SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Jun. 30, 2021

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business– Enochian BioSciences Inc., formerly DanDrit Biotech USA, Inc. (“Enochian”, or “Registrant”, and together with its subsidiaries, the “Company”, “we” or “us”) engages in the research and development of pharmaceutical and biological products for the human treatment of HIV, HBV, influenza and coronavirus infections, and cancer with the intent to manufacture said products.

Basis of Presentation- The Company prepares consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and follows the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

Consolidation - For the years ended June 30, 2021 and 2020, the consolidated financial statements include the accounts and operations of the Registrant, and its wholly owned subsidiaries. All material inter-company transactions and accounts have been eliminated in the consolidation.

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

Subsidiaries- Enochian Biopharma Inc. (“Enochian Biopharma”) was incorporated on May 19, 2017 in Delaware and is a 100% owned subsidiary of the Registrant. Enochian Biopharma owns a perpetual, fully paid-up, royalty-free, sublicensable, and sole and exclusive worldwide license to research, develop, use, sell, have sold, make, have made, offer for sale, import and otherwise commercialize certain intellectual property in cellular therapies for the prevention, treatment, amelioration of and/or therapy exclusively for HIV in humans, and research and development exclusively relating to HIV in humans. As of June 30, 2021 and June 30, 2020, 1,350,000 and 1,438,122 shares of Common Stock, respectively, remain contingently issuable in connection with the acquisition of Enochian BioPharma in February 2018 (the “Contingent Shares”).

Enochian Biosciences Denmark ApS, a Danish corporation was incorporated on April 1, 2001 (“Enochian Denmark”). On February 12, 2014, in accordance with the terms and conditions of a Share Exchange Agreement, the Company acquired Enochian Denmark and it became a 100% owned subsidiary of the Registrant subject to 185,053 shares of common stock of the Registrant held in escrow according to Danish law (the “Escrow Shares”). As of June 30, 2021, there are 17,414, Escrow Shares remaining (see Note 7).

COVID-19 Update

The COVID-19 pandemic continues to evolve, and to date has led to the implementation of various mitigation responses, including government-imposed quarantines, travel restrictions and other public health safety measures, as well as leading to reported adverse impacts on healthcare resources, facilities and providers across the United States and in other countries. COVID-19 may cause delays in our research activities. To date, it has not materially affected our operations; however, it has caused delays in the conduct of experiments due to limitations of various organizations, in particular those conducting experiments related to COVID-19. There have also been increases in the cost to conduct animal studies due to staffing and other limitations.

The full extent to which the COVID-19 pandemic may impact our business and operations is subject to future developments, which are uncertain and difficult to predict. Further quarantines, shelter-in-place or similar restrictions and other actions taken or imposed by foreign, federal, state and local governments could adversely impact our or our partners’ clinical, research and development, regulatory and manufacturing operations or timelines.

We continue to monitor the impact of the COVID-19 pandemic on our business and operations and will seek to adjust our activities as appropriate. In addition, the pandemic could result in significant and prolonged disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect the financial resources available to us.

Functional Currency and Foreign Currency Translation - The functional currency of Enochian Denmark is the Danish Kroner (“DKK”). The Company is reporting currency is the U.S. Dollar for the purpose of these financial statements. The Company’s consolidated balance sheet accounts are translated into U.S. dollars at the period-end exchange rates and all revenue and expenses are translated into U.S. dollars at the average exchange rates prevailing during the years ended June 30, 2021 and 2020. Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.

Cash and Cash Equivalents - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company’s cash balances at June 30, 2021, and 2020, are $20,664,410 and $8,696,361, respectively. The Company had balances held in financial institutions in Denmark and in the United States in excess of federally insured amounts at June 30, 2021 and 2020 of $20,287,212, and $8,160,271, respectively.

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

Intangible Assets - The Company has both Definite and Indefinite life intangible assets.

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

Indefinite life intangible assets include license agreements and goodwill acquired in a business combination. The Company accounts for indefinite life intangible assets in accordance with ASC 350, License agreement costs represent the fair value of the license agreement on the date acquired and are tested annually for impairment.

Goodwill - Goodwill is not amortized but is evaluated for impairment annually as of June 30 or whenever events or changes in circumstances indicate the carrying value may not be recoverable.

Impairment of Goodwill and Indefinite Lived Intangible Assets – We test for goodwill impairment at the reporting unit level, which is one level below the operating segment level. Our detailed impairment testing involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit and is based on discounted cash flows or relative market-based approaches. If the carrying value of the reporting unit exceeds its fair value, we record an impairment loss for such excess. The carrying value of IPR&D and goodwill at June 30, 2021, were $154,824,000 and $11,640,000, respectively.

For indefinite-lived intangible assets, such as licenses acquired as an IPR&D asset, on an annual basis we determine the fair value of the asset and record an impairment less, if any, for the excess of the carrying value of the asset over its fair value. The fair value analysis performed on the license agreement, and the annual fair value analysis performed on goodwill supported that both indefinite life intangible assets are not impaired as of June 30, 2021 (see Note 3.)

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

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

 Leases - In accordance with ASC Topic 842, the Company determined the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date and thereafter. The lease terms include any renewal options and termination options that the Company is reasonably assured to exercise, if applicable. The present value of lease payments is determined by using the implicit interest rate in the lease, if that rate is readily determinable; otherwise, the Company develops an incremental borrowing rate based on the information available at the commencement date in determining the present value of the future payments.

