Company is not subject to the reporting requirements of the Exchange Act) or Form S-8 (during any period in which the Company is subject to the reporting requirements of the Exchange Act).
“Corporate Transaction” means a recapitalization, reorganization, merger, consolidation, combination, exchange, consolidation, sale of all or substantially all of the Company’s assets, or the acquisition of assets or stock of another entity by the Company, or other corporate transaction involving the Company or any of its Affiliates.
“Disability” means “permanent and total disability” as set forth in Code Section 22(e)(3).
“Effective Date” means December 12,2019.
“Exchange Act” means the Securities Exchange Act of 1934.
“Fair Market Value” of a Share as of a particular date means, on a given date, (i) if the Common Stock (A) is listed on a national securities exchange or (B) is not listed on a national securities exchange, but is quoted by the OTC Markets Group, Inc. (www.otcmarkets.com) or any successor or alternative recognized over-the-counter market or another inter-dealer quotation system, on a last sale basis, the closing price of the Common Stock reported on such national securities exchange or other inter-dealer quotation system, determined as of the Date of Grant as reported by such national securities exchange or other inter-dealer quotation system; or (ii) if the Common Stock is not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last sale basis, the amount determined by the Committee in good faith to be the fair market value of the Common Stock.
“Family Member” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the applicable individual, any person sharing the applicable individual’s household (other than a tenant or employee), a trust in which any one or more of these persons have more than 50% of the beneficial interest, a foundation in which any one or more of these persons (or the applicable individual) control the management of assets, and any other entity in which one or more of these persons (or the applicable individual) own more than 50% of the voting interests.
“GAAP” means U.S. Generally Accepted Accounting Principles.
“Grant Date” means the latest to occur of (1) the date as of which the Board approves an Award, (2) the date on which the recipient of an Award first becomes eligible to receive an Award under Section 6, or (3) such other date as may be specified by the Board in the Award Agreement.
“Grantee” means a person who receives or holds an Award.
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“Incentive Stock Option” means an Option that is an “incentive stock option” within the meaning of Code Section 422.
“Issued Share” means an outstanding Share issued under an Award (including a Restricted Share).
“Non-Employee Director” means a member of the Board who is not an employee.
“Nonstatutory Stock Option” means an Option that is not an Incentive Stock Option.
“Option” means an option to purchase one or more Shares under the Plan, including an Incentive Stock Option and a Nonstatutory Stock Option.
“Option Price” means the exercise price for each Share subject to an Option.
“Other Stock-based Award” means Awards consisting of Share units, or other Awards, valued in whole or in part by reference to, or otherwise based on, Common Stock, other than Options, SARs, Restricted Shares, and RSUs.
“Person” means a person as defined in Section 13(d)(3) of the Exchange Act.
“Plan” means this Enochian BioSciences, Inc. 2019 Equity Incentive Plan.
“Prior Plan” means the Dandrit Biotech USA, Inc. 2014 Stock Incentive Plan.
“Purchase Price” means the purchase price for each Share under a grant of Restricted Shares.
“Restricted Period” shall have the meaning set forth in Section 10.1.
“Restricted Shares” means restricted Shares awarded to a Grantee under Section 10.
“Restricted Stock Unit” or “RSU” means a bookkeeping entry representing the equivalent of Shares, awarded to a Grantee under Section 10.
“SAR Exercise Price” means the per Share exercise price of a SAR granted under Section 9.
“SEC” means the U.S. Securities and Exchange Commission.
“Section 409A” means Code Section 409A.
“Securities Act” means the Securities Act of 1933.
“Separation from Service” means the termination of the applicable Grantee’s employment with, and performance of services for, the Company and each Affiliate. Unless otherwise determined by the Company, if a Grantee’s employment or service with the Company or an Affiliate terminates but the Grantee continues to provide services to the Company or an Affiliate in a non-employee director capacity or as an employee, officer, or consultant, as applicable, such change in status shall not be deemed a Separation from Service. Approved temporary absences from employment because of illness, vacation, or leave of absence and transfers among the Company and its Affiliates shall not be considered Separations from Service. Notwithstanding the foregoing, with respect to any Award that constitutes nonqualified deferred compensation under Section 409A, “Separation from Service” shall mean a “separation from service” as defined under Section 409A.
| 4 |
“Service Provider” means an employee, officer, Non-Employee Director, or Consultant of the Company or an Affiliate.
“Share” means one share of Common Stock.
“Stock Appreciation Right” or “SAR” means a right granted to a Grantee under Section 9.
“Stockholder” means a stockholder of the Company.
“Subsidiary” means any corporation, partnership, joint venture, affiliate, or other entity in which the Company owns more than 50% of the voting stock or voting ownership interest, as applicable, or any other business entity designated by the Board as a Subsidiary for purposes of the Plan.
“Substitute Award” means any Award granted in assumption of or in substitution for an award of a company or business acquired by the Company or an Affiliate or with which the Company or an Affiliate combines.
“Ten Percent Stockholder” means an individual who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, its parent or any of its Subsidiaries. In determining stock ownership, the attribution rules of Code Section 424(d) shall be applied.
