NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements are unaudited. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 31, 2018 and 2017 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s June 30, 2017 audited financial statements. The results of operations for the periods ended March 31, 2018 and March 31, 2017 are not necessarily indicative of the operating results for the full year.

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

Subsidiaries

Enochian Biopharma Inc. (“EBI”) was incorporated on May 19, 2017 and is a 100% owned subsidiary of the Registrant. EBI owns a perpetual, fully paid-up, royalty-free, sublicensable, and sole and exclusive worldwide license to research, develop, use, sell, have sold, make, have made, offer for sale, import and otherwise commercialize certain intellectual property in cellular therapies for the prevention, treatment, amelioration of and/or therapy exclusively for HIV in humans, and research and development exclusively relating to HIV in humans (the “Field”). The accompanying financial statements include the accounts of EBI from the date of the acquisition which was completed on February 16, 2018.

DanDrit BioTech A/S, a Danish corporation was incorporated on April 1, 2001 (“DanDrit Denmark”) and is a 100% owned subsidiary of the Registrant (subject to 123,464 common shares of DanDrit Denmark or 3.08% of outstanding shares to be acquired with the 185,053 shares of common stock of the Registrant (“Common Stock”) held in escrow according to Danish law (the “Escrow Shares”)). DanDrit Denmark engages in the research and development, manufacturing and clinical trials of pharmaceutical and biological products for the human treatment of cancer.

Acquisition of EBI - On January 12, 2018, the Registrant, DanDrit Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Registrant (“Acquisition Sub”), EBI and Weird Science LLC, a California limited liability company and the majority stockholder of EBI (“Weird Science”) entered into an Agreement and Plan of Merger (the “Acquisition Agreement”). On February 16, 2018, the transaction was completed when the Acquisition Sub merged with and into EBI, with EBI as the surviving corporation (the “Acquisition”). As consideration for the Acquisition, the stockholders of EBI 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 pro rata upon the exercise or conversion of any of the Registrant’s 650,000 Grant Warrants and 5,838,122 warrants which were outstanding at closing. As of March 31, 2018, 6,488,122 shares of Common Stock are contingently issuable in connection with the Acquisition of EBI.

Year End – In June 2015, the Registrant’s Board of Directors approved a change of the Registrant’s fiscal year end from December 31 to June 30. 

Consolidation — For the three and nine months ended March 31, 2018 and 2017, the consolidated financial statements include the accounts and operations of Enochian Biosciences, Inc., DanDrit Denmark, and Enochian Biopharma, Inc. All material inter-company transactions and accounts have been eliminated in the consolidation.

ENOCHIAN BIOSCIENCES, INC. (FORMERLY DANDRIT BIOTECH USA, INC.) AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Functional Currency / Foreign currency translation — The functional currency of Enochian and EBI is the U.S. Dollar. The functional currency of DanDrit 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 the periods ended March 31, 2018 and 2017. Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.

Cash and Cash Equivalents — The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company had balances held in financial institutions in Denmark and in the United States in excess of federally insured amounts at March 31, 2018 and June 30, 2017 of $16,768,493 and $3,624,482, 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 nine years (See Note 3).

Intangible Assets — Definite life intangible assets include patents and licenses. 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. License agreements cost represent the Fair Value of the license agreement on the date acquired. Intangible assets are amortized on a straight line basis over their estimated useful life. The estimated useful life of patents is twenty years from the date of application.

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.

Revenue Recognition and Sales —

The sale of the Company’s product is limited to compassionate use within approved countries. The Company accounts for revenue recognition in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101), and FASB ASC 605 Revenue Recognition. The Company recognizes revenue when rights and risk of ownership have passed to the customer, when there is persuasive evidence of an arrangement, product has been shipped or delivered to the customer, the price and terms are finalized, and collections of resulting receivable is reasonably assured. Products are primarily shipped FOB shipping point at which time title passes to the customer.

The sale of the Company’s product, ENO-4001 (previously known as MCV), is limited to compassionate use within approved countries.

Performance Obligations

We recognized revenue upon completion of our performance obligation. Our performance obligation is the delivery of product. Product revenue performance obligations are completed upon delivery and at that point in time, the control of the product is transferred to the customer and we are entitled to bill the customer for the product delivered.

Products are primarily shipped FOB shipping point at which time title passes to the customer.

