10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: September 30, 2019

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

For the transition period from ____________to _____________

Commission File Number: 001-37357

INNOVATION PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

Nevada	30-0565645
(State or other jurisdiction of	(I.R.S. Empl. Ident. No.)
incorporation or organization)

100 Cummings Center, Suite 151-B

Beverly, MA 01915

(Address of principal executive offices, Zip Code)

(978) 921-4125

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 x 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 x No ¨

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

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-Accelerated Filer	x	Smaller reporting company	x
		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 x

The number of shares outstanding of each of the issuer’s classes of common equity, as of November 8, 2019 is as follows:

Class of Securities	Shares Outstanding
Common Stock Class A, $0.0001 par value	212,369,124
Common Stock Class B, $0.0001 par value	909,090

   

INNOVATION PHARMACEUTICALS INC.

FORM 10-Q

For the Quarter Ended September 30, 2019

TABLE OF CONTENTS

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2019 and June 30, 2019 (unaudited)	4
	Condensed Consolidated Statements of Operations for the three months ended September 30, 2019 and 2018 (unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Deficiency for the three months ended September 30, 2019 and 2018 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2019 and 2018 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	42

Item 1.	Legal Proceedings	43
Item 1A	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
SIGNATURES		45

2

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Any statements contained in this report that are not statements of historical fact may be forward-looking statements. When we use the words “intends,” “estimates,” “predicts,” “potential,” “continues,” “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will” or the negative of these terms or other comparable terminology, we are identifying forward-looking statements. These forward-looking statements include, but are not limited to, any statements regarding our future financial performance, results of operations or sufficiency of capital resources to fund our operating requirements; statements relating to potential licensing, partnering or similar arrangements concerning our drug compounds; statements concerning our future drug development plans and projected timelines for the initiation and completion of preclinical and clinical trials; the potential for the results of ongoing preclinical or clinical trials; other statements regarding our future product development and regulatory strategies, including with respect to specific indications; and any other statements which are other than statements of historical fact. Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. These factors include, but are not limited to, our ability to continue as a going concern and our capital needs; our ability to fund and successfully progress internal research and development efforts and to create effective, commercially-viable drugs; our ability to effectively and timely conduct clinical trials; our ability to ultimately distribute our drug candidates; our ability to achieve certain future regulatory, development and commercialization milestones under our license agreement with Alfasigma S.p.A.; and compliance with regulatory requirements, as well as other factors described elsewhere in this report and our other reports filed with the Securities and Exchange Commission (the “SEC”). Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Forward-looking statements speak only as of the date on which they are made. Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the SEC that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business. Readers are cautioned not to put undue reliance on forward-looking statements.

For further information about these and other risks, uncertainties and factors, please review the disclosure included in our Annual Report on Form 10-K under “Part I, Item 1A, Risk Factors” and in this report under “Part II, Item 1A, Risk Factors.”

3

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INNOVATION PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Rounded to nearest thousand except for shares data)

	September 30,			June 30,
	2019			2019
ASSETS
Current Assets:
Cash	$	910,000		$	579,000
Prepaid expenses and other current assets		57,000			46,000
Total Current Assets		967,000			625,000
Other Assets:
Patent costs - net		3,270,000			3,342,000
Property, plant and equipment -net		-			1,000
Security deposit		78,000			78,000
Total Other Assets		3,348,000			3,421,000
Total Assets	$	4,315,000		$	4,046,000
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current Liabilities:
Accounts payable - (including related party payables of approx. $1,498,000 and $1,511,000, respectively)	$	2,143,000		$	2,127,000
Accrued expenses - (including related party accruals of approx. $42,000 and $45,000, respectively)		82,000			85,000
Accrued salaries and payroll taxes -(including related party accrued salaries of approx. $3,129,000 and $3,129,000, respectively)		3,201,000			3,162,000
Operating lease current liability		120,000			-
Note payable - related party		1,922,000			1,922,000
Total Current Liabilities		7,468,000			7,296,000
Other Liabilities:
Series B 5% convertible preferred stock liability at $1,080 stated value; 1,584 and 1,196 shares issued and outstanding at September 30, 2019 and June 30, 2019, respectively		868,000			879,000
Operating lease long term liability		523,000			-
Total Liabilities		8,859,000			8,175,000
Commitments and contingencies (Note 9)
Stockholders’ Deficiency
Preferred stock, $0.001 par value, 10,000,000 designated shares, no shares issued and outstanding		-			-
Common Stock - Class A, $0.0001 par value, 600,000,000 shares and 300,000,000 shares authorized, as of September 30, 2019 and June 30, 2019, respectively, 213,028,572 shares and 202,860,141 shares issued as of September 30, 2019 and June 30, 2019, respectively, 212,369,124 shares and 202,631,923 shares outstanding as of September 30, 2019 and June 30, 2019, respectively		22,000			21,000
Common Stock - Class B, (10 votes per share); $.0001 par value, 100,000,000 shares authorized, 909,090 shares and 909,090 shares issued and outstanding as of September 30, 2019 and June 30, 2019, respectively		-			-
Additional paid-in capital		91,726,000			90,537,000
Accumulated deficit		(96,146,000	)		(94,596,000	)
Treasury Stock, at cost (659,448 shares and 228,218 shares as of September 30, 2019 and June 30, 2019, respectively)		(146,000	)		(91,000	)
Total Stockholders’ Deficiency		(4,544,000	)		(4,129,000	)
Total Liabilities and Stockholders’ Deficiency	$	4,315,000		$	4,046,000

The accompanying notes are an integral part of these condensed consolidated financial statements

4

INNOVATION PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Unaudited)

(Rounded to nearest thousand except for shares and per share data)

	2019			2018
Revenues
Licensing income	$	400,000		$	-
Operating expenses:
Research and development expenses		803,000			1,357,000
General and administrative expenses		265,000			260,000
Officers’ payroll and payroll tax expenses		118,000			123,000
Professional fees		155,000			259,000
Total operating expenses		1,341,000			1,999,000
Loss from operations		(941,000	)		(1,999,000	)
Other income (expense)
Interest expense		(48,000	)		(51,000	)
Interest expense- preferred stock		(20,000	)		-
Change in fair value of preferred stock		102,000			-
Impairment expense of operating lease		(643,000	)		-
Total other expense - net		(609,000	)		(51,000	)
Loss before provision for income taxes		(1,550,000	)		(2,050,000	)
Provision for income taxes		-			-
Net loss	$	(1,550,000	)	$	(2,050,000	)
Basic and diluted loss per share attributable to common stockholders	$	(0.01	)	$	(0.01	)
Weighted average number of common shares		205,666,583			163,284,314

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

INNOVATION PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Unaudited)

(Rounded to nearest thousand, except for shares data)

For the Three Months Ended September 30, 2018

	Common Stock A				Common Stock B
			Par Value				Par Value		Additional Paid-in		Accumulated			Treasury Stock
	Shares		$	0.0001	Shares		$	0.0001	Capital		Deficit			Shares		Amount		Total
Balance at June 30, 2018		163,103,927	$	17,000		-	$	-	$	83,747,000	$	(85,915,000	)		-	$	-	$	(2,151,000	)
Shares issued to consultant for services at $0.84 - $1.38		-		-		-		-		3,000		-			-		-		3,000
Shares issued to officer as equity awards at $0.398 to $0.705		-		-		-		-		112,000		-			-		-		112,000
Stock options issued to consultant for services at $0.43 - $0.73		-		-		-		-		10,000		-			-		-		10,000
Stock options issued to officer as equity awards at $0.398 to $0.705		-		-		-		-		60,000		-			-		-		60,000
Issuance of 572,264 shares to Officer and employee		572,264		-		-		-		-		-			-		-		-
Shares issued to employee for services at $0.398 - $1.37		-		-		-		-		12,000		-			-		-		12,000
Stock options issued to employee for services at $0.398 - $1.37		-		-		-		-		32,000		-			-		-		32,000
Net loss for the three months ended 9/30/2018		-		-		-		-				(2,050,000	)		-		-		(2,050,000	)
Balance at September 30, 2018		163,676,191	$	17,000		-	$	-	$	83,976,000	$	(87,965,000	)		-	$	-	$	(3,972,000	)