“Termination Date” means the date that is 10 years after the Effective Date, unless the Plan is earlier terminated by the Board under Section 5.2.
| 3. | ADMINISTRATION OF THE PLAN |
| 3.1. | General |
The Board shall have such powers and authorities related to the administration of the Plan as are consistent with the Company’s articles of incorporation, bylaws and applicable law, and as further described in Section 3.3. To the extent permitted by applicable law, the Board shall have the power and authority to delegate its powers and responsibilities hereunder to the Committee, which shall have full authority to act in accordance with its charter, and with respect to the authority of the Board to act hereunder. All references to the Board shall be deemed to include a reference to the Committee, to the extent such power or responsibilities of the Board have been delegated. The Committee shall administer the Plan; provided that the Board shall retain the right to exercise the authority of the Committee to the extent consistent with applicable law and the applicable requirements of any securities exchange on which the Common Stock may then be listed.
| 5 |
3.2. Committee Composition
Except as otherwise determined by the Board, the Committee shall consist solely of two or more Non-Employee Directors. The Board shall have discretion to determine whether or not it intends to comply with the exemption requirements of SEC Rule 16b-3. However, if the Board intends to satisfy such exemption requirements, with respect to any insider subject to Section 16 of the Exchange Act, the Committee shall be a compensation committee of the Board that at all times consists solely of two or more Non-Employee Directors. To the extent permitted by applicable law, the Board or the Committee may delegate its authority to grant Awards to any individual or committee of individuals who are not Non-Employee Directors with respect to Awards that do not involve insiders within the meaning of SEC Rule 16. To the extent that the Board delegates its authority to make Awards as provided by this Section 3.1, all references in the Plan to the Board’s authority to make Awards and determinations with respect thereto shall be deemed to include the Board’s delegate. Any such delegate shall serve at the pleasure of, and may be removed at any time by the Board. Nothing herein shall create an inference that an Award is not validly granted under the Plan in the event Awards are granted under the Plan by a compensation committee of the Board that does not at all times consist solely of two or more Non-Employee Directors.
3.3. Authority of Board
Except as specifically provided in Section 13 or as otherwise may be required by applicable law, regulatory requirement, or the articles of incorporation or the bylaws of the Company, the Board shall have full power and authority to take all actions and to make all determinations required or provided for under the Plan, any Award or any Award Agreement, and shall have full power and authority to take all such other actions and make all such other determinations not inconsistent with the specific terms and conditions of the Plan that the Board deems to be necessary or appropriate to the administration of the Plan. The interpretation and construction by the Board of the Plan, any Award, or any Award Agreement shall be final, binding, and conclusive. Without limitation, the Board shall have full and final authority, subject to the other terms and conditions of the Plan, to:
| (1) | construe and interpret the Plan and apply its provisions; |
| (2) | designate Grantees; |
| (2) | determine the type or types of Awards to be made to a Grantee and the applicable Grant Date; |
| (3) | determine the number of Shares to be subject to an Award; |
| (4) | establish the terms and conditions of each Award (including the Option Price of any Option, the nature and duration of any restriction or condition (or provision for lapse thereof) relating to the vesting, exercise, transfer, or forfeiture of an Award or the Shares subject thereto, and any terms or conditions that may be necessary to qualify Options as Incentive Stock Options); |
| (5) | prescribe the form of each Award Agreement; |
| (6) | amend, modify, or supplement the terms and conditions of any outstanding Award, including the authority, in order to effectuate the purposes of the Plan, to modify Awards to foreign nationals or individuals who are employed outside the U.S. to recognize differences in local law, tax policy, or custom; |
| 6 |
| (7) | promulgate, amend and rescind rules and regulations relating to the administration of the Plan; |
| (8) | to authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan; and |
| (9) | to modify the Option Price or SAR Exercise Price of any outstanding Option or SAR, provided that if the modification effects a repricing, shareholder approval shall be required before the repricing is effective. |
| 3.4. | Separation from Service for Cause; Clawbacks |
| 3.4.1. | Separation from Service for Cause |
The Company may annul an Award if the Grantee incurs a Separation from Service for Cause.
| 3.4.2. | Clawbacks |
All awards, amounts, or benefits received or outstanding under the Plan shall be subject to clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with any Company clawback or similar policy (“Clawback Policy”) or any applicable law related to such actions. In addition, a Grantee may be required to repay to the Company previously paid compensation, whether provided pursuant to the Plan or an Award Agreement in accordance with the Clawback Policy. A Grantee’s acceptance of an Award shall be deemed to constitute the Grantee’s acknowledgement of and consent to the Company’s application, implementation, and enforcement of any applicable Company clawback or similar policy that may apply to the Grantee, whether adopted before or after the Effective Date and whether before or after the Grant Date of an Award, and any applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and the Grantee’s agreement that the Company may take any actions that may be necessary to effectuate any such policy or applicable law, without further consideration or action.
| 3.5. | Deferral Arrangement |
The Board may permit or require the deferral of any Award payment into a deferred compensation arrangement, subject to such rules and procedures as it may establish and in accordance with Section 409A, which may include terms and conditions for the payment or crediting of interest or dividend equivalents, including converting such credits into deferred units.
| 3.6. | No Liability |
No member of the Board shall be liable for any action or determination made in good faith with respect to the Plan, any Award, or Award Agreement.
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| 3.7. | Book Entry |
Notwithstanding any other term or condition of the Plan, the Company may elect to satisfy any requirement under the Plan for the delivery of stock certificates through the use of book-entry.
| 4. | shares SUBJECT TO THE PLAN |
| 4.1. | Authorized Number of Shares |
Subject to adjustment under Section 14, the total number of Shares authorized to be awarded under the Plan shall not exceed the sum of (1) 6,000,000 and (2) the number of Shares available for the grant of awards as of the Effective Date under the Prior Plan. In addition, Shares underlying any outstanding award granted under a Prior Plan that, after the Effective Date, expires, or is terminated, surrendered, or forfeited for any reason without issuance of Shares shall be available for the grant of new Awards. As provided in Section 1, no new awards shall be granted under the Prior Plan after the Effective Date. Shares issued under the Plan shall consist in whole or in part of authorized but unissued Shares, treasury Shares, or Shares purchased on the open market or otherwise, all as determined by the Company from time to time. All of the Shares available under this 4.1 may be issued pursuant to the exercise of Incentive Stock Options.
| 4.2. | Share Counting |
| 4.2.1. | General |
Each Share granted in connection with an Award shall be counted as one Share against the limit in Section 4.1, subject to this Section 4.2.
| 4.2.2. | Cash-Settled Awards |
Any Award settled in cash shall not be counted as Shares for any purpose under the Plan.
| 4.2.3. | Expired or Terminated Awards |
If any Award expires, or is terminated, surrendered, or forfeited, in whole or in part, the unissued Shares covered by that Award shall again be available for the grant of Awards.
| 4.2.4. | Repurchased, Surrendered, or Forfeited Awards |
If Issued Shares are repurchased by, or are surrendered or forfeited to the Company at no more than cost, such Shares shall again be available for the grant of Awards.
| 4.2.5. | Payment of Option Price or Tax Withholding in Shares |
Notwithstanding anything to the contrary contained herein: Shares subject to an Award under the Plan shall not again be made available for issuance or delivery under the Plan if such Shares are (i) Shares tendered in payment of an Option, (ii) Shares delivered or withheld by the Company to satisfy any tax withholding obligation, (iii) Shares covered by a Share-settled SAR or other Shares that were not issued upon the settlement of the SAR.