Value Added Tax — In Denmark, Value Added Tax (“VAT”) of 25% of the invoice amount is collected in respect of the sales of goods on behalf of tax authorities. The VAT collected is not revenue of the Company; instead, the amount is recorded as a liability on the balance sheet until such VAT is paid to the authorities. VAT of 25% is also paid to Danish and EU vendors on invoices these amounts are refundable from the respective governmental authority and recorded as other receivables in the accompanying financial statements.

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 nine months ended March 31, 2018 and 2017 amounted to $511,537 and $47,181, respectively.

ENOCHIAN BIOSCIENCES, INC. (FORMERLY DANDRIT BIOTECH USA, INC.) AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes — The Company accounts for income taxes in accordance with FASB ASC Topic 740 Accounting for Income Taxes. This statement 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 common shares outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as under basic EPS) and potentially dilutive common shares. Potential common shares 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 nine months ended March 31, 2018 and March 31, 2017, the dilutive shares for both periods were excluded from the Diluted EPS calculation as the effect of these potential common shares is anti-dilutive.

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:

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.

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 9). During the years presented in the accompanying consolidated financial statements, the Company has granted stock options and warrants. The Company accounts for options and warrants in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation. Non-cash compensation costs for employee compensation and consulting fees for the nine month period ending March 31, 2018 and 2017 was $217,837 and $626,487, respectively. Non-cash compensation for the three month period ending March 31, 2018 and 2017 was $105,000 and $0, respectively. Non-cash compensation costs of $626,487 have been recognized for the vesting of options and warrants granted to officers, Board members, employees and consultants with an associated recognized tax benefit of $0 for both periods ended March 31, 2018 and 2017, respectively.

Stock-Based Compensation - The Company accounts for employee stock-based compensation in accordance with the guidance of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered.

The Company follows ASC Topic 505 - 50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees.  In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered.

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.

  Reclassification — The financial statements as of June 30, 2017 have been reclassified to conform with the headings used as of March 31, 2018 and included breaking out $1,600,354 in advances for purchase of common shares   from Notes Payable – Related Party to Advances for the Purchase of Common Shares. This reclassification is related to a private placement offering of 1,231,561 Units (see Note 9) for total proceeds to the Company of $1,601,029 that was completed on July 12, 2017, for which some funds were advanced prior to June 30, 2017.

Recently Issued Accounting Standards: In February 2016, the FASB issued ASU No. 2016-02 - Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The standard is effective on January 1, 2019, however early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance.

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.

ENOCHIAN BIOSCIENCES, INC. (FORMERLY DANDRIT BIOTECH USA, INC.) AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – ACQUISITION OF ENOCHIAN BIOSCIENCES

On January 12, 2018, Acquisition Sub, EBI and Weird Science entered into the Acquisition Agreement. On February 16, 2018, the Acquisition was completed when the Acquisition Sub merged with and into EBI, with EBI as the surviving corporation. As consideration for the Acquisition, the stockholders of EBI received (i) 18,081,962 shares of Common Stock, 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 650,000 Grant Warrants and 5,838,122 warrants which were outstanding at closing.

On February 16, 2018, the Registrant issued 18,081,962 shares of Common Stock and has recorded contingent consideration of potentially 6,488,122 shares of Common Stock to be issued upon the exercise of 5,838,122 warrants and 650,000 Grant Warrants of the Registrant which remain outstanding.

The transaction was accounted for in accordance with the provisions of ASC 805-10, Business Combinations. The Company retained independent appraisers to advise management in the preliminary determination of the fair value of the various assets acquired and liabilities assumed. The values assigned in these financial statements are preliminary and represent management’s best estimate of fair values as of the Closing Date. The Company has recorded estimated amounts of the fair market value of the assets acquired.  The determination of the allocation of the purchase price to the underlying tangible and intangible assets in the financial statements are subject to change as additional information becomes available.  As required by ASC 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Non-controlling Interest, management conducted a review to reassess whether they identified all the assets acquired and all the liabilities assumed, and followed ASC 805-20’s measurement procedures for Closing Date recognition of the fair value of net assets acquired.

The following are the fair value of assets acquired and liabilities assumed as of the Closing Date of February 16, 2018:  

The estimated fair value of the major components of the other intangible assets acquired and their estimated useful lives are as follows:  

[1] a perpetual, fully paid-up, royalty-free, sublicensable, and sole and exclusive worldwide license to research, develop, use, sell, have sold, make, have made, offer for sale, import and otherwise commercialize certain intellectual property in cellular therapies for the prevention, treatment, amelioration of and/or therapy exclusively for HIV in humans, and research and development exclusively relating to HIV in humans.