For the Three Months Ended September 30, 2019

	Common Stock A					Common Stock B
				Par Value				Par Value		Additional Paid-in		Accumulated			Treasury Stock
	Shares			$	0.0001	Shares		$	0.0001	Capital		Deficit			Shares		Amount			Total
Balance at June 30, 2019		202,631,923		$	21,000		909,090	$	-	$	90,537,000	$	(94,596,000	)		228,218	$	(91,000	)	$	(4,129,000	)
Shares issued to officer as equity awards at $0.398 to $0.705		-			-		-		-		65,000		-			-		-			65,000
Stock options issued to officer as equity awards at $0.398 to $0.705		-			-		-		-		124,000		-			-		-			124,000
Shares issued to employee for services at $0.398 - $1.37		-			-		-		-		28,000		-			-		-			28,000
Stock options issued to employee for services at $0.398 - $1.37		-			-		-		-		10,000		-			-		-			10,000
Shares issued to consultant for services at $0.43		-			-		-		-		3,000		-			-		-			3,000
Stock options issued to consultant for services at $0.43 - $0.73		-			-		-		-		6,000		-			-		-			6,000
Issuance of 12,500 shares to Consultant		12,500			-		-		-		-		-			-		-			-
Issuance of 1,066,667 shares to Officer & 421,611 shares were withheld for tax purposes as Treasury shares		1,066,667			-		-		-		-		-			-		-			-
Issuance of shares for tax purposes as Treasury Shares		(421,611	)		-		-		-		-		-			421,611		(54,000	)		(54,000	)
Issuance of 58,394 shares to employee & 9,619 shares were withheld for tax purposes as Treasury shares		58,394			-		-		-		-		-			-		-			-
Issuance of shares for tax purposes as Treasury Shares		(9,619	)		-		-		-		-		-			9,619		(1,000	)		(1,000	)
Conversion of 890 preferred stocks to 9,030,870 common stock		9,030,870			1,000		-		-		475,000		-			-		-			476,000
Excess of exercise price of 1,045 warrants over fair value		-			-		-		-		478,000		-			-		-			478,000
Net loss for the 3 months ended 9/30/2019 - unaudited		-			-		-		-		-		(1,550,000	)		-		-			(1,550,000	)
Balance at September 30, 2019		212,369,124		$	22,000		909,090	$	-	$	91,726,000	$	(96,146,000	)		659,448	$	(146,000	)	$	(4,544,000	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

  

INNOVATION PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Unaudited)

(Rounded to nearest thousand)

	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,550,000	)	$	(2,050,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock and stock options issued as compensation		236,000			229,000
Amortization of patent costs		93,000			94,000
Interest expense-preferred stock		20,000			-
Change in fair value of preferred stock		(102,000	)		-
Impairment expense of operating lease		643,000			-
Changes in operating assets and liabilities:
Prepaid expenses and security deposits		(11,000	)		43,000
Accounts payable		16,000			(395,000	)
Accrued expenses		(3,000	)		(92,000	)
Accrued officers’ salaries and payroll taxes		38,000			72,000
Net cash used in operating activities		(620,000	)		(2,099,000	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent costs		(21,000	)		(19,000	)
Net cash used in investing activities		(21,000	)		(19,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants		1,027,000			-
Purchase of treasury stock		(55,000	)		-
Net cash provided by financing activities		972,000			-
NET DECREASE IN CASH		331,000			(2,118,000	)
CASH, BEGINNING OF PERIOD		579,000			2,424,000
CASH, END OF PERIOD	$	910,000		$	306,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	51,000		$	63,000
Cash paid for tax	$	-		$	-
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INVESTING AND FINANCING ACTIVITIES
Conversion of Series B Convertible Preferred stock to Common stock	$	476,000		$	-
Excess of exercise price of 1,045 warrants over fair value	$	478,000		$	-

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

INNOVATION PHARMACEUTICALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

(Unaudited)

Note 1. Basis of Presentation and Nature of Operations

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements of Innovation Pharmaceuticals Inc. have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with our audited financial statements for the year ended June 30, 2019, included in our Annual Report on Form 10-K for the year ended June 30, 2019.

In the opinion of the management of Innovation Pharmaceuticals Inc., all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month periods have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year. When used in these notes, the terms “Company,” “we,” “us” or “our” mean Innovation Pharmaceuticals Inc.

Basis of Presentation

Innovation Pharmaceuticals Inc. (“Innovation”) was incorporated on August 1, 2005 in the State of Nevada. Effective June 5, 2017, the Company amended its Articles of Incorporation and changed its name from Cellceutix Corporation to Innovation Pharmaceuticals Inc. On February 15, 2019, the Company formed IPIX Pharma Limited (“IPIX Pharma”), a wholly-owned subsidiary incorporated under the Companies Act 2014 of Ireland. IPIX Pharma is a Private Company Limited by Shares. The subsidiary will serve as a key hub for strategic collaboration with European companies and medical communities in addition to providing cost-saving efficiencies and flexibility with respect to developing Brilacidin under European Medicines Agency standards.

The Company is a clinical stage biopharmaceutical company. The Company’s common stock is quoted on OTCQB, symbol “IPIX.”

Basis of Consolidation

These consolidated financial statements include the accounts of Innovation, a Nevada corporation, and our wholly-owned subsidiary, IPIX Pharma, an Ireland limited company. All significant intercompany transactions and balances have been eliminated in consolidation. Translation gains and losses for the three months ended September 30, 2019 and 2018 were not significant.

8

Nature of Operations - Overview

We are in the business of developing innovative small molecule therapies to treat diseases with significant medical need, particularly in the areas of inflammatory diseases, cancer, dermatology and anti-infectives. Our strategy is to use our business and scientific expertise to maximize the value of our pipeline. We will do this by focusing initially on our lead compounds, Brilacidin and Kevetrin, and advancing them as quickly as possible along the regulatory pathway. We aim to develop the highest quality data and broadest intellectual property to support our compounds. We discontinued our Prurisol psoriasis program.

We currently own all development and marketing rights to our products, other than the rights granted to Alfasigma S.p.A. in July 2019, for the development, manufacturing and commercialization of locally-administered Brilacidin for UP/UPS. In order to successfully develop and market our products, we may have to partner with additional companies. Prospective partners may require that we grant them significant development and/or commercialization rights in return for agreeing to share the risk of development and/or commercialization.

Note 2. Going Concern and Liquidity

These financial statements have been prepared on the assumption that the Company is a going concern, which contemplates the realization of its assets and the settlement of its liabilities in the normal course of operations.

We have incurred recurring losses since inception and expect to continue to incur losses as a result of costs and expenses related to our research and development of our compounds and our corporate general and administrative expenses. As of September 30, 2019, the Company has an accumulated deficit of approximately $96.1 million, representative of recurring losses since inception. The Company earned $0.4 million as an initial upfront payment under the terms of the License Agreement with Alfasigma (see Note 7. Exclusive License Agreement to the condensed consolidated financial statements). The Company does not currently have any products on the market and will continue to not have significant revenues until it begins to market its products after it has obtained the necessary Federal Drug Administration (the “FDA”) and/ or other health authorities approval, or generates income from the licensing of its drugs. As a result, the Company expects to continue to incur losses over the next 12 months from the date of this filing. Accordingly, the Company’s planned operations, including total budgeted expenditures of approximately $11.5 million for the next twelve months, raise substantial doubt about its ability to continue as a going concern.

As of September 30, 2019, the Company’s cash amounted to $0.9 million and current liabilities amounted to $7.5 million, of which $3.5 million were payables to related parties with no immediate payment terms and $2.9 million was payable to one shareholder who is our former director and officer of the Company (see Note 10. Related Party Transactions and Note 11. Convertible Note Payable - Related Party to the condensed consolidated financial statements). The Company had expended substantial funds on its clinical trials and expects to continue our spending on research and development expenditures. The Company’s net cash used in operating activities for the three months ended September 30, 2019 was approximately $0.6 million, and current projections indicate that the Company will continue to have negative cash flows from operating activities for the foreseeable future. Our net losses incurred for the three months ended September 30, 2019 and 2018, amounted to $1.6 million and $2.1 million, respectively, and we had a working capital deficit of approximately $6.5 million and $6.7 million, respectively at September 30, 2019 and June 30, 2019.

The Company’s primary sources of liquidity are cash and cash equivalents as well as issuances of its equity securities. During the three months ended September 30, 2019, the Company issued 1,045 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of $1.0 million, upon exercise of 1,045 warrants. As of September 30, 2019, Series 1-4 warrants to purchase 6,675 shares of Series B preferred stock were outstanding. As the Company cannot be certain the remaining warrants will be exercised, there can be no assurance those funds or other funds will be available when needed (see Note 13. Equity Transactions to to the condensed consolidated financial statements).

9

The amount of cash and cash equivalents at September 30, 2019 is approximately $0.9 million. The Company expects to seek to obtain additional funding through business development activities (i.e. licensing and partnerships) and future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available. The Company will be unable to proceed with its planned drug development programs, meet its administrative expense requirements, capital costs, or staffing costs without raising additional capital in the future. These financial statements do not include any adjustments related to the carrying values and classifications of assets and liabilities that would be necessary should the Company be unable to continue as a going concern.

3. Significant Accounting Policies and Recent Accounting Pronouncements

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include contract research accruals, recoverability of long-lived assets, valuation of equity grants and income tax valuation. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Basic Loss per Share

Basic and diluted loss per share is computed based on the weighted-average common shares and common share equivalents outstanding during the period. Common share equivalents consist of stock options, convertible notes payable underlying shares and unvested restricted stock. Common share equivalents of 52,456,967 and 56,271,542 shares of common stock were excluded from the computation of diluted loss per share for the three months ended September 30, 2019 and 2018, respectively, because we incurred net losses for the three months ended September 30, 2019 and 2018, and the effect of including these potential common shares in the net loss per share calculations would be anti-dilutive.

Treasury Stock

The Company accounts for treasury stock using the cost method. There were 659,448 shares and 228,218 shares of treasury stock outstanding, purchased at a total cumulative cost of $146,000 and $91,000 as of September 30, 2019 and June 30, 2019, respectively (see Note 12. Equity Incentive Plans, Stock-Based Compensation, Exercise of Options and Warrants Outstanding to the condensed consolidated financial statements).