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| 4.2.6. | Substitute Awards |
In the case of any Substitute Award, such Substitute Award shall not be counted against the number of Shares reserved under the Plan.
| 5. | EFFECTIVE DATE, DURATION, AND AMENDMENTS |
| 5.1. | Term |
The Plan shall be effective as of the Effective Date but no Award shall be exercised or paid unless and until the Plan has been approved by the Stockholders, which approval shall be within twelve (12) months after the date the Plan is adopted by the Board. The Plan shall terminate automatically on the 10-year anniversary of the Effective Date and may be terminated on any earlier date as provided in Section 5.2.
| 5.2. | Amendment and Termination of the Plan |
The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any Awards that have not been made. An amendment shall be contingent on approval of the Stockholders to the extent stated by the Board, required by applicable law, or required by applicable securities exchange listing requirements. No Awards may be granted after the Termination Date. The applicable terms and conditions of the Plan, and any terms and conditions applicable to Awards granted before the Termination Date shall survive the termination of the Plan and continue to apply to such Awards. No amendment, suspension, or termination of the Plan shall, without the consent of the Grantee, materially impair rights or obligations under any Award theretofore awarded.
| 6. | AWARD ELIGIBILITY AND LIMITATIONS |
| 6.1. | Service Providers |
Awards may be made to any Service Provider, as the Board may determine and designate from time to time, subject to Section 8.7 in the case of an Incentive Stock Option. The Board may grant an Award to a person who is reasonably expected to become a Service Provider provided that such grant is contingent upon such person becoming a Service Provider.
| 6.2. | Successive Awards |
Service Providers may receive more than one Award, subject to such restrictions as are provided herein.
| 6.3. | Stand-Alone, Additional, Tandem, and Substitute Awards |
The Board may grant Awards either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate, or any other right of a Grantee to receive payment from the Company or any Affiliate. Such additional, tandem, substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another Award, the Board shall have the right to require the surrender of such other Award in consideration for the grant of the new Award. Subject to Section 3.3(9), the Board shall have the right to make Awards in substitution or exchange for any other award under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate. In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans of the Company or any Affiliate, in which the value of Shares subject to the Award is equivalent in value to the cash compensation (for example, RSUs or Restricted Shares).
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| 7. | AWARD AGREEMENT |
Each Award shall be evidenced by an Award Agreement, in such form or forms as the Board shall from time to time determine. Without limiting the foregoing, an Award Agreement may be provided in the form of a notice that provides that acceptance of the Award constitutes acceptance of all terms and conditions of the Plan and the notice. Award Agreements granted from time to time or at the same time need not contain similar terms and conditions but shall be consistent with the terms and conditions of the Plan. Each Award Agreement evidencing an Award of Options shall specify whether such Options are intended to be Nonstatutory Stock Options or Incentive Stock Options, and in the absence of such specification such options shall be deemed Nonstatutory Stock Options.
| 8. | TERMS AND CONDITIONS OF OPTIONS |
| 8.1. | Option Price |
The Option Price of each Option shall be fixed by the Board and stated in the related Award Agreement. Each Option shall be separately designated in the Award Agreement as either an Incentive Stock Option or Nonqualified Option. The Option Price of each Option (except those that constitute Substitute Awards) shall be at least the Fair Market Value of a Share on the Grant Date; provided, however, that in the event that a Grantee is a Ten Percent Stockholder as of the Grant Date, the Option Price of an Option granted to such Grantee that is intended to be an Incentive Stock Option shall be not less than 110% of the Fair Market Value of a Share on the Grant Date. In no case shall the Option Price of any Option be less than the par value of a Share.
| 8.2. | Vesting |
Subject to Section 8.3, each Option shall become exercisable at such times and under such terms and conditions (including performance requirements) as may be determined by the Board and stated in the Award Agreement. No Option may be exercised for a fraction of a Share. The Board may, but shall not be required to, provide for an acceleration of vesting and exercisability in the terms of any Award Agreement upon the occurrence of a specified event.
| 8.3. | Term |
8.3.1 General
Each Option shall terminate, and all rights to purchase Shares thereunder shall cease, upon the expiration of a period not to exceed 10 years from the Grant Date, or under such circumstances and on any date before 10 years from the Grant Date as may be set forth in the Plan or as may be fixed by the Board and stated in the related Award Agreement; provided, however, that in the event that the Grantee is a Ten Percent Stockholder, an Option granted to such Grantee that is intended to be an Incentive Stock Option at the Grant Date shall not be exercisable after the expiration of five years from its Grant Date.
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8.3.2 Separation from Service
Unless otherwise provided in an Award Agreement or in an employment agreement the terms of which have been approved by the Board, in the event a Grantee has a Separation from Service (other than upon the Grantee’s death or Disability), the Grantee may exercise his or her Option (to the extent that the Grantee was entitled to exercise such Option as of the date of Separation from Service) but only within such period of time ending on the earlier of (a) the date three months following the Grantee’s Separation from Service or (b) the expiration of the term of the Option as set forth in the Award Agreement; provided that, if the Separation from Service is by the Company for Cause or if the Grantee’s Separation from Service is due to resignation, all outstanding Options (whether or not vested) shall immediately terminate and cease to be exercisable. If, after termination, the Grantee does not exercise his or her Option within the time specified in the Award Agreement, the Option shall terminate.