Under ASC 805-10, acquisition-related costs (i.e., advisory, legal, valuation and other professional fees) are not included as a component of consideration transferred but are accounted for as operating expenses in the periods in which the costs are incurred. Acquisition-related costs were $2,392,224 during the nine months ended March 31, 2018.

As of March 31, 2018, revenues of $0 and net loss of $15,000 from February 16, 2018 to March 31, 2018 of the acquired subsidiaries have been included in the Consolidated Financial Statements.

The following unaudited pro forma condensed financial information presents the combined results of operations of Company and EBI as if the acquisition had occurred as of the beginning of each period presented. The unaudited pro forma condensed financial information is not intended to represent or be indicative of the consolidated results of operations of the Company that would have been reported had the acquisition been completed as of the beginning of the period presented and should not be taken as being representative of the future consolidated results of operations of the Company :

[a] Pro forma adjustments represent the full year amortization of intangible assets acquired in the acquisition of EBI.  These assets were amortized on a straight-line basis over their estimated useful lives.  

[b] Eliminates intercompany transactions.

Depreciation expense amounted to $1,101 and $0 for the nine month period ended March 31, 2018 and 2017, respectively.

During February 2018, the Company acquired a License Agreement to the HIV therapy (“ENO-1001”) which consists of a a perpetual, fully paid-up, royalty-free, sublicensable, and sole and exclusive worldwide license to research, develop, use, sell, have sold, make, have made, offer for sale, import and otherwise commercialize certain intellectual property in cellular therapies for the prevention, treatment, amelioration of and/or therapy exclusively for HIV in humans, and research and development exclusively relating to HIV in humans .

Amortization expense for the nine months ended March 31, 2018 and 2017 was $764,967 and $10,869, respectively.

Expected future amortization expense for the years ended are as follows:

Impairment – During the fourth quarter of each year, Management performs its annual test of impairment of intangible assets assessing the qualitative factors and determines if it is more than likely than not that the fair value of the asset is greater than or equal to the carrying value of the asset.

ENOCHIAN BIOSCIENCES, INC. (FORMERLY DANDRIT BIOTECH USA, INC.) AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 — NOTE RECEIVABLE

On July 14, 2017, the Registrant agreed to loan to EBI up to $500,000 in exchange for a promissory note receivable executed by the Registrant (the “EBI Note”). The EBI Note had an outstanding balance of $457,813 which included accrued interest. This amount was forgiven upon the completion of the Acquisition on February 16, 2018. The Company recorded the forgiveness of this promissory note receivable as general and administrative expense as it paid for acquisition related expense.

As of March 31, 2018, and June 30, 2017, the outstanding balances of the loan payable to Sunrise Financial Group Inc. was $0, and $38,235, respectively as the loan was forgiven on March 19, 2018.

A 6% promissory note payable to NLBDIT 2010 Enterprises, LLC, an entity controlled by a shareholder of the Registrant, was acquired by the Registrant in the Share Exchange, payable on February 12, 2014 upon the completion date of the Share Exchange.  As of March 31, 2018, and June 30, 2017, the outstanding balance on such note, including accrued interest, was $0 and $49,581, respectively. During the three and nine months ended March 31, 2018, the Registrant recorded related party interest on the note of $502 and $1,686, respectively and during the three and nine months ended March 31, 2017, the Registrant recorded related party interest on the note of $579 and $1,763, respectively, as the loan was forgiven on March 19, 2018.

On July 1, 2016, the Registrant entered into a non-interest bearing convertible note for $60,150 with a shareholder of the Registrant (the “July 1 Note”). The July 1 Note matured on December 31, 2017 and was originally convertible into shares of Common Stock at $2.00 per share (see Note 9). The July 1 Note was amended on October 31, 2017, whereby it was convertible into shares of Common Stock at $1.60 per share and matured on December 31, 2017. As the Common Stock was trading at $2.50 on July 1, 2016, the Registrant bifurcated the intrinsic value of the beneficial conversion feature and recorded a discount of $15,038. As the July 1 Note was non-interest bearing, the Registrant imputed the interest at 3% and further recorded a discount of $2,639. The interest was amortized to expense using the effective interest method through the December 31, 2017 maturity. For the nine months ended March 31, 2018 and March 31, 2017, interest expense of $3,697 and $1,216 respectively, was recorded for the amortization of the discount. The July 1 Note was converted into 37,594 shares of Common Stock on February 16, 2018 at a conversion price of $1.60 per share.