Treasury stock, representing shares of the Company’s common stock that have been acquired for payroll tax withholding on vested stock grants, is recorded at its acquisition cost and these shares are not considered outstanding.

Revenue Recognition

On July 1, 2019, the Company adopted the new accounting standard ASC 606 (Topic 606), Revenue from Contracts with Customers, and all the related amendments (“new revenue standard”) using the modified retrospective method applied to those contracts which were not completed as of July 1, 2019. The adoption of ASC Topic 606 did not have impact on the Company’s consolidated financial statements or cash flows, for the Company had no revenue and no contracts which were not completed as of July 1, 2019.

10

The Company has acquired and further developed license rights to Functional Intellectual Property (“functional IP”) that it licenses to customers for defined license periods. A functional IP license is a license to intellectual property that has significant standalone functionality that does not include supporting or maintaining the intellectual property during the license period. The Company’s patented drug formulas have significant standalone functionality in the form of their abilities to treat a disease or condition. Further, there is no expectation that the Company will undertake any activities to change the functionality of the drug formulas during the license periods (see Note 7. Exclusive License Agreement to the condensed consolidated financial statements).

Under the terms of the License Agreement, Alfasigma made an initial non-refundable payment of $0.4 million to the Company and will make additional payments of up to $24.0 million to the Company based upon the achievement of certain milestones, including a $1.0 million payment due following commencement of the first phase III clinical trial of Brilacidin for UP/UPS and an additional $1.0 million payment upon the filing of a marketing approval application with the U.S. Food and Drug Administration or the European Medicines Agency. In addition, Alfasigma will pay a royalty to the Company equal to six percent of net sales of Brilacidin for UP/UPS, subject to adjustment as provided in the License Agreement.

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

Pursuant to ASC 606, a customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps:

(i)	identify the contract(s) with a customer;
(ii)	identify the performance obligations in the contract, including whether they are distinct in the context of the contract;
(iii)	determine the transaction price, including the constraint on variable consideration;
(iv)	allocate the transaction price to the performance obligations in the contract; and
(v)	recognize revenue when (or as) the Company satisfies each performance obligation.

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. If a promised good or service is not distinct, it is combined with other performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The terms of the Company’s licensing agreement include the following:

(i)	up-front fees;
(ii)	milestone payments related to the achievement of development, regulatory, or commercial goals; and
(iii)	royalties on net sales of licensed products.

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License of Intellectual Property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. If not distinct, the license is combined with other performance obligations in the contract. For licenses that are combined with other performance obligations, the Company assesses the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone Payments: At the inception of each arrangement that includes developmental and regulatory milestone payments, the Company evaluates whether the achievement of each milestone specifically relates to the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service within a performance obligation. If the achievement of a milestone is considered a direct result of the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone, the associated milestone value is allocated to that distinct good or service. If the milestone payment is not specifically related to the Company’s effort to satisfy a performance obligation or transfer a distinct good or service, the amount is allocated to all performance obligations using the relative standalone selling price method. The Company also evaluates the milestone to determine whether they are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price to be allocated, otherwise, such amounts are constrained and excluded from the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the transaction price. Any such adjustments to the transaction price are allocated to the performance obligations on the same basis as at contract inception. Amounts allocated to a satisfied performance obligation shall be recognized as revenue, or as a reduction of revenue, in the period in which the transaction price changes.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied) in accordance with the royalty recognition constraint.

Accounting for Stock Based Compensation

The stock-based compensation expense incurred by the Company for employees and directors in connection with its stock option plan is based on the employee model of ASC 718, and the fair market value of the options is measured at the grant date. Under ASC 718 employee is defined as “An individual over whom the grantor of a share-based compensation award exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under U.S. “tax regulations.” Our consultants do not meet the employer-employee relationship as defined by the IRS and therefore are accounted for under ASC 505-50. Effective July 1, 2019, the Company adopted ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.

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The Company followed the accounting guidance in ASC 505-50-30-11 until July 1, 2019 which provides that an issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date:

i.	The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); and
ii.	The date at which the counterparty’s performance is complete.

Upon the adoption of ASU 2018-07, the Company measured the fair value of equity instruments for nonemployee based payment awards on the grant date.

The components of stock-based compensation expense included in the Company’s Condensed Statement of Operations for the three months ended September 30, 2019 and 2018 are as follows (rounded to nearest thousand):

	Three months ended September 30
	2019		2018
Research and development expenses
Professional fees	$	9,000	$	13,000
Employees’ bonus		38,000		44,000
Officers’ bonus		189,000		172,000
Total stock-based compensation expense	$	236,000	$	229,000

Recent Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which allows companies to account for nonemployee awards in the same manner as employee awards. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. This new pronouncement has been adopted in the first quarter of fiscal 2020 and did not have a material effect on the Company’s financial position, results of operations or cash flows.

Prior to July 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases. Effective July 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients,’ which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs; and all of the new standard’s available transition practical expedients. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on July 1, 2019 resulted in the recognition of operating lease right-of-use assets of approximately $670,000, lease liabilities for operating leases of approximately $670,000, and a zero cumulative-effect adjustment to accumulated deficit. The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less (“short-term leases”). Lease expense is recognized on a straight-line basis over the lease term. The Company determined that the operating lease right-of-use asset is impaired as of September 30, 2019, and it recognized an impairment loss of approximately $643,000, after recording amortization of the right-of-use asset for July, August, and September 2019 totaling approximately $27,000, resulting in a carrying value of $0 at September 30, 2019 (see Note 8. Operating Lease to the condensed consolidated financial statements).

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In July 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The adoption of ASU 2017-11, during the year ended June 30, 2019, did not have any impact on the financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which defines how companies should report revenues from contracts with customers. The standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It provides companies with a five-step, principles-based model to use in accounting for revenue and supersedes current revenue recognition requirements, including most industry-specific and transaction-specific revenue guidance. In August 2015, the FASB deferred the effective date of the new revenue standard by one year. The guidance permits an entity to apply the standard retrospectively to all prior periods presented, with certain practical expedients, or apply the requirements in the year of adoption, through a cumulative adjustment. This new pronouncement has been adopted in the first quarter of fiscal 2019 and did not have a material effect on the Company’s financial position, results of operations or cash flows.

4. Patents, net

Patents, net consisted of the following (rounded to nearest thousand):

	Useful life		September 30, 2019			June 30, 2019
Purchased Patent Rights- Brilacidin, and related compounds		14	$	4,082,000		$	4,082,000
Purchased Patent Rights-Anti-microbial- surfactants and related compounds		12		144,000			144,000
Patents - Kevetrin and related compounds		17		1,139,000			1,118,000
				5,365,000			5,344,000
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds				(1,841,000	)		(1,765,000	)
Accumulated amortization for Patents-Kevetrin and related compounds				(254,000	)		(237,000	)
Total			$	3,270,000		$	3,342,000

The patents are amortized on a straight-line basis over the useful lives of the assets, determined to be 12-17 years from the date of acquisition.

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Amortization expense for the three months ended September 30, 2019 and 2018 was approximately $93,000 and $94,000, respectively.

At September 30, 2019, the future amortization period for all patents was approximately 5.93 years to 16.75 years. Future estimated annual amortization expenses are approximately $278,000 for the year ending June 30, 2020, $371,000 for each year from 2021 to 2024, and total of $1,508,000 for the year ending June 30, 2025 and thereafter.

5. Accrued Expenses – Related Parties and Other

Accrued expenses consisted of the following (rounded to nearest thousand):

	September 30, 2019		June 30, 2019
Accrued research and development consulting fees	$	40,000	$	40,000
Accrued rent (Note 10) - related parties		8,000		8,000
Accrued interest (Note 11) - related parties		34,000		37,000
Total	$	82,000	$	85,000

6. Accrued Salaries and Payroll Taxes - Related Parties and Other

Accrued salaries and payroll taxes consisted of the following (rounded to nearest thousand):

	September 30, 2019		June 30, 2019
Accrued salaries - related parties	$	2,999,000	$	2,999,000
Accrued payroll taxes - related parties		130,000		130,000
Withholding tax – payroll & other taxes		72,000		33,000
Total	$	3,201,000	$	3,162,000

7. Exclusive License Agreement

On July 18, 2019, the Company entered into an Exclusive License Agreement (the “License Agreement”) with Alfasigma S.p.A., a global pharmaceutical company (“Alfasigma”), granting Alfasigma the worldwide right to develop, manufacture and commercialize locally-administered Brilacidin for the treatment of ulcerative proctitis/ulcerative proctosigmoiditis (UP/UPS).

Under the terms of the License Agreement, Alfasigma made an initial upfront non-refundable payment of $0.4 million to the Company and will make additional payments of up to $24.0 million to the Company based upon the achievement of certain milestones, including a $1.0 million payment due following commencement of the first phase III clinical trial of Brilacidin for UP/UPS and an additional $1.0 million payment upon the filing of a marketing approval application with the U.S. Food and Drug Administration or the European Medicines Agency. In addition to the milestones, Alfasigma will pay a royalty to the Company equal to six percent of net sales of Brilacidin for UP/UPS, subject to adjustment as provided in the License Agreement.