8.3.3 Extension of Termination Date
A Grantee's Award Agreement may also provide that if the exercise of the Option following the Grantee’s Separation from Service for any reason would be prohibited at any time because the issuance of Shares would violate the registration requirements under the Securities Act or any other state or federal securities law or the rules of any securities exchange or interdealer quotation system, then the Option shall terminate on the earlier of (a) the expiration of the term of the Option in accordance with Section 8.3.1 or (b) the expiration of a period after the Grantee’s Separation from Service that is three months after the end of the period during which the exercise of the Option would be in violation of such registration or other securities law requirements.
8.3.4 Disability of Grantee
Unless otherwise provided in an Award Agreement, in the event of a Grantee’s Separation from Service as a result of the Grantee's Disability, the Grantee may exercise his or her Option (to the extent that the Grantee was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (a) the date 12 months following such termination or (b) the expiration of the term of the Option as set forth in the Award Agreement. If, after termination, the Grantee does not exercise his or her Option within the time specified herein or in the Award Agreement, the Option shall terminate.
8.3.5 Death of Grantee
Unless otherwise provided in an Award Agreement, in the event of a Grantee’s Separation from Service as a result of the Grantee's death, then the Option may be exercised (to the extent the Grantee was entitled to exercise such Option as of the date of death) by the Grantee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Grantee's death, but only within the period ending on the earlier of (a) the date 12 months following the date of death or (b) the expiration of the term of such Option as set forth in the Award Agreement. If, after the Grantee's death, the Option is not exercised within the time specified herein or in the Award Agreement, the Option shall terminate.
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| 8.4. | Limitations on Exercise of Option |
Notwithstanding any other term or condition of the Plan, in no event may any Option be exercised, in whole or in part, after the occurrence of an event that results in termination of the Option.
| 8.5. | Method of Exercise |
An Option that is exercisable may be exercised by the Grantee’s delivery of a notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. To be effective, notice of exercise must be made in accordance with procedures established by the Company from time to time.
| 8.6. | Rights of Holders of Options |
Unless otherwise stated in the related Award Agreement, an individual holding or exercising an Option shall have none of the rights of a Stockholder (for example, the right to receive cash or dividend payments or distributions attributable to the subject Shares or to direct the voting of the subject Shares) until the Shares covered thereby are fully paid and issued to him or her. Except as provided in Section 14 or the related Award Agreement, no adjustment shall be made for dividends, distributions, or other rights for which the record date is before the date of such issuance.
| 8.7. | Limitations on Incentive Stock Options |
An Option shall constitute an Incentive Stock Option only (1) if the Grantee of the Option is an employee of the Company or any Subsidiary; (2) to the extent specifically provided in the related Award Agreement; and (3) to the extent that the aggregate Fair Market Value (determined at the time the Option is granted) of the Shares with respect to which all Incentive Stock Options held by such Grantee become exercisable for the first time during any calendar year (under the Plan and all other plans of the Grantee’s employer and its Affiliates) does not exceed $100,000. This limitation shall be applied by taking Options into account in the order in which they were granted. No Option shall be treated as an Incentive Stock Option unless the Plan has been approved by the Stockholders in a manner intended to comply with the stockholder approval requirements of Code Section 422; provided that any Option intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option shall be treated as a Nonstatutory Stock Option unless and until such approval is obtained.
| 9. | TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS (SARs) |
| 9.1. | Right to Payment |
A SAR shall confer on the Grantee a right to receive, upon exercise thereof, the excess of (1) the Fair Market Value of one Share on the date of exercise over (2) the SAR Exercise Price. The Award Agreement for a SAR (except those that constitute Substitute Awards) shall specify the SAR Exercise Price, which shall be fixed on the Grant Date as not less than the Fair Market Value of a Share on that date. SARs may be granted alone or in conjunction with all or part of an Option or at any subsequent time during the term of such Option or in conjunction with all or part of any other Award. A SAR granted in tandem with an outstanding Option after the Grant Date of such Option shall have a SAR Exercise Price that is equal to the Option Price; provided, however, that the SAR Exercise Price may not be less than the Fair Market Value of a Share on the Grant Date of the SAR to the extent required by Section 409A.
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| 9.2. | Other Terms |
The Board shall determine at the Grant Date the time or times at which and the circumstances under which a SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the time or times at which SARs shall cease to be or become exercisable after Separation from Service or upon other terms or conditions, the method of exercise, whether or not a SAR shall be in tandem or in combination with any other Award, and any other terms and conditions of any SAR.
| 9.3. | Term of SARs |
The term of a SAR granted under the Plan shall be determined by the Board and stated in the related Award Agreement; provided, however, that such term shall not exceed 10 years.
| 9.4. | Payment of SAR Amount |
Upon exercise of a SAR, a Grantee shall be entitled to receive payment from the Company (in cash or Shares) in an amount determined by multiplying:
| (1) | the difference between the Fair Market Value of a Share on the date of exercise over the SAR Exercise Price; by |
| (2) | the number of Shares with respect to which the SAR is exercised. |
| 10. | TERMS AND CONDITIONS OF RESTRICTED SHARES AND RESTRICTED STOCK UNITS (RSUs) |
| 10.1. | Restrictions |
At the time of grant, the Board may establish a period of time (a “Restricted Period”) and any additional restrictions including the satisfaction of corporate or individual performance objectives. Each Award of Restricted Shares or RSUs may be subject to a different Restricted Period and additional restrictions. Neither Restricted Shares nor RSUs may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period or before the satisfaction of any other applicable restrictions.
| 10.2. | Restricted Share Certificates |
The Company shall issue, in the name of each Grantee to whom Restricted Shares have been granted, stock certificates or other evidence of ownership representing the total number of Restricted Shares granted to the Grantee, as soon as reasonably practicable after the Grant Date.