On July 19, 2016, the Registrant entered into a non-interest bearing convertible note for $60,150 with a shareholder of the Registrant (the “July 19 Note”). The July 19 Note matured on December 31, 2017 and was originally convertible into shares of Common Stock at $2.00 per share (see Note 9). The July 19 Note was amended on October 31, 2017, whereby was convertible into shares of Common Stock at $1.60 per share and mature on December 31, 2017. As the July 19 Note was non-interest bearing, the Registrant imputed the interest at 3% and further recorded a discount of $2,555. The interest will be amortized to expense using the effective interest method through the December 31, 2017 maturity. For the nine months ended March 31, 2018 and March 31, 2017, interest expense of $3,697 and $1,216 respectively, was recorded for the amortization of the discount. The July 19 Note was converted into 37,594 shares of Common Stock on February 16, 2018 at a conversion price of $1.60 per share.

On August 24, 2016, the Registrant entered into a non-interest bearing convertible note for $90,225 with a shareholder of the Registrant (the “August 24 Note”) . The August 24 Note was later acquired by an entity controlled by a then board member and shareholder of the Registrant. The August 24 Note had a maturity date of December 31, 2017 and was originally convertible into shares of Common Stock at $2.00 per share. The August 24 Note was amended on October 31, 2017, whereby it was convertible into shares of Common Stock at $1.60 per share with a maturity date of December 31, 2017 (see Note 9). As the Common Stock was trading at $2.05 on August 24, 2016, the Registrant bifurcated the intrinsic value of the beneficial conversion feature and recorded a discount of $2,256. As the August 24 Note was non-interest bearing, the Registrant imputed the interest at 3% and further recorded a discount of $3,577. Interest was amortized to expense using the effective interest method through maturity. For the nine months ended March 31, 2018 and March 31, 2017, interest expense of $1,610 and $2,539, respectively, was recorded for the amortization of the discount. The August 24 Note was converted to 56,390 shares of Common Stock on November 29, 2017 at a conversion price of $1.60 per share .

ENOCHIAN BIOSCIENCES, INC. (FORMERLY DANDRIT BIOTECH USA, INC.) AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 — CONVERTIBLE NOTES PAYABLE – RELATED PARTY (continued)

On September 21, 2016 the Registrant entered into a non-interest bearing convertible note for $150,375 with a shareholder of the Registrant (the “September 21 Note”). The September 21 Note was later acquired by an entity controlled by a then board member and shareholder of the Registrant . The September 21 Note had a maturity date of December 31, 2017 and was originally convertible into shares of Common Stock at $2.00 per share. The September 21 Note was amended on October 31, 2017, whereby it was convertible into shares of Common Stock at $1.60 per share with a maturity date of December 31, 2017 (See Note 11). As the note was non-interest bearing, the Registrant imputed the interest at 3% and further recorded a discount of $5,630. Interest was amortized to expense using the effective interest method through maturity. For the nine months ended March 31, 2018 and March 31, 2017, interest expense of $1,202 and $2,244, respectively, was recorded for the amortization of the discount. The September 21 Note was converted to 93,984 shares of Common Stock on November 29, 2017 at a conversion price of $1.60 per share .

On March 9, 2017, the Registrant entered into a non-interest-bearing convertible note for $52,770 with an entity controlled by shareholder and former board member of the Registrant (the “March 9 Note”) . The March 9 Note was originally convertible into shares of Common Stock at $2.00 per share, and had an original maturity date of June 30, 2017. The March 9 Note was amended on October 31, 2017, whereby was convertible into shares of Common Stock at $1.60 per share with a maturity date of December 31, 2017 (See Note 11). As the note was non-interest bearing, the Registrant imputed the interest at 3% and further recorded a discount of $486. The interest was amortized to expense using the effective interest method through November 29, 2017, when the March 9 Note was converted to 32,982 shares of Common Stock at a conversion price of $1.60 per share .

NOTE 8 — LEASES

Operating Leases — The Registrant leased laboratory and production space under an operating lease agreement which terminated September 30, 2017. The lease called for monthly payments of DKK 6,300 (approximately $1,000 at September 30, 2017).