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8. Operating Leases

The Company renewed a 60-month lease to lease approximately 12,500 square feet of office space on October 1, 2018 for an additional 5 years with an automatic extension for additional successive periods of 5 years unless written notice is given not more than 12 months or less than 6 months prior to the expiration of the then current lease period. Base monthly rent is approximately $19,000 per month, subject to annual changes in the consumer price index, plus operating expenses. A deposit of $78,000 was paid at the commencement of the lease. This office space serves as the Company’s principal executive offices.

Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives. Our variable lease payments primarily consist of maintenance and other operating expenses from our real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components. We have elected to account for these lease and non-lease components as a single lease component. We are also electing not to apply the recognition requirements to short-term leases of twelve months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term.

The Company determined that the operating lease right-of-use asset is fully impaired as of September 30, 2019 because of the Company’s current lack of working capital (see Note 2. Going Concern and Liquidity to the condensed consolidated financial statements) resulting in its limited usage of the leased office. The Company has been unable to enter into a sub-lease agreement for this leased office as of September 30, 2019. As such, the Company recognized an impairment loss of approximately $643,000, after recording amortization of the right-of-use asset for July, August, and September 2019 totaling approximately $27,000, resulting in a carrying value of $0 at September 30, 2019.

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The components of lease expense and supplemental cash flow information related to leases for the period are as follows:

	Three Months Ended September 30, 2019
Lease Cost
Operating lease cost (included in general and administrative in the Company’s condensed consolidated statement of operations)	$	56,000
Variable lease cost		2,000
	$	58,000
Other Information
Cash paid for amounts included in the measurement of lease liabilities for the three months ended September 30, 2019	$	58,000
Weighted average remaining lease term – operating leases (in years)	3.92 years
Average discount rate – operating leases		18.00	%

The supplemental balance sheet information related to leases for the period is as follows:

	At September 30, 2019
Operating leases
Short-term operating lease liabilities	$	120,000
Long-term operating lease liabilities		523,000
Total operating lease liabilities	$	643,000

The following table provides maturities of the Company’s lease liabilities at September 30, 2019 as follows:

Fiscal Year Ending June 30,	Operating Leases
2020 (remaining 9 months)	$	168,000
2021		223,000
2022		223,000
2023		223,000
2024 (remaining 3 months)		60,000
Total lease payments		897,000
Less: Imputed interest/present value discount		(254,000	)
Present value of lease liabilities	$	643,000

Lease expenses were approximately $58,000 and $56,000 during the three months ended September 30, 2019 and 2018, respectively.

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9. Commitments and Contingencies

Contractual Commitments

The Company has total non-cancelable contractual minimum commitments of approximately $2 million to contract research organizations as of September 30, 2019. Expenses are recognized when services are performed by the contract research organizations.

10. Related Party Transactions

Office Lease

The Company charged Kard Scientific (“KARD”) $1,800 for space for the two months of July and August, 2018. Dr. Menon, a significant shareholder of the Company and the former President of Research and former director of the Company, also serves as the Chief Operating Officer and Director of Kard Scientific. Dr. Menon’s employment was terminated with the Company on September 18, 2018, and Dr. Menon resigned from the Company’s Board of Directors on December 11, 2018. As of September 1, 2018, KARD no longer leases space from the Company.

Pre-clinical Studies

The Company previously engaged KARD to conduct specified pre-clinical studies. The Company did not have an exclusive arrangement with KARD. All work performed by KARD needed prior approval by the executive officers of the Company, and the Company retained all intellectual property resulting from the services by KARD. The Company no longer uses KARD. At September 30, 2019 and June 30, 2019, the accrued research and development expenses payable to KARD was approximately $1,486,000 and this amount was included in accounts payable. The Company is now reviewing these charges.

Other related party transactions are disclosed in Note 11 below.

11. Convertible Note Payable - Related Party

The Ehrlich Promissory Note C is an unsecured demand note with Mr. Ehrlich, the Company’s Chairman and CEO, that originated in 2010, bears 9% simple interest per annum and is convertible into the Company’s Class A common stock at $0.50 per share.

On May 8, 2012, the Company did not have the ability to repay the Ehrlich Promissory Note C loan of approximately $2,022,000 and agreed to change the interest rate from 9% simple interest to 10% simple interest, and the Company issued 2,000,000 Equity Incentive Options exercisable at $0.51 per share equal to 110% of the closing bid price of $0.46 per share on May 7, 2012. Options are valid for ten years from the date of issuance.

On January 29, 2019, the Company issued 909,090 shares of Class B common stock at the option exercise price of $0.11 per share to Mr. Ehrlich, the Company’s Chairman and CEO, for his partial exercise of his option, paid by the cancellation of debt to Mr. Ehrlich of $100,000 to satisfy the exercise price (as permitted pursuant to the terms of the option agreement).

As of September 30, 2019 and June 30, 2019, the principal balance of this convertible note payable to Mr. Ehrlich, the Company’s Chairman and CEO was approximately $1,922,000 after the above mentioned cancellation of debt of $100,000 to satisfy the exercise price of his option on January 29, 2019.

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During the three months ended September 30, 2019 and 2018, the Company accrued interest of $48,000 and $52,000 to Mr. Ehrlich, respectively and paid the interests in cash of $51,000 and $63,000 to Mr. Ehrlich, respectively. As of September 30, 2019 and June 30, 2019, the balance of accrued interest payable were $34,000 and $37,000, respectively (see Note 5. Accrued Expenses – Related Parties and Other to the condensed consolidated financial statements).

As of September 30, 2019 and June 30, 2019, the total outstanding balances of principal and interest were approximately $1,955,000 and $1,959,000, respectively.

12. Equity Incentive Plans, Stock-Based Compensation, Exercise of Options and Warrants Outstanding

2016 Equity Incentive Plan

On June 30, 2016, the Board of Directors adopted the Company’s 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan became effective upon adoption by the Board of Directors on June 30, 2016.

Up to 20,000,000 shares of the Company’s Class A common stock may be issued under the 2016 Plan (subject to adjustment as described in the 2016 Plan); provided that (1) no Outside Director (as defined in the 2016 Plan) may be granted awards covering more than 250,000 shares of common stock in any year and (2) no participant shall be granted, during any one year period, options to purchase common stock and stock appreciation rights with respect to more than 4,000,000 shares of common stock in the aggregate or any other awards with respect to more than 2,500,000 shares of common stock in the aggregate. The 2016 Plan permits the grant of ISOs, non-qualified stock options, stock appreciation rights, restricted awards, performance share awards and performance compensation awards to employees, directors, and consultants of the Company and its affiliates.

In connection with adoption of the 2016 Plan, the Board of Directors also approved forms of Incentive Stock Option Agreement for Employees, Non-qualified Stock Option Agreement for Employees, Non-qualified Stock Option Agreement for Non-Employee Directors, Restricted Stock Award Agreement for Employees and Restricted Stock Award Agreement for Non-Employee Directors that will be utilized by the Company to grant options and restricted shares under the 2016 Plan.

On January 29, 2019, the Company issued 909,090 shares of Class B common stock at the option exercise price of $0.11 per share to Mr. Ehrlich, the Company’s Chairman and CEO (see Note 11. Convertible Note Payable - Related Party to the condensed consolidated financial statements).

Stock Options Issued and Outstanding

The following table summarizes all stock option activity under the Company’s equity incentive plans:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2018		41,643,571		$	0.22		2.76	$	17,523,113
Granted		1,195,826		$	0.31		7.64
Exercised		(909,090	)	$	0.11
Forfeited/expired		(19,260,424	)	$	0.21
Outstanding at June 30, 2019		22,669,883		$	0.24		2.41	$	1,340,000
Granted		790,826		$	0.13		10.0
Exercised		-		$	-		-
Forfeited/expired		(7,500	)	$	1.38		0
Outstanding at September 30, 2019		23,453,209		$	0.24		2.42	$	-
Exercisable at September 30, 2019		22,034,643		$	0.24		2.00	$	-
Unvested stock options at September 30, 2019		1,418,566		$	0.23		8.95	$	-

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The fair value of options granted for the three months ended September 30, 2019 and 2018 was estimated on the date of grant using the Black-Scholes-Merton Model that uses assumptions noted in the following table.

	Three months ended September 30,
	2019			2018
Expected term (in years)		10			10
Expected stock price volatility		92.21	%		104.11	%
Risk-free interest rate		1.50	%		2.86	%
Expected dividend yield		0			0

Stock-Based Compensation

The Company recognized approximately $236,000 and $229,000 of total stock-based compensation costs related to equity grant awards for the three months ended September 30, 2019 and 2018, respectively.

The $236,000 of stock-based compensation expense for the three months ended September 30, 2019 included approximately $140,000 of stock options expense and $96,000 of restricted stock awards.

During the three months ended September 30, 2019 and 2018

On September 1, 2019, the Company issued to Dr. Bertolino for his services rendered 1,066,667 shares of common stock, vesting 50% upon the first anniversary of the grant date and 50% upon the second anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement. The Company also issued 617,839 stock options to purchase shares of the Company’s common stock. These stock options are valued at approximately $71,000, based on the closing bid price as quoted on the OTC on August 30, 2019 at $0.132 per share. These options were issued with an exercise price of $0.132 and vest 50% upon the first anniversary of the grant date and 50% upon the second anniversary of the grant date, with acceleration as defined in award agreement, with a ten year option term. During the three months ended September 30, 2019, the Company recorded approximately $8,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $3,000 of stock option expense and $5,000 of stock awards.