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| 10.3. | Rights of Holders of Restricted Shares |
Unless the Board otherwise provides in an Award Agreement and subject to Section 16.10, holders of Restricted Shares shall have rights as Stockholders, including voting and dividend rights.
| 10.4. | Rights of Holders of RSUs |
| 10.4.1. | Settlement of RSUs |
RSUs may be settled in cash or Shares, as determined by the Board and set forth in the Award Agreement. The Award Agreement shall also set forth whether the RSUs shall be settled (1) within the time period specified for “short term deferrals” under Section 409A or (2) otherwise within the requirements of Section 409A, in which case the Award Agreement shall specify upon which events such RSUs shall be settled.
| 10.4.2. | Voting and Dividend Rights |
Unless otherwise stated in the applicable Award Agreement and subject to Section 16.10, holders of RSUs shall not have rights as Stockholders, including no voting or dividend or dividend equivalents rights.
| 10.4.3. | Creditor’s Rights |
A holder of RSUs shall have no rights other than those of a general creditor of the Company. RSUs represent an unfunded and unsecured obligation of the Company, subject to the applicable Award Agreement.
| 10.5. | Purchase of Restricted Shares |
The Grantee shall be required, to the extent required by applicable law, to purchase Restricted Shares from the Company at a Purchase Price equal to the greater of (1) the aggregate par value of the Restricted Shares or (2) the Purchase Price, if any, specified in the related Award Agreement. If specified in the Award Agreement, the Purchase Price may be deemed paid by services already rendered. The Purchase Price shall be payable in a form described in Section 11 or, if permitted by the Board, in consideration for past services rendered.
| 10.6. | Delivery of Shares |
Upon the expiration or termination of any Restricted Period and the satisfaction of any other terms and conditions prescribed by the Board, the restrictions applicable to Restricted Shares or RSUs settled in Shares shall lapse, and, unless otherwise provided in the Award Agreement, a stock certificate for such Shares shall be delivered, free of all such restrictions, to the Grantee or the Grantee’s beneficiary or estate, as the case may be.
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| 11. | FORM OF PAYMENT FOR OPTIONS AND RESTRICTED SHARES |
| 11.1. | General Rule |
Payment of the Option Price for an Option or the Purchase Price for Restricted Shares shall be made in cash or in cash equivalents acceptable to the Company, except as provided in this Section 11. Notwithstanding any provision of this Section 11, during any period for which the Common Stock is publicly traded (i.e., the Common Stock is listed on any established stock exchange or a national market system) an exercise by a Non-Employee Director or officer that involves or may involve a direct or indirect extension of credit or arrangement of an extension of credit by the Company, directly or indirectly, in violation of Section 402(a) of the Sarbanes-Oxley Act of 2002 shall be prohibited with respect to any Award under this Plan.
| 11.2. | Surrender of Shares |
To the extent the Award Agreement so provides, payment of the Option Price for an Option or the Purchase Price for Restricted Shares may be made all or in part through the tender to, or withholding by, the Company of Shares that shall be valued, for purposes of determining the extent to which the Option Price or Purchase Price for Restricted Shares has been paid thereby, at their Fair Market Value on the date of exercise or surrender. Notwithstanding the foregoing, in the case of an Incentive Stock Option, the right to make payment in the form of already owned Shares may be authorized only at the time of grant.
| 11.3. | Cashless Exercise |
With respect to an Option only (and not with respect to Restricted Shares), to the extent permitted by law and to the extent the Award Agreement so provides, payment of the Option Price may be made all or in part by delivery (on a form acceptable to the Company) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell Shares and to deliver all or part of the sales proceeds to the Company in payment of the Option Price and any withholding taxes described in Section 16.3.
| 11.4. | Other Forms of Payment |
To the extent the Award Agreement so provides, payment of the Option Price or the Purchase Price for Restricted Shares may be made in any other form that is consistent with applicable laws, regulations, and rules, including the Company’s withholding of Shares otherwise due to the exercising Grantee.
| 12. | other sTOCK-based awards |
| 12.1. | Grant of Other Stock-based Awards |
Other Stock-based Awards may be granted either alone or in addition to or in conjunction with other Awards. Other Stock-based Awards may be granted in lieu of other cash or other compensation to which a Service Provider is entitled from the Company or may be used in the settlement of amounts payable in Shares under any other compensation plan or arrangement of the Company. Subject to the terms and conditions of the Plan, the Board shall determine the persons to whom and the time or times at which such Awards may be made, the number of Shares to be granted under such Awards, and all other terms and conditions of such Awards. Unless the Board determines otherwise, any such Award shall be confirmed by an Award Agreement, which shall contain such terms and conditions as the Board determines to be necessary or appropriate to carry out the intent of the Plan with respect to such Award.
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12.2. Terms of Other Stock-based Awards
Any Shares subject to Awards made under this Section 12 may not be sold, assigned, transferred, pledged, or otherwise encumbered before the date on which the Shares are issued, or, if later, the date on which any applicable restriction, performance, or deferral period lapses.
| 13. | REQUIREMENTS OF LAW |
| 13.1. | General |
The Company shall not be required to sell or issue any Shares under any Award if the sale or issuance of such Shares would constitute a violation by the Grantee, any other individual, or the Company of any law or regulation of any governmental authority, including any federal or state securities laws or regulations. If at any time the Company determines that the listing, registration, or qualification of any Shares subject to an Award upon any securities exchange or under any governmental regulatory body is necessary or desirable as a term or condition of, or in connection with, the issuance or purchase of Shares hereunder, no Shares may be issued or sold to the Grantee or any other individual exercising an Option unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any terms and conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Award. Specifically, in connection with the Securities Act, upon the exercise of any Option or the delivery of any Shares underlying an Award, unless a registration statement under such Act is in effect with respect to the Shares covered by such Award, the Company shall not be required to sell or issue such Shares unless the Board has received evidence satisfactory to it that the Grantee or any other individual exercising an Option may acquire such Shares under an exemption from registration under the Securities Act. The Company may, but shall not be obligated to, register any securities covered hereby under the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of Shares under the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable until the Shares covered by such Option are registered or are exempt from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. The Board may require the Grantee to sign such additional documentation, make such representations, and furnish such information as the Board may consider appropriate in connection with the grant of Awards or issuance or delivery of Shares in compliance with applicable laws.