The Registrant had an agreement for use of virtual office space at a rate of $450 per month on a month-to-month basis, which was terminable by either party on one month’s notice. This lease was terminated effective November 30, 2017.

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

The Leased Premises consist of approximately 2,325 rentable square feet. The base rent for the Leased Premises increases by 3% each year over the Term, and ranges from approximately $8,719 per month for the first year to $10,107 per month for the two months of the sixth year. The equalized monthly lease payment for the term of the lease is $8,124. The Registrant is entitled to $70,800 in tenant improvement allowance in the form of free rent applied over 10 months in equal installments beginning in January of 2018.

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

For the nine months ended March 31, 2018 and March 31, 2017 the lease expenses charged  to general and administrative expenses amounted to $15,385 and $12,027, respectively . For the three months ended March 31, 2018 and March 31, 2017 the lease expenses charged  to general and administrative expenses amounted to $0 and $4,451, respectively.

ENOCHIAN BIOSCIENCES, INC. (FORMERLY DANDRIT BIOTECH USA, INC.) AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 — STOCKHOLDERS’ EQUITY

Common Stock — The Registrant has 100,000,000 authorized shares of Common Stock, par value $0.0001 per share. As of March 31, 2018, and June 30, 2017, there were 36,163,924 and 12,433,290 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 our Board of Directors from time to time may declare out of funds legally available.

Liquidation Rights — In the event of any liquidation, dissolution or winding-up of 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 May 15, 2017, the Registrant completed a private placement offering of units, with each unit consisting of one share of Common Stock and warrants to purchase two shares of Common Stock at a strike price of $1.30 per share (each, a “Unit”), for $1.30 per Unit. In total, the Registrant issued and sold 2,700,000 shares of Common Stock and warrants to acquire 5,400,000 shares of Common Stock for total proceeds to the Registrant of $3,510,000.

On June 9, 2017, the Registrant issued 200,000 shares of Common Stock valued at $240,000 in connection with a consulting agreement at $1.20 per share.  

On July 12, 2017, the Registrant completed a private placement offering of 1,231,561 Units at a price of $1.30 per Unit, for total proceeds to the Registrant of $1,601,029.

On August 30, 2017, the Registrant issued 62,687 shares of Common Stock to the CEO and recorded non-cash compensation expense of $112,837 with a cost basis of $1.80 per share.

On November 29, 2017 pursuant to the exercise of certain convertible promissory notes of $90,225, $150,375 and $52,770, the Registrant issued 183,356 shares of Common Stock with at a conversion price of $1.60 per share.

On February 13, 2018, the Registrant issued 18,750 shares of Common Stock with a cost basis of $5.60 per share or $105,000 for non-cash consulting compensation.

On February 16, 2018, the Registrant issued 75,188 shares of Common Stock at a conversion price of $1.60 per share for the conversion of $120,300 convertible promissory notes.

On February 16, 2018, the Registrant issued 2,400,000 shares of Common Stock pursuant to the exercise of warrants at strike prices ranging from $1.60 per share to $2.00 per share for total proceeds of $3,295,000.

On February 16, 2018, the Registrant issued 1,677,130 shares of Common Stock at a price of $8.00 per share pursuant to a private placement for total proceeds to the Registrant of $13,417,040.

On February 16, 2018, the Registrant issued 18,081,962 shares of Common Stock valued at the February 16, 2018 closing price of $5.20 pursuant to the Acquisition Agreement.

  Stock Grants   —  On September 15, 2016, the Board of Directors of the Registrant (the “Board”) granted the right to acquire 300,000 shares of Common Stock at a strike price of $2.00 per share in what the Board originally described as “options” (the “Grants”) to each of Eric Leire, APE Invest A/S for Aldo Petersen and N.E. Nielson in consideration of their service to the Registrant. These Grants vested immediately and expire December 31, 2019. 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.

Acquisition of EBI / Contingently issuable shares —   On January 12, 2018, the Registrant, Acquisition Sub, EBI and Weird Science entered into the Acquisition Agreement. On February 16, 2018, the Acquisition was completed when the Acquisition Sub merged with and into EBI, with EBI as the surviving corporation. As consideration for the Acquisition, the stockholders of EBI received (i) 18,081,962 shares of Common Stock, 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 650,000 Grant Warrants / stock options and 5,838,122 warrants which were outstanding at closing. As of March 31, 2018, 6,488,122 common shares are contingently issuable in connection with the Acquisition of EBI.