On September 1, 2019, the Company also issued to Ms. Harness 58,394 shares of the Company’s common stock, 33 1/3% vesting upon the first anniversary of the grant date, 33 1/3% upon the second anniversary of the grant date and 33 1/3% upon the third anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement. The Company also issued 172,987 options to purchase common stock. These stock options are valued at approximately $20,000, based on the closing bid price as quoted on the OTC on August 30, 2019 at $0.132 per share. These options were issued with an exercise price of $0.132 and vest 33 1/3% upon the first anniversary of the grant date, 33 1/3% upon the second anniversary of the grant date, and 33 1/3% upon the third anniversary of the grant date, with acceleration of vesting upon certain events. During the three months ended September 30, 2019, the Company recorded approximately $1,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $1,000 of stock option expense.

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On September 1, 2018, the Company issued to Dr. Arthur Bertolino, the President and Chief Medical Officer of the Company, for his services rendered 1,066,667 shares of common stock, vesting 50% upon the first anniversary of the grant date and 50% upon the second anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement. The Company also issued 617,839 stock options to purchase shares of the Company’s common stock. These stock options are valued at approximately $225,000, based on the closing bid price as quoted on the OTCQB on August 31, 2018 at $0.40 per share. These options were issued with an exercise price of $0.40 per share and vest 50% upon the first anniversary of the grant date and 50% upon the second anniversary of the grant date, with acceleration as defined in award agreement, with a ten year option term. During the three months ended September 30, 2019, the Company recorded approximately $82,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $28,000 of stock option expense and $54,000 of stock awards. During the three months ended September 30, 2018, the Company recorded approximately $26,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $9,000 of stock option expense and $17,000 of stock awards.

On September 1, 2018, the Company also issued to Ms. Jane Harness, the Senior Vice President, Clinical Sciences and Portfolio Management of the Company, 58,394 shares of the Company’s common stock, 33 1/3% vesting upon the first anniversary of the grant date, 33 1/3% upon the second anniversary of the grant date and 33 1/3% upon the third anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement. The Company also issued 172,987 options to purchase common stock. These stock options are valued at approximately $63,000, based on the closing bid price as quoted on the OTCQB on August 31, 2018 at $0.40 per share. These options were issued with an exercise price of $0.40 per share and vest 33 1/3% upon the first anniversary of the grant date, 33 1/3% upon the second anniversary of the grant date, and 33 1/3% upon the third anniversary of the grant date, with acceleration of vesting upon certain events. During the three months ended September 30, 2019, the Company recorded approximately $7,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $5,000 of stock option expense and $2,000 of stock awards. During the three months ended September 30, 2018, the Company recorded approximately $2,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $1,000 of stock option expense and $1,000 of stock awards.

On September 1, 2017, the Company agreed to grant to Dr. Arthur Bertolino, the President and Chief Medical Officer of the Company, under the 2016 Plan (i) 1,066,667 shares of restricted stock and (ii) a ten-year option to purchase 617,839 shares of the Company’s Class A common stock at an exercise price of $0.705 per share. Both shares and options shall vest upon the earliest to occur of the following: (1) 50% upon the first anniversary of the effective date and the remaining 50% upon the second anniversary of the effective date; (2) shares of the Company’s common stock close above $3.00 per share (as may be adjusted for any stock splits or similar actions); (3) the commencement of trading of shares of the Company’s common stock on a national securities exchange; or (4) upon a change in control of the Company. The 1,066,667 shares were valued at approximately $752,000 and the 617,839 stock options valued at approximately $399,000. Both shares and options were planned to be amortized over 2 years to September 1, 2019 unless the probability of the other above vesting requirements occurring were met at an earlier date. At June 30, 2018, the Company determined that it was not probable that these accelerated vesting provisions would occur earlier than the scheduled vesting date. During the three months ended September 30, 2019, the Company recorded approximately $99,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $34,000 of stock option expense and $65,000 of stock awards. During the three months ended September 30, 2018, the Company recorded approximately $146,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $51,000 of stock option expense and $95,000 of stock awards.

On September 1, 2017, the Company agreed to grant to Ms. Jane Harness, the Senior Vice President, Clinical Sciences and Portfolio Management of the Company under the 2016 Plan (i) 58,394 shares of restricted stock and (ii) a ten-year option to purchase 172,987 shares of the Company’s Class A common stock at an exercise price of $0.705 per share. Both shares and options shall vest upon the earliest to occur of the following: (1) one third upon the first anniversary of the effective date, one third upon the second anniversary of the effective date, and the remaining one third upon the third anniversary of the effective date; or (2) upon a change in control of the Company. The 58,394 shares were valued at approximately $41,000 and the 172,987 stock options valued at approximately $112,000. Both shares and options were planned to be amortized over 3 years to September 1, 2020 unless the other vesting requirements are met sooner. During the three months ended September 30, 2019, the Company recorded approximately $13,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $10,000 of stock option expense and $3,000 of stock awards. During the three months ended September 30, 2018, the Company recorded approximately $13,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $10,000 of stock option expense and $3,000 of stock awards.

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On September 1, 2016, the Company and Jane Harness entered into an executive employment agreement as the Company’s VP, Clinical Sciences and Project Management, effective on September 1, 2016. Commencing on September 1, 2016, the Company agreed to pay Ms. Harness an annual salary of $250,000. In addition, the Company agreed to grant to Ms. Harness under the Company 2016 Equity Incentive Plan (i) 58,394 shares of restricted stock, which shall vest upon the earliest to occur of the following: (1) one third (33 1/3 %) upon the first anniversary of the effective date, one third (33 1/3 %) upon the second anniversary of the effective date, and the remaining one third (33 1/3 %) upon the third anniversary of the effective date; or (2) upon a Change in Control (as defined in the employment agreement) of the Company. Ten-year options to purchase 172,987 shares of the Company’s common stock were also granted at an exercise price of $1.37 per share, which shall vest upon the earliest to occur of the following: (1) one third (33 1/3 %) upon the first anniversary of the effective date, and the remaining balance vesting monthly in equal portions over the following 24 months; and (2) upon a Change in Control (as defined in the employment agreement) of the Company. The 58,394 shares were valued at approximately $80,000, which were amortized over three years to September 1, 2019. The 172,987 stock options were valued at approximately $220,000 and will be exercisable for 10 years at an exercise price of $1.26 per share. They were amortized over 3 years to September 1, 2019. During the three months ended September 30, 2019, the Company recorded approximately $17,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $12,000 of stock option expense and $5,000 of stock awards. During the three months ended September 30, 2018, the Company recorded approximately $25,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $18,000 of stock option expense and $7,000 of stock awards.

During the three months ended September 30, 2019, the Company recorded approximately $9,000 of stock-based compensation expense to consultants in connection with the foregoing equity awards including approximately $6,000 of stock option expense and $3,000 of stock awards. During the three months ended September 30, 2018, the Company recorded approximately $13,000 of stock-based compensation expense to consultants in connection with the foregoing equity awards including approximately $10,000 of stock option expense and $3,000 of stock awards.

Purchase of Treasury Stock

On September 1, 2019, 58,394 restricted shares issued to Ms. Harness vested. The total taxable compensation to Ms. Harness for the 58,394 vested shares was approximately $1,222, based upon the closing stock price on August 31, 2019 of $0.13 a share. The Company issued 48,775 common shares (net share issuance amount), to Ms. Harness. The remaining 9,619 shares of common stock were withheld from Ms. Harness for the payment of payroll taxes to the Federal and State taxing authorities and these shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

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On September 1, 2019, 1,066,667 restricted shares issued to Dr. Bertolino vested. The total taxable compensation to Dr. Bertolino for the 1,066,667 vested shares was approximately $53,545, based upon the closing stock price on August 30, 2019 of $0.13 a share. The Company issued 645,056 common shares (net share issuance amount), to Dr. Bertolino. The remaining 421,611 shares of common stock were withheld from Dr. Bertolino for the payment of payroll taxes to the Federal and State taxing authorities and these shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

On September 1, 2018, 38,930 restricted shares issued to Ms. Harness vested. The total taxable compensation to Ms. Harness for the 38,930 vested shares was approximately $3,690, based upon the closing stock price on August 31, 2018 of $0.40 a share. The Company issued 29,658 common shares (net share issuance amount), to Ms. Harness. The remaining 9,272 shares of common stock were withheld from Ms. Harness for the payment of payroll taxes to the Federal and State taxing authorities and these shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

On September 1, 2018, 533,334 restricted shares issued to Dr. Bertolino vested. The total taxable compensation to Dr. Bertolino for the 533,334 vested shares was approximately $87,140, based upon the closing stock price on August 31, 2018 of $0.40 a share. The Company issued 314,387 common shares (net share issuance amount), to Dr. Bertolino. The remaining 218,946 shares of common stock were withheld from Dr. Bertolino for the payment of payroll taxes to the Federal and State taxing authorities and these shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

There were 659,448 shares and 228,218 shares of treasury stock outstanding, purchased at a total cumulative cost of $146,000 and $91,000 as of September 30, 2019 and June 30, 2019, respectively.