| 13.2. | California Grantees |
The Plan is intended to comply with Section 25102(o) of the California Corporations Code, to the extent applicable. In that regard, to the extent required by Section 25102(o), (1) the terms of any Options or SARs, to the extent vested and exercisable upon a Grantee’s Separation from Service, shall include any minimum exercise periods following Separation from Service specified by Section 25102(o) and (2) any repurchase right of the Company with respect to Issued Shares shall include a minimum 90-day notice requirement. Any Plan term that is inconsistent with Section 25102(o) shall, without further act or amendment by the Company or the Board, be reformed to comply with the requirements of Section 25102(o).
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| 14. | EFFECT OF CHANGES IN CAPITALIZATION |
| 14.1. | Changes in Common Stock |
If (1) the number of outstanding Shares is increased or decreased or the Shares are changed into or exchanged for a different number or kind of shares or other securities of the Company on account of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such Shares effected without receipt of consideration by the Company occurring after the Effective Date or (2) there occurs any spin-off, split-up, extraordinary cash dividend, or other distribution of assets by the Company, (A) the number and kinds of shares for which grants of Awards may be made (including the per-Grantee maximums set forth in Section 4), (B) the number and kinds of shares for which outstanding Awards may be exercised or settled, and (C) the performance goals relating to outstanding Awards, shall be equitably adjusted by the Company; provided that any such adjustment shall comply with Section 409A. In addition, in the event of any such increase or decease in the number of outstanding shares or other transaction described in clause (2) above, the number and kind of shares for which Awards are outstanding and the Option Price per share of outstanding Options and SAR Exercise Price per share of outstanding SARs shall be equitably adjusted; provided that any such adjustment shall comply with Section 409A.
| 14.2. | Effect of Certain Transactions |
Except as otherwise provided in an Award Agreement, in the event of a Corporate Transaction, the Plan and the Awards shall continue in effect in accordance with their respective terms, except that after a Corporate Transaction either (1) each outstanding Award shall be treated as provided for in the agreement entered into in connection with the Corporate Transaction or (2) if not so provided in such agreement, each Grantee shall be entitled to receive in respect of each Share subject to any outstanding Awards, upon exercise or payment or transfer in respect of any Award, the same number and kind of stock, securities, cash, property, or other consideration that each Stockholder was entitled to receive in the Corporate Transaction in respect of one Share; provided, however, that, unless otherwise determined by the Board, such stock, securities, cash, property or other consideration shall remain subject to all of the terms and conditions (including performance criteria) that were applicable to the Awards before such Corporate Transaction. Without limiting the generality of the foregoing, the treatment of outstanding Options and SARs under this Section 14.2 in connection with a Corporate Transaction in which the consideration paid or distributed to the Stockholders is not entirely shares of common stock of the acquiring or resulting corporation may include the cancellation of outstanding Options and SARs upon consummation of the Corporate Transaction as long as, at the election of the Board, (A) the holders of affected Options and SARs have been given a period of at least 15 days before the date of the consummation of the Corporate Transaction to exercise the Options or SARs (to the extent otherwise exercisable) or (B) the holders of the affected Options and SARs are paid (in cash or cash equivalents) in respect of each Share covered by the Option or SAR being canceled an amount equal to the excess, if any, of the per Share price paid or distributed to Stockholders in the Corporate Transaction (the value of any noncash consideration to be determined by the Board) over the Option Price or SAR Exercise Price, as applicable. For avoidance of doubt, (i) the cancellation of Options and SARs under clause (B) of the preceding sentence may be effected notwithstanding any other term or condition of the Plan or any Award Agreement and (ii) if the amount determined under clause (B) of the preceding sentence is zero or less, the affected Option or SAR may be cancelled without any payment therefore. The treatment of any Award as provided in this Section 14.2 shall be conclusively presumed to be appropriate for purposes of Section 14.1.