Rent expense for operating leases is recognized on a straight-line basis, unless the operating lease right-of-use assets have been impaired, over the reasonably assured lease term based on the total lease payments and is included in general and administrative expenses in the consolidated statements of operations. For operating leases that reflect impairment, the Company will recognize the amortization of the operating lease right-of-use assets on a straight-line basis over the remaining lease term with rent expense still included in general and administrative expenses in the consolidated statements of operations.

The Company has elected the practical expedient to not separate lease and non-lease components. The Company’s non-lease components are primarily related to property maintenance, insurance and taxes, which vary based on future outcomes, and thus are recognized in general and administrative expenses when incurred (see Note 4.)

Research and Development Expenses - The Company expenses research and development costs incurred in formulating, improving, validating and creating alternative or modified processes related to and expanding the use of the HIV, HBV, Coronaviruses and Oncology therapies and technologies for use in the prevention, treatment, amelioration of and/or therapy for HIV, HBV, Coronaviruses and Oncology. Research and development expenses for the year ended June 30, 2021 and 2020 amounted to $15,538,122 and $4,694,349, respectively.

Income Taxes - The Company accounts for income taxes in accordance with FASB ASC Topic 740 Accounting for Income Taxes, which requires an asset and liability approach for accounting for income taxes (see Note 6.)

Loss Per Share - The Company calculates earnings (loss) per share in accordance with FASB ASC 260 Earnings Per Share. Basic earnings per common share (EPS) are based on the weighted average number of shares of Common Stock outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed as for basic EPS) and potentially dilutive common shares. Potential shares of Common Stock included in the diluted earnings per share calculation include in-the-money stock options that have been granted but have not been exercised. The shares of Common Stock outstanding at June 30, 2021 and 2020 were 52,219,661 and 46,497,409, respectively. Because of the net loss for each of years ended June 30, 2021 and June 30, 2020, dilutive shares for both periods were excluded from the diluted EPS calculation, as the effect of these potential shares of Common Stock is anti-dilutive. The Company had 4,011,653 and 4,091,686 potential shares of Common Stock excluded from the diluted EPS calculation for the years ended June 30, 2021 and 2020, respectively.

Fair Value of Financial Instruments - The Company accounts for fair value measurements for financial assets and financial liabilities in accordance with FASB ASC Topic 820, Fair Value Measurements. Under the authoritative guidance, fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

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

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

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

There were no assets that use Level 1, 2 or 3 inputs, nor any liabilities that use Level 1 or 2 inputs as of June 30, 2021.

Liabilities that use Level 3 inputs held as of June 30, 2021 consisted of a contingent consideration liability related to the February 16, 2018 acquisition of Enochian BioPharma (the “Acquisition”). As consideration for the Acquisition, the stockholders of Enochian Biopharma received (i) 18,081,962 shares of Common Stock, and (ii) the right to receive contingent shares pro rata upon the exercise of warrants, which were outstanding at closing. The contingent consideration liability was recorded at fair value of $21,516,000 at the time of the Acquisition and is subsequently remeasured to fair value at each reporting date. At June 30, 2021, 1,350,000 contingent shares are issuable in connection with the Acquisition of Enochian Biopharma.

The fair value of the contingent consideration liability is estimated using an option-pricing model. The key inputs to the model are all contractual or observable with the exception being volatility, which is computed, based on the Company’s underlying stock. The key inputs to valuing the contingent consideration liability on the date of acquisition and as of June 30, 2021, include the Company’s stock price on the valuation date of $4.97; the exercise price of the warrants of $1.30, the risk-free rate of 0.08%, the expected volatility of the Company’s Common Stock of 79.2%, and the digital call rate of 90%. Fair Value measurements are highly sensitive to changes in these inputs and significant changes in these inputs could result in a significantly higher or lower fair value.

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

The following table sets forth the liabilities at June 30, 2021 and 2020, which are recorded on the balance sheet at fair value on a recurring basis by level of input within the fair value hierarchy. As required, these are classified based on the lowest level of input that is significant to the fair value measurement:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets Inputs		Significant Other Observable Inputs		Significant Other Unobservable   Inputs
	(Level 1)		(Level 2)		(Level 3)
Contingent Consideration Liability at June 30, 2021	$	—	$	—	$	6,037,945
The roll forward of the contingent consideration liability is as follows:
Balance June 30, 2020						3,182,434
Contingent Shares issued pursuant to the Acquisition Agreement						(192,522	)
Fair value adjustment		—		—		3,048,033
Balance June 30, 2021	$	—	$	—	$	6,037,945

Stock Options and Warrants - The Company has granted stock options to certain employees, officers and directors that were subsequently converted to Grant Warrants. During the years presented in the accompanying consolidated financial statements, the Company has granted stock options and warrants. The Company accounts for options and warrants in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation. Stock-based compensation costs related to employee compensation and consulting fees for the years ended June 30, 2021 and 2020 were $1,444,798 and $1,028,724, respectively (see Note 7).

Stock-Based Compensation —The Company records stock-based compensation for services received from non-employees in accordance with ASC 718. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued for goods or services and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the consultants’ required service period, which is generally the vesting period. For the year ended June 30, 2021, the Company issued 35,000 shares at a value of $147,000. For the year ended June 30, 2020, the Company issued 30,000 shares at a value of $144,000 (see Note 7.)

Recent Accounting Pronouncements - The Company adopted ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements, which amends certain disclosures requirements over fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 inputs of the fair value hierarchy or valuation processes for Level 3 inputs in fair value measurements. However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. The Company adopted this guidance on July 1, 2020, and there was no material impact to its consolidated financial statement disclosures (see Note 1-Fair Value of Financial Instruments for more information about the Company’s fair value classifications.)

New Accounting Pronouncements Not Yet Adopted - Recent accounting pronouncements issued by the FASB do not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.