Restricted Stock Awards Outstanding

The following summarizes our restricted stock activity:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Total awards outstanding at June 30, 2018		1,208,157		$	0.72
Total shares granted		1,130,061		$	0.40
Total shares vested		(597,263	)	$	0.72
Total shares forfeited		(11,667	)	$	0.76
Total unvested shares outstanding at June 30, 2019		1,729,288		$	0.51
Total shares granted		1,125,061		$	0.13
Total shares vested		(1,125,061	)	$	0.57
Total shares forfeited		-		$	-
Total unvested shares outstanding at September 30, 2019		1,729,288		$	0.23

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Scheduled vesting for outstanding restricted stock awards at September 30, 2019 is as follows:

	Year Ending June 30,
	2020		2021		2022		2023		Total
Scheduled vesting		12,500		1,125,062		572,262		19,464		1,729,288

As of September 30, 2019, there was approximately $0.4 million of net unrecognized compensation cost related to unvested restricted stock-based compensation arrangements. This compensation is recognized on a straight-line basis resulting in approximately $0.3 million of compensation expected to be expensed over the next twelve months, and the total unrecognized stock-based compensation expense having a weighted average recognition period of 1.37 years.

Exercise of options

During the three months ended September 30, 2019 and 2018, there were no stock options exercised.

Stock Warrants Outstanding

Warrants to Purchase 5% convertible preferred stock (“Series B preferred stock”)

On October 5, 2018, the Company entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) with one multi-family office for the sale of 2,000 shares of the Company’s newly-created Series B 5% convertible preferred stock (“Series B preferred stock”), for aggregate gross proceeds of approximately $2.0 million. Each share of preferred stock was initially sold together with three warrants: (i) a Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance (later extended to 15 months following issuance), (ii) a Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance, and (iii) a Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance. On May 9, 2019, the Company entered into a warrant restructuring and additional issuance agreement (the “Issuance Agreement”) with the holders of the Series B preferred stock and warrants pursuant to which the Company issued an additional 100 shares of Series B preferred stock and Series 4 warrants to purchase an additional 2,500 shares of preferred stock, and the holders of the Series B preferred stock and warrants agreed to exercise warrants to purchase up to $2.0 million of Series B preferred stock through November 2019 subject to the conditions set forth in the Issuance Agreement. The Series 4 warrant entitles the holder thereof to purchase 2,500 shares of preferred stock at $982.50 per share for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance. In addition, the Company extended the termination date for the Series 1 warrants by six months, and agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock.

The warrants issued in connection with the Series B preferred stock are deemed to be free standing equity instruments and are recorded in permanent equity (additional paid in capital) based on a relative fair value allocation of proceeds (i.e. warrants’ relative fair value to the Series B preferred stock fair value (without the warrants)) with an offsetting discount to the Series B preferred stock.

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Exercise of warrants

During the period from October 5, 2018 (date of issuance of preferred stock and warrants) to June 30, 2019, the Company issued 2,780 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of $2.73 million, upon exercise of 2,780 warrants issued by the Company in October 2018. As of June 30, 2019, Series 1-4 warrants to purchase 7,720 shares of Series B preferred stock were outstanding.

During the three months ended September 30, 2019, the Company issued 1,045 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of $1.0 million, upon exercise of 1,045 warrants. As of September 30, 2019, Series 1-4 warrants to purchase 6,675 shares of Series B preferred stock were outstanding. As the Company cannot be certain the remaining warrants will be exercised, there can be no assurance those funds or other funds will be available when needed (see Note 13. Equity Transactions to the condensed consolidated financial statements).

The following table summarizes the outstanding Series B preferred stock warrants:

	Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2018		-		$	-		-	$	-
Granted		10,500			982.50		2.00
Exercised		(2,780	)		982.50		2.00
Expired		-			-
Outstanding at June 30, 2019		7,720		$	985.50		1.21	$	752,700
Granted		-			-		-
Exercised		(1,045	)		982.50		1.43
Expired		-			-
Outstanding at September30, 2019		6,675		$	985.50		1.06	$	650,813

Warrants to Purchase Common Stock

On June 28, 2018, the Company entered into a Securities Purchase Agreement with Aspire Capital Fund, LLC, pursuant to which the Company agreed to sell up to $7.0 million of shares of the Company’s Class A common stock to Aspire Capital, without an underwriter or placement agent. The Company issued to Aspire Capital warrants to purchase 8,000,000 shares of its common stock exercisable for 5 years at an exercise price of $0.38 per share. The warrants were recorded within stockholders’ deficiency. The fair value of the warrants issued on June 28, 2018 was estimated on the date of issuance using the Black-Scholes-Merton Model that uses assumptions noted in the following table. The value of the warrants issued was approximately $1.7 million.

	Year Ended June 30,
	2019		2018
Expected term (in years)	5 - 10			3
Expected stock price volatility	67.34% - 104.11%			82.36	%
Risk-free interest rate	2.51% - 2.86%			2.73	%
Expected dividend yield		0		0

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The following table summarizes the outstanding common stock warrants:

	Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2018		8,000,000	$	0.38		5.0	$	-
Extended		-		-		-
Granted		-		-		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at June 30, 2019		8,000,000	$	0.38		4.0	$	-
Extended		-		-		-
Granted		-		-		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at September 30, 2019		8,000,000	$	0.38		4.0	$	-

As of September 30, 2019 and June 30, 2019, 8,000,000 warrants to purchase shares of the Company’s common stock exercisable for 5 years at an exercise price of $0.38 per share were outstanding.

13. Equity Transactions

Class B common stock

On January 29, 2019, the Company issued 909,090 shares of Class B common stock at the option exercise price of $0.11 per share to Mr. Ehrlich, the Company’s Chairman and CEO (See Note 11. Convertible Note Payable to the condensed consolidated financial statements). As of September 30, 2019 and June 30, 2019, 909,090 shares of Class B common stock were outstanding.

Series B 5% convertible preferred stock purchase agreement

On October 5, 2018, as modified on May 9, 2019 (see Warrant Restructuring and Additional Issuance Agreement as described below), the Company entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) with one multi-family office for the sale of an aggregate of 2,000 shares of the Company’s newly-created Series B 5% convertible preferred stock ( “Series B preferred stock” or “preferred stock”), for aggregate gross proceeds of approximately $2.0 million. An initial closing for the sale of 1,250 shares of the Series B preferred stock closed on October 9, 2018, and a second closing for the sale of 750 shares of the Series B preferred stock closed on October 12, 2018. Under the Securities Purchase Agreement, the Company also issued to the investors warrants to purchase up to an additional 8,000 shares of preferred stock.

The Series B preferred stock is mandatorily redeemable under certain circumstances and, as such, is presented as a liability on the consolidated balance sheets. The Company has elected to measure the value of its preferred stock using the fair value method with offsetting discounts associated with the fair value allocated to the warrants and for the intrinsic value attributed to the beneficial conversion feature (“BCF”). The fair value of the Series B preferred stock (without the warrants) will be assessed at each subsequent reporting date with changes in fair value recorded in the profit and loss as a separate line item below the “loss from operations” section, in accordance with ASC 480-10-35-5.

The warrants issued in connection with the Series B preferred stock are deemed to be free standing equity instruments and are recorded in permanent equity (additional paid in capital) based on a relative fair value allocation of proceeds (i.e. warrants’ relative fair value to the Series B preferred stock fair value (without the warrants)) with an offsetting discount to the Series B preferred stock. Given that the Series B preferred stock is convertible at any time under these features, the underlying warrant discounts were accreted upon issuance and recorded as interest (resulting in no remaining discount to the Series B preferred stock liability after the issuance).

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The Company recorded the October 9, 2018 issuance of 1,250 shares Series B Preferred Stock at approximately $0.7 million and the underlying Series 1, Series 2 and Series 3 warrants at approximately $0.5 million in total by allocating the gross proceeds to Series B preferred stock (without the warrants) and warrants based on their relative fair values or direct valuation as appropriate. The Company recorded BCF of approximately $1.2 million associated with the issuance of the 1,250 shares of Series B preferred stock to additional paid-in capital. The Company then recorded interest of approximately $1.2 million for the BCF and warrant discounts as a first day interest given that the Series B preferred shares can be converted at any time to common stock and given no set term.

The Company recorded the October 12, 2018 issuance of 750 shares Series B Preferred Stock at approximately $0.4 million and the underlying Series 1, Series 2 and Series 3 warrants at approximately $0.3 million in total by allocating the gross proceeds to Series B preferred stock (without the warrants) and warrants based on their relative fair values or direct valuation as appropriate. The Company recorded BCF of approximately $0.7 million associated with the issuance of the 750 shares of Series B preferred stock to additional paid-in capital. The Company then recorded interest of approximately $0.7 million for the BCF and warrant discounts as a first day interest given that Series B preferred shares can be converted at any time to common stock and given no set term.

The issuance costs associated with the Series B preferred stock transaction were attributed to the Series B preferred stock (without the warrants) and to the Series 1, Series 2 and Series 3 warrants based on their relative fair values. The issuance costs attributed to the warrants of $32,000 were reflected as a reduction to additional paid-in capital. The issuances costs associated with the Series B preferred stock liability of $41,000 was recorded immediately as an element of interest cost, which are reflected in interest expense - preferred stock. The Company recognized change in fair value of preferred stock liabilities of $102,000 and $0 under Other (income) expense in the accompanying consolidated Statements of Operations for the three months ended September 30, 2019 and 2018, respectively.