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| 14.3. | Change in Control |
Subject to the requirements and limitations of Section 409A, if applicable, the Board may provide for any one or more of the following in connection with a Change in Control, which such actions need not be the same for all Grantees:
| (1) | Accelerated Vesting. Unless otherwise provided in any Award Agreement, upon a Grantee’s Separation from Service immediately prior to, upon, or following a Change in Control for any reason other than Cause, the exercisability, vesting and/or settlement of an Award shall immediately accelerate. |
| (2) | Assumption, Continuation or Substitution. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “Acquiror”), may, without the consent of any Grantee, either assume or continue the Company’s rights and obligations under each or any Award or portion thereof outstanding immediately prior to the Change in Control or substitute for each or any such outstanding Award or portion thereof a substantially equivalent award with respect to the Acquiror’s stock, as applicable. For purposes of this Section 14.3, if so determined by the Board, in its discretion, an Award denominated in Shares shall be deemed assumed if, following the Change in Control, the Award confers the right to receive, subject to the terms and conditions of the Plan and the applicable Award Agreement, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a Share on the effective date of the Change in Control was entitled; provided, however, that if such consideration is not solely common stock of the Acquiror, the Board may, with the consent of the Acquiror, provide for the consideration to be received upon the exercise or settlement of the Award, for each Share subject to the Award, to consist solely of common stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Shares pursuant to the Change in Control. If any portion of such consideration may be received by holders of Shares pursuant to the Change in Control on a contingent or delayed basis, the Board may, in its sole discretion, determine such Fair Market Value per share as of the time of the Change in Control on the basis of the Board’s good faith estimate of the present value of the probable future payment of such consideration. Any Award or portion thereof which is neither assumed or continued by the Acquiror in connection with the Change in Control nor exercised or settled as of the time of consummation of the Change in Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control. |
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| (3) | Cash-Out of Awards. The Board may, in its discretion and without the consent of any Grantee, determine that, upon the occurrence of a Change in Control, each or any Award or a portion thereof outstanding immediately prior to the Change in Control and not previously exercised or settled shall be canceled in exchange for a payment with respect to each vested Share (and each unvested Share, if so determined by the Board) subject to such canceled Award in (i) cash, (ii) stock of the Company or of a corporation or other business entity a party to the Change in Control, or (iii) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the Fair Market Value of the consideration to be paid per Share in the Change in Control, reduced by the exercise or purchase price per share, if any, under such Award. If any portion of such consideration may be received by holders of Shares pursuant to the Change in Control on a contingent or delayed basis, the Board may, in its sole discretion, determine such Fair Market Value per share as of the time of the Change in Control on the basis of the Board’s good faith estimate of the present value of the probable future payment of such consideration. In the event such determination is made by the Board, the amount of such payment (reduced by applicable withholding taxes, if any) shall be paid to Grantees in respect of the vested portions of their canceled Awards as soon as practicable following the date of the Change in Control and in respect of the unvested portions of their canceled Awards in accordance with the vesting schedules applicable to such Awards. The Board may, in its discretion, without payment of any consideration to the Grantee, cancel any outstanding Award to the extent not vested or exercised immediately prior to the Change in Control and not otherwise assumed or continued by the Acquiror in accordance with Section 14.3(2) above. |
| 14.4. | Adjustments |
Adjustments under this Section 14 related to Shares or other securities of the Company shall be made by the Board. No fractional Shares or other securities shall be issued under any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole Share.
| 15. | No Limitations on Company |
The grant of Awards shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets.
| 16. | TERMS APPLICABLE GENERALLY TO AWARDS |
| 16.1. | Disclaimer of Rights |
No term or condition of the Plan or any Award Agreement shall be construed to confer upon any individual the right to remain in the employ or service of the Company or any Affiliate, or to interfere in any way with any contractual or other right or authority of the Company either to increase or decrease the compensation or other payments to any individual at any time, or to terminate any employment or other relationship between any individual and the Company. In addition, notwithstanding any other term or condition of the Plan, unless otherwise stated in the applicable Award Agreement, no Award shall be affected by any change of duties or position of the Grantee, so long as such Grantee continues to be a Service Provider. The obligation of the Company to pay any benefits under the Plan shall be interpreted as a contractual obligation to pay only those amounts described herein, in the manner and under the terms and conditions prescribed herein. The Plan shall in no way be interpreted to require the Company to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any Grantee or beneficiary under the Plan.
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| 16.2. | Nonexclusivity of the Plan |
Neither the adoption of the Plan nor the submission of the Plan to the Stockholders for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals), including the granting of Options as the Board determines desirable.
| 16.3. | Withholding Taxes |
The Company or an Affiliate, as the case may be, shall have the right to deduct from payments of any kind otherwise due to a Grantee any federal, state, or local taxes of any kind required by law to be withheld (1) with respect to the vesting of or other lapse of restrictions applicable to an Award, (2) upon the issuance of any Shares upon the exercise of an Option or SAR, or (3) otherwise due in connection with an Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to the Company or the Affiliate, as the case may be, any amount that the Company or the Affiliate may reasonably determine to be necessary to satisfy such withholding obligation. The Company or the Affiliate, as the case may be, may require or permit the Grantee to satisfy such obligations, in whole or in part, (A) by causing the Company or the Affiliate to withhold up to the maximum required number of Shares otherwise issuable to the Grantee as may be necessary to satisfy such withholding obligation or (B) by delivering to the Company or the Affiliate Shares already owned by the Grantee. The Shares so delivered or withheld shall have an aggregate Fair Market Value equal to such withholding obligations. The Fair Market Value of the Shares used to satisfy such withholding obligation shall be determined by the Company or the Affiliate as of the date that the amount of tax to be withheld is to be determined. To the extent applicable, a Grantee may satisfy his or her withholding obligation only with Shares that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
| 16.4. | Other Terms and Conditions; Employment Agreements |
Each Award Agreement may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Board. In the event of any conflict between the terms and conditions of an employment agreement and the Plan, the terms and conditions of the employment agreement shall govern.
| 16.5. | Severability |
If any term or condition of the Plan or any Award Agreement is determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining terms and conditions hereof and thereof shall be severable and enforceable, and all terms and conditions shall remain enforceable in any other jurisdiction.
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| 16.6. | Governing Law |
The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Delaware without regard to the principles of conflicts of law that could cause the application of the laws of any jurisdiction other than the State of Delaware. For purposes of resolving any dispute that arises under the Plan, each Grantee, by virtue of receiving an Award, shall be deemed to have submitted to and consented to the exclusive jurisdiction of the State of Florida and to have agreed that any related litigation shall be conducted solely in the courts of Miami-Dade County or the federal courts for the U.S. for the Southern District of Florida, where the Plan is made and to be performed, and no other courts. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974.
| 16.7. | Section 409A |
The Plan is intended to comply with Section 409A to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and administered to be in compliance therewith. Any payments described in the Plan that are due within the “short-term deferral period” as defined in Section 409A shall not be treated as deferred compensation unless applicable laws require otherwise. For purposes of Section 409A, each installment payment under the Plan shall be treated as a separate payment. Notwithstanding any other term or condition of the Plan, to the extent required to avoid accelerated taxation or tax penalties under Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided under the Plan during the six-month period immediately after the Grantee’s Separation from Service shall instead be paid on the first payroll date after the six-month anniversary of the Grantee’s Separation from Service (or the Grantee’s death, if earlier). Notwithstanding the foregoing, neither the Company nor the Board shall have any obligation to take any action to prevent the assessment of any additional tax or penalty on any Grantee under Section 409A and neither the Company nor the Board shall have any liability to any Grantee for such tax or penalty.
| 16.8. | Separation from Service |
The Board shall determine the effect of a Separation from Service upon Awards, and such effect shall be set forth in the appropriate Award Agreement. Without limiting the foregoing, the Board may provide in the Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, the actions that may be taken upon the occurrence of a Separation from Service, including accelerated vesting or termination, depending upon the circumstances surrounding the Separation from Service.
| 16.9. | Transferability of Awards and Issued Shares |
| 16.9.1. | Transfers in General |
Except as provided in Section 16.9.2, no Award shall be assignable or transferable by the Grantee to whom it is granted, other than by will or the laws of descent and distribution, and, during the lifetime of the Grantee, only the Grantee personally (or the Grantee’s personal representative) may exercise rights under the Plan.