Acquisition of DanDrit Denmark —  185,053 Escrow Shares are reserved by the Company and are reflected as issued and outstanding in the accompanying financial statements to acquire the 123,464 non-consenting common shareholders Dandrit Denmark in accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark.

ENOCHIAN BIOSCIENCES, INC. (FORMERLY DANDRIT BIOTECH USA, INC.) AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 — STOCKHOLDERS’ EQUITY (Continued)

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 options under the Plan (“Plan Options”) to purchase 30,304 shares of Common Stock

A summary of the status of the Plan Options and the Grant Warrants at March 31, 2018, and changes during the period are presented below:

At March 31, 2018, all Grant Warrants issued are exercisable and none of the Plan Options are vested or exercisable. The total intrinsic value of Grant Warrants at March 31, 2018 was $2,275,000. Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at March 31, 2018 (for outstanding Grant Warrants), less the applicable exercise price.  

The Registrant recognized stock-based compensation expense related to Plan Options and Grant warrants of $0 and $626,487 for the three and nine months ended March 31, 2018, respectively. At March 31, 2018, the Company had $225,000 of unrecognized compensation cost related to non-vested Plan Options.

Pursuant to the Plan on February 28, 2018, when the stock price was $5.95 per share, the Board granted Plan Options to purchase 22,824 shares of Common Stock at exercise price of $8.00 per share, life and expected term of 10 years, volatility of 174.34%, risk free interest rate of 2.77% and dividend yield of 0%, with a Black Scholes fair value of $45,000, to three board members in consideration of their service to the Registrant, which vest annually in equal amounts over 3 years beginning after the first full year of board service.

Pursuant to the Plan on March 6, 2018, when the stock price was $6.00 per share, the Board granted Plan Options to purchase 15,088 shares of Common Stock at exercise price of $8.00 per share, life and expected term of 10 years, volatility of 174.34%, risk free interest rate of 2.88% and dividend yield of 0%, with a Black Scholes fair value of $45,000, to two board members in consideration of their service to the Registrant, which vest annually in equal amounts over 3 years beginning after the first full year of board service.

The Company recognizes compensation costs for the Plan Options and Grant Warrants to employees based on their grant-date fair value. The value of each Grant Warrant 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 Grant Warrant granted during 2016 were life and expected term of 3.29 years, volatility of 189.65%, risk free interest rate of 0.87% and dividend yield of 0%, 

A summary of the status of the Plan Options and Grant Warrants issued to an officer, and two (now former) directors outstanding at March 31, 2018 is presented below: 

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.  

ENOCHIAN BIOSCIENCES, INC. (FORMERLY DANDRIT BIOTECH USA, INC.) AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 — COMMITMENTS AND CONTINGENCIES

Consulting Agreements – On February 16, 2018, the Registrant entered into a consulting agreement with Weird Science under which Weird Science will provide ongoing medical services related to the development of the Company’s products for the treatment of HIV and cancer. In consideration for such consulting services, the Company will pay up to $30,000 per month for the consulting services.

On February 16, 2018, the Registrant entered into a consulting agreement with Carl Sandler, a board member and shareholder of the Registrant for services related to clinical development and new business opportunities. In consideration for his services actually rendered, the Registrant will pay $10,000 per month for 3 months.  For the three months ended March 31, 2018, Carl Sandler was paid $10,000 for consulting services. This amount is included in “Consulting Expenses” in our Consolidated Statement of Operations.

Pre-Clinical Trial Loan – On July 14, 2017, the Registrant agreed to loan to EBI up to $500,000 in exchange for the EBI Note to fund pre-clinical study programs, including a study with syngeneic and humanized mice models. The EBI Note was retired upon the completion of the Acquisition on February 16, 2018, and the Company is continuing EBI’s pre-clinical study programs as research and development expenses of the Company (see Note 1).

Clinical Trial Agreements –DanDrit Denmark signed a contract of collaboration with the University Hospital IRCCS “San Martino” - IST – National Institute for Cancer Research, known as the San Martino Hospital of Genoa in January of 2015. The collaboration relates to a Phase III adjuvant study of the Company’s vaccine in patients with no evident disease (“NED”) stage IV colorectal cancer (“CRC”). The primary goal of the study is to evaluate the efficacy of the Company’s ENO-4001 cancer vaccine (previously known as MCV) in stage IV CRC patients rendered disease free after the completion of standard treatments in accordance with local practices.