Underlying Series B preferred stock dividends, paid quarterly, was accrued as interest (given the liability classification of the Series B preferred stock) on a daily basis given fixed dividend terms under the Series B preferred stock. The Company recorded 5% dividend accretion on total outstanding Series B preferred stock at September 30, 2019 and June 30, 2019

The total dividends of approximately $42,000 are treated as interest during the period from October 5, 2018 (date of issuance of preferred stock and warrants) to June 30, 2019. The approximately $17,000 dividends was paid by issuance of Series B preferred stocks, so the remaining accrued dividends of $25,000 was recorded under Preferred stock liability as of June 30, 2019 and was paid by issuance of Series B preferred stocks subsequent to the balance sheet date.

The total dividends of approximately $20,000 are treated as interest expense – preferred stock during the three months ended September 30, 2019. The approximately $24,000 of the Series B preferred stock dividends was paid by issuance of Series B preferred stocks, so the remaining accrued dividends of $21,000 was included at Preferred stock liability as of September 30, 2019.

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Terms of the Preferred Stock

The rights and preferences of the preferred stock are set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series B 5% Convertible Preferred Stock filed with the Nevada Secretary of State on October 5, 2018 (the “Certificate of Designation”). Each share of preferred stock has an initial stated value of $1,080 and may be converted at any time at the holder’s option into shares of the Company’s common stock at a conversion price equal of the lower of (i) $0.32 per share and (ii) 85% of the lowest volume weighted average price of the Company’s common stock on a trading day during the ten trading days prior to and ending on, and including, the conversion date. The conversion price may be adjusted following certain triggering events and subsequent equity sales and is subject to appropriate adjustment in the event of stock splits, stock dividends, recapitalization or similar events affecting the Company’s common stock.

The holders of the preferred stock are limited in the amount of stated value of the preferred stock they can convert on any trading day. The conversion cap limits conversions by the holders to the greater of $75,000 and an amount equal to 30% of the aggregate dollar trading volume of the Company’s common stock for the five trading days immediately preceding, and including, the conversion date. However, the conversion cap will be increased if the trading volume in the first 30 minutes of any trading session exceeds certain trailing average daily volume amounts. In addition, the holders of the preferred stock may not convert shares of preferred stock if, after giving effect to the conversion, a holder together with its affiliates would beneficially own in excess of 9.99% of the outstanding shares of the Company’s common stock.

Redemption Rights

Following 30 days after the initial closing, the Company may elect to redeem the preferred stock for 120% of the aggregate stated value then outstanding, plus all accrued but unpaid dividends and all liquidated damages and other amounts due in respect of the preferred stock. The Company’s right to redeem the preferred stock is contingent upon it having complied with a number of conditions, including compliance with its obligations under the Certificate of Designation. Shares of preferred stock generally have no voting rights, except as required by law and except that the Company shall not take certain actions without the consent of the holders of the preferred stock.

Warrants

Each share of preferred stock was initially sold together with three warrants: (i) a Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up nine months following issuance (later extended to 15 months following issuance), (ii) a Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance, and (iii) a Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance. On May 9, 2019, the Company entered into a warrant restructuring and additional issuance agreement (the “Issuance Agreement”) with the holders of the Series B preferred stock and warrants pursuant to which the Company issued an additional 100 shares of Series B preferred stock and Series 4 warrants to purchase an additional 2,500 shares of preferred stock, and the holders of the Series B preferred stock and warrants agreed to exercise warrants to purchase up to $2.0 million of Series B preferred stock through November 2019 subject to the conditions set forth in the Issuance Agreement. The Series 4 warrant entitles the holder thereof to purchase 2,500 shares of preferred stock at $982.50 per share for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance. In addition, the Company extended the termination date for the Series 1 warrants by six months, and agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock, all 400 shares of which had been issued as of September 30, 2019.

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The Series B Preferred shareholders’ warrants held were modified on May 9, 2019 (see Warrant Restructuring and Additional Issuance Agreement described below). Pursuant to this warrant restructuring agreement, the Company had the option to compel these shareholders to exercise each month up to $400,000 of their Series 1 warrants. These warrant holders exercised a total of approximately $2.5 million of their Series 1 to 4 warrants, starting from May 2019 through September 2019. In addition, subject to the satisfaction of certain circumstances, the Company may call for cancellation any or all of the warrants following 90 days after their issuance, for a payment in cash equal to 8% of the aggregate exercise price of the warrants being called. The warrants subject to any such call notice will be cancelled 30 days following the Company’s payment of the call fee, provided that the warrant holders have not exercised the warrants prior to cancellation.

Conversion of preferred stock to common stock

During the year ended June 30, 2019, the two preferred stockholders converted 3,891 shares of Series B preferred stock into 39.2 million shares of common stock. With regard to conversions, the Company reversed Series B preferred stock liability relating to the conversion and recorded as Additional paid-in capital at par value. The Company reversed the amount of approximately $3,068,000 based on the proportion of Series B preferred stock converted relative to the original total issued. As of June 30, 2019, 1,096 shares of Series B 5% convertible preferred stock were outstanding.

During the three months ended September 30, 2019, the two preferred stockholders converted 890 shares of Series B preferred stock into 9.0 million shares of common stock. As of September 30, 2019, 1,584 shares of Series B 5% convertible preferred stock were outstanding.

Warrant Restructuring and Additional Issuance Agreement

On May 9, 2019, the Company entered into a Warrant Restructuring and Additional Issuance Agreement (“Issuance Agreement”) with the Series B investors of its Series B preferred stock and warrants to purchase Series B preferred stock. Pursuant to the Issuance Agreement, the Series B investors have agreed, subject to the conditions set forth therein, to exercise existing warrants to purchase 500 shares of preferred stock and to amend the existing warrants to permit the Company to compel the exercise of up to $400,000 of existing warrants each calendar month commencing June 3, 2019 and ending November 1, 2019, or, if earlier, until the aggregate amount of the forced exercises is $2,000,000. As consideration for the Series B investors entering into the Issuance Agreement, the Company has issued 100 shares of preferred stock and warrants to purchase 2,500 shares of preferred stock (“Series 4 warrants”) to the Series B investors. In addition, the Company extended the termination date for the Series 1 warrants issued in October 2018 by six months, and has agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock, all 400 shares of which had been issued as of September 30, 2019.

The warrants were modified in accordance with ASC 470-50 and, as a result, immediately prior to the modification, the Company recognized a loss of approximately $63,000 to change in fair value of preferred stock liabilities under Other (income) expense in the accompanying consolidated Statements of Operations.

Subsequent to the modification, the Company recognized an expense of approximately $294,000 due to the above modification of Series B preferred stock terms in the accompanying consolidated statements of operations

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The fair value of the Series B convertible preferred stock is measured in accordance with ASC 820 “Fair Value Measurement,” using “Monte Carlo simulation” modeling, incorporating the following inputs:

	June 30, 2019			May 9, 2019
Expected dividend yield		0.00	%		0.00	%
Expected stock-price volatility		54.5	%		51.9	%
Risk-free interest rate		2.18	%		2.43	%
Expected term of warrants (years)		0.1			0.25
Stock price	$	535.12		$	535.12
Exercise price	$	982.50		$	982.50

14. Fair Value Measurement

The Company has elected to measure its preferred stock using the fair value method. The fair value of the preferred stock is the estimated amount that would be paid to redeem the liability in an orderly transaction between market participants at the measurement date. The Company calculates the fair value of the Series B Preferred stock using a lattice model that takes into consideration the future redemption value on the instrument, which is tied to the Company’s stock price.

These valuations are considered to be Level 3 fair value measurements as the significant inputs are unobservable and require significant management judgment or estimation. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company’s estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. Significant assumptions used in the fair value models include: the estimates of the redemption dates; credit spreads; dividend payments; and the market price of the Company’s common stock. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values.

The table below sets forth a reconciliation of the Company’s beginning and ending Level 3 preferred stock liability balance for the period from October 5, 2018 (date of issuance of preferred stock and warrants) to June 30, 2019 and September 30, 2019.

Series B 5% convertible preferred stock liability
Balance, July 1, 2018	$	—
Issuance of preferred stock at fair value		1,116,000
Issuance of preferred stock by exercise of warrants		2,895,000
Conversion of preferred stock to common stock		(3,068,000	)
Change in fair value of preferred stock due to modification of terms		(357,000	)
Issuance of 100 shares valued at $535.12 per share Series B Preferred Stock per May 2019 Modification		54,000
Contingent consideration of 400 extra shares		214,000
5% accrued dividend (1)		25,000
Balance, June 30, 2019	$	879,000
Issuance of preferred stock through accrued dividend, valued at fair value		12,000
Issuance of preferred stock by exercise of warrants		559,000
Conversion of preferred stock to common stock		(476,000	)
Change in fair value of preferred stock due to modification of terms		(102,000	)
5% accrued dividend (1)		20,000
Settlement of accrued dividend by issuance of PS		(24,000	)
Balance, September 30, 2019	$	868,000

(1)	The 5% accrued dividend is reported in interest expense—preferred stock.
	The total dividends of approximately $20,000 are treated as interest expense – preferred stock during the three months ended September 30, 2019. The approximately $24,000 of the Series B preferred stock dividends was paid by issuance of Series B preferred stocks, so the remaining accrued dividends of $21,000 was included at Preferred stock liability as of September 30, 2019.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and plan of operations should be read in conjunction with the condensed consolidated financial statements and the notes to those statements included in this Form 10-Q. This discussion includes forward-looking statements that involve risk and uncertainties. You should review our important note about forward-looking statements preceding the condensed consolidated financial statements in Item 1 of this Part I. As a result of many factors, such as those set forth under “Risk Factors” in this Form 10-Q and in our Annual Report on Form 10-K, actual results may differ materially from those anticipated in these forward-looking statements.