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| 16.9.2. | Family Transfers |
If authorized in the applicable Award Agreement, a Grantee may transfer, not for value, all or part of an Award (other than Incentive Stock Options) to any Family Member. For the purpose of this Section 16.9.2, a “not for value” transfer is a transfer that is (1) a gift, (2) a transfer under a domestic relations order in settlement of marital property rights; or (3) a transfer to an entity in which more than 50% of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in that entity. After a transfer under this Section 16.9.2, any such Award shall continue to be subject to the same terms and conditions as were applicable immediately before transfer. Subsequent transfers of transferred Awards are prohibited except to Family Members of the original Grantee in accordance with this Section 16.9.2 or by will or the laws of descent and distribution.
| 16.10. | Dividend Equivalent Rights |
If specified in the Award Agreement, the recipient of an Award may be entitled to receive dividend equivalent rights with respect to the Shares or other securities covered by an Award. The terms and conditions of a dividend equivalent right may be set forth in the Award Agreement. Dividend equivalents credited to a Grantee may be paid in cash or deemed to be reinvested in additional Shares or other securities of the Company at a price per unit equal to the Fair Market Value of a Share on the date that such dividend was paid to Stockholders. Notwithstanding the foregoing, dividends or dividend equivalents shall not be paid on any Award or portion thereof that is unvested or on any Award that is subject to the achievement of performance criteria before the Award has become earned and payable.
| 16.11. | Data Protection |
A Grantee’s acceptance of an Award shall be deemed to constitute the Grantee’s acknowledgement of and consent to the collection and processing of personal data relating to the Grantee so that the Company can meet its obligations and exercise its rights under the Plan and generally administer and manage the Plan. This data shall include data about participation in the Plan and Shares offered or received, purchased, or sold under the Plan and other appropriate financial and other data (such as the date on which the Awards were granted) about the Grantee and the Grantee’s participation in the Plan.
| 16.12. | Disqualifying Dispositions |
Any Grantee who shall make a “disposition” (as defined in Section 424 of the Code) of all or any portion of Shares acquired upon exercise of an Incentive Stock Option within two years from the Grant Date of such Incentive Stock Option or within one year after the issuance of the Shares acquired upon exercise of such Incentive Stock Option shall be required to immediately advise the Company in writing as to the occurrence of the sale and the price realized upon the sale of such shares of Common Stock.
| 16.13. | Plan Construction |
In the Plan, unless otherwise stated, the following uses apply:
| (1) | references to a statute or law refer to the statute or law and any amendments and any successor statutes or laws, and to all valid and binding governmental regulations, court decisions, and other regulatory and judicial authority issued or rendered thereunder, as amended, or their successors, as in effect at the relevant time; |
| (2) | in computing periods from a specified date to a later specified date, the words “from” and “commencing on” (and the like) mean “from and including,” and the words “to,” “until” and “ending on” (and the like) mean “to and including”; |
| (3) | indications of time of day shall be based upon the time applicable to the location of the principal headquarters of the Company; |
| (4) | the words “include,” “includes” and “including” (and the like) mean “include, without limitation,” “includes, without limitation” and “including, without limitation” (and the like), respectively; |
| (5) | all references to articles and sections are to articles and sections in the Plan; |
| (6) | all words used shall be construed to be of such gender or number as the circumstances and context require; |
| (7) | the captions and headings of articles and sections have been inserted solely for convenience of reference and shall not be considered a part of the Plan, nor shall any of them affect the meaning or interpretation of the Plan; |
| (8) | any reference to an agreement, plan, policy, form, document or set of documents, and the rights and obligations of the parties under any such agreement, plan, policy, form, document or set of documents, shall mean such agreement, plan, policy, form, document or set of documents as amended from time to time, and any and all modifications, extensions, renewals, substitutions or replacements thereof; and |
| (9) | all accounting terms not specifically defined shall be construed in accordance with GAAP. |
| 22 |
Exhibit 31.1
OFFICER’S CERTIFICATE
PURSUANT TO SECTION 302
I, Mark Dybul, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the period ended December 31, 2019 of Enochian Biosciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: February 10, 2020 | By: | /s/ Mark Dybul |
| Name: | Mark Dybul | |
| Title: | Executive Vice Chair (Principal Executive Officer) |
Exhibit 31.2
OFFICER’S CERTIFICATE
PURSUANT TO SECTION 302
I, Luisa Puche, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the period ended December 31, 2019 of Enochian Biosciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: February 10, 2020 | By: | /s/ Luisa Puche |
| Name: | Luisa Puche | |
| Title: |
Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Enochian Biosciences, Inc. (the “Company”) on Form 10-Q for the period ended December 31, 2019 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| Date: February 10, 2020 | By: | /s/ Mark Dybul |
| Name: | Mark Dybul | |
| Title: | Executive Vice Chair (Principal Executive Officer) |
A signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Enochian Biosciences, Inc. (the “Company”) on Form 10-Q for the period ended December 31, 2019, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| Date: February 10, 2020 | By: | /s/ Luisa Puche |
| Name: | Luisa Puche | |
| Title: | Chief Financial Officer (Principal Financial Officer) |
A signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.