On April 28, 2015, DanDrit Denmark entered into a service agreement with Fondazione GISCAD per la RicercasuiTumori to support Dandrit in a clinical trial to be conducted in Italy.

Patient Name Use Program Agreements - On December 16, 2013, DanDrit Denmark entered into an agreement with a Dutch company (the “ENO-4001 Partner”) regarding a Patient Name Use Program (PNU) for the Company’s ENO-4001.  This program will allow DanDrit Denmark to sell MCV for a year of treatment (10 vaccines) to cancer patients through the ENO-4001 Partner.  The ENO-4001 Partner offers a worldwide online platform providing access to non-registered medicines for patients with life threatening diseases. The ENO-4001 Partner is a turnkey solution and will be in charge of regulatory, recruitment, logistics, and pharmaco vigilance.   The Company will pay the ENO-4001 Partner a royalty on a country to country basis for 20 years on ENO-4001 sales sold under the agreement. Either party may terminate the agreement with 180 day written notice.

On April 23, 2015, the Company entered into a collaboration agreement with Riyadh Pharma in Saudi Arabia to promote cooperation in the manufacturing and marketing of DanDrit’s dendritic cell cancer vaccine ENO-4001.

Manufacturing Agreements - On January 28, 2014, the Company entered into an agreement with Cellin Technologies for the manufacture of the ENO-4001 Cancer vaccine.

On August 8, 2014, the Company entered into an agreement with Cellin Technologies for the manufacture of the Melanoma Cell Lysate.

  Shares held for Non-Consenting Shareholders – In connection with the Share Exchange agreement certain shareholders of Dandrit Denmark had not been identified or did not consent to the exchange of shares. In accordance with Section 70 of the Danish Companies Act and the Articles of Association of DanDrit Denmark, the non-consenting shareholders that did not exchange the DanDrit Denmark equity interests owned by such Non-Consenting Shareholders for shares of the Company, will be entitled to receive up to 185,053 Escrow Shares that each such non-consenting shareholder would have been entitled to receive if such shareholder had consented to the Share Exchange. The 185,053 Escrow Shares have been reflected as issued and outstanding in the accompanying financial statements.

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

Employment Agreements - The Company and its subsidiaries have employment agreements with officers and certain employees of each respective entity.

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.

ENOCHIAN BIOSCIENCES, INC. (FORMERLY DANDRIT BIOTECH USA, INC.) AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 — RELATED PARTY TRANSACTIONS

Between July 1, 2016 and March 9, 2017, the Registrant entered into the 2016/2017 Notes with shareholders of the Registrant, one of whom is a former director of the Registrant (see Note 7). On October 31, 2017, the Registrant executed amendments to the 2016/2017 Notes and issued replacement notes to the current holders of such notes. The 2016/2017 Notes, as amended, were convertible into shares of Common Stock at $1.60 per share and mature on December 31, 2017. The holders of the 2016/2017 Notes have converted such notes into 150,374 shares of Common Stock (See Note 7).   

On December 29, 2017, the Registrant entered into a consulting agreement with RS Group ApS, a company owned and controlled by 2 directors for consulting services from October 1, 2017 through March 31, 2018. In consideration for the consulting services in connection with the negotiation and structuring of the acquisition of EBI , the Registrant paid RS Group ApS $367,222.  

On July 1, 2016, the Registrant entered into a consulting agreement with APE Invest AS (an entity owned by a former director of the Registrant) for consultancy.  The agreement called for a monthly payment of $20,000 with a $100,000 retainer payment due November 1, 2016.  The agreement was terminated on June 9, 2017.

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

On February 16, 2018 the Registrant entered into a consulting agreement with Carl Sandler, a board member and shareholder of the Registrant for services related to clinical development and new business opportunities. In consideration for his services actually rendered, the Registrant shall pay $10,000 per month for 3 months. For the three months ended March 31, 2018, Carl Sandler was paid $10,000 for consulting services. This amount is included in “Consulting Expenses” in our Consolidated Statement of Operations. 

On February 16, 2018 the Registrant entered into a consulting agreement with Weird Science. In consideration for consulting services, the Registrant shall pay up to $30,000 per month.