Management’s Plan of Operation

Overview

Innovation Pharmaceuticals Inc. is a clinical stage pharmaceutical company developing innovative therapies with dermatology, oncology, anti-inflammatory and antibiotic applications. The Company owns the rights to numerous drug compounds, including Brilacidin, our lead drug in a new class of compounds called defensin-mimetics, and Kevetrin (thioureidobutyronitrile), our lead anti-cancer compound.

Recent Developments

On May 1, 2019, the Company announced receipt of End-of-Phase 2 Meeting Minutes from the Food and Drug Administration (FDA) to align its Phase 3 oral rinse Brilacidin program for the prevention of severe OM in HNC patients receiving chemoradiation.

On June 6, 2019, the Company announced initiation, in partnership with BDD Pharma, of oral development of Brilacidin in tablet form, utilizing BDD Pharma’s patented OralogiK™ tablet technology, which employs controlled erosion of a time-dependent barrier layer during small intestine transit to provide effective colon targeting.

In June 2019, a scientific abstract presented at the European Hematological Association (EHA) 2019 Annual Meeting was published—”Kevetrin Dampens MYC Expression and Cellular Metabolism in Acute Myeloid Leukemia”—in collaboration with independent cancer researchers.

On July 18, 2019, the Company entered into a license agreement with Alfasigma S.p.A. (“Alfasigma”), an Italy-based global pharmaceutical company, for worldwide rights to develop Brilacidin for localized treatment of ulcerative proctitis/ulcerative proctosigmoiditis (UP/UPS).

On September 20, 2019, the Company amended its Articles of Incorporation to increase the number of authorized shares of Class A common stock from 300 million to 600 million, following stockholder approval.

Business Development and Licensing

The Company is actively engaged in business development and licensing initiatives with multiple specialty and global pharmaceutical companies across its entire pipeline of drugs. From time to time, the Company may be party to various indications of interest and term sheets and participate in preliminary discussions and negotiations regarding potential licensing or partnership arrangements. It remains the Company’s primary objective to complete licensing deals, territorial and/or global, to provide access to non-dilutive capital to advance clinical assets forward in the most expeditious and cost-effective manner. The Company can make no assurance that partnerships will occur but is committed toward executing on these potential alliance and partnership opportunities.

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In July 2019, the Company entered into a license agreement with Alfasigma, granting Alfasigma the worldwide right to develop, manufacture and commercialize locally-administered Brilacidin for UP/UPS. Under the terms of the license agreement, Alfasigma made an initial payment to the Company and will make additional payments of up to $24.0 million to the Company based upon the achievement of certain milestones, including a $1.0 million payment due following commencement of the first phase III clinical trial of Brilacidin for UP/UPS and an additional $1.0 million payment upon the filing of a marketing approval application with the U.S. Food and Drug Administration or the European Medicines Agency. In addition, Alfasigma will pay a royalty to the Company equal to six percent of net sales of Brilacidin for UP/UPS, subject to adjustment as provided in the license agreement. Alfasigma is obligated to use commercially reasonable efforts (as defined in the license agreement) to develop, manufacture and commercialize Brilacidin for UP/UPS, and to achieve specified developmental milestones. Alfasigma will be solely responsible for all costs and expenses associated with developing, manufacturing and commercializing Brilacidin for UP/UPS. The license agreement also provides Alfasigma with a right of first refusal for Brilacidin for the treatment of more extensive forms of inflammatory bowel disease (IBD), such as ulcerative colitis and Crohn’s disease, and a right of first negotiation for Brilacidin in other gastrointestinal indications.

Active Clinical Development Programs

Compound	Target/Indication	Clinical Status
Brilacidin	Oral Mucositis	Phase 2 Study (completed) Phase 3 in preparation
	Inflammatory Bowel Disease	Phase 2 Proof of Concept Study (completed) Phase 1 Safety/toleration/PK of oral dosage form in preparation
	ABSSSI (Acute Bacterial Skin and Skin Structure Infection)	Phase 2 (completed)
Kevetrin	Ovarian Cancer	Phase 2 Study (completed)

We have no product sales to date and we will not receive any product revenue until we receive approval from the FDA or equivalent foreign regulatory agencies to begin marketing a pharmaceutical product. Milestone payments from our licensee are also dependent on clinical/regulatory milestones. We are actively engaged in business development for partnering our drug for IBD and OM. Developing pharmaceutical products, however, is a lengthy and very expensive process. Assuming we do not encounter any unforeseen safety or efficacy issues during the course of developing our product candidates, we do not expect to complete the development of a product candidate for several years, if ever.

The Company devotes most of its efforts and resources on its compounds Brilacidin and Kevetrin, which are in clinical development. We anticipate using our expertise to manage and perform what we believe are the most critical aspects of the product development process which include: (i) design and oversight of clinical trials; (ii) development and execution of strategies for the protection and maintenance of intellectual property rights; and (iii) interactions with regulatory authorities domestically and internationally. We expect to concentrate on product development and engage in a limited way in product discovery, avoiding the significant investment of time and financial resources that is generally required for a promising compound to be identified and brought into clinical trials.

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Set forth below is an overview our most recent research and development efforts on Brilacidin and Kevetrin through the date of this Quarterly Report on Form 10-Q:

Brilacidin

Two trials of topical Brilacidin have been completed: a double-blind Phase 2 clinical trial of Brilacidin for the treatment of Oral Mucositis (OM); and an open-label Phase 2 Proof-of-Concept (P-o-C) trial of Brilacidin for the treatment of Ulcerative Proctitis/Proctosigmoiditis (UP/UPS), two types of Inflammatory Bowel Disease (IBD). Appropriate regulatory and other activities aimed at moving the programs forward into further clinical testing are currently underway.

Topical Administration (Oral Mucositis/IBD)

Oral Mucositis (OM) study — In this randomized, double-blind Phase 2 study of Brilacidin for the prevention and control of OM in patients receiving chemoradiation for treatment of Head and Neck Cancer (HNC), analysis of patients who received at least 55 Gy cumulative units of radiation showed that Brilacidin markedly reduced the rate of severe OM (WHO Grade ≥ 3), delayed onset of severe OM and decreased duration of severe OM. The Company made available, in a blog published on its website, a comparative data table (based on public information) showing Brilacidin compares favorably to other compounds in development for preventing and treating severe OM. The Company and the U.S. Food and Drug Administration (FDA) have completed an End-of-Phase 2 meeting concerning the continuing development of Brilacidin oral rinse to decrease the incidence of severe OM in HNC patients receiving chemoradiation. Both parties agreed to an acceptable Brilacidin Phase 3 development pathway, including studying Brilacidin oral rinse effects on severe OM when cisplatin, the preferred chemotherapy regimen in HNC care, is administered in higher concentrations (80-100 mg/m2) every 21 days, and at lower concentrations (30-40 mg/m2) administered weekly as part of the chemoradiation regimen.

IBD (UP/UPS) study —(see Note 7. Exclusive License Agreement to the condensed consolidated financial statements). This Phase 2a trial comprises three sequential cohorts, with progressive dose escalation by cohort—cohort A (6 patients) - 50 mg, cohort B (6 patients) - 100 mg, and cohort C (5 patients) - 200 mg, respectively. Treatment with Brilacidin by daily enema administration was performed for 42 days. The primary efficacy endpoint of clinical remission (accounting for stool frequency, rectal bleeding and endoscopy findings subscores) was met by the majority of patients across the cohorts. Brilacidin was generally well-tolerated. Patient quality of life (as assessed by the short inflammatory bowel disease questionnaire, or SIBDQ) showed notable improvements. Limited systemic exposure to Brilacidin was demonstrated as measured by plasma Brilacidin concentrations. To obtain maximum value of the Brilacidin-IBD asset, the Company plans to develop the drug candidate as an oral dose (pill or tablet). Planned next steps in the development of Brilacidin for oral delivery include initial clinical testing of a radio (gamma) isotope labeled Brilacidin oral formulation in healthy volunteers to assess targeting, dispersion, safety, toleration, and the pharmacokinetic profile. Following multidose testing, clinical trials in IBD including Ulcerative Colitis, then Crohn’s Disease, would then be planned.

Ulcerative Colitis (UC) — Brilacidin is also being developed as a treatment in more extensive forms of IBD, with formulation development plans including oral tablets first aimed for the treatment of ulcerative colitis and then Crohn’s disease. The Company has partnered with BDD Pharma for oral development of Brilacidin in tablet form. Initial formulation is underway utilizing BDD Pharma’s patented OralogiK™ tablet technology to achieve selective delivery of Brilacidin to the colon. A first-in-human safety/toleration/PK clinical single-dose escalation trial is anticipated to be conducted later this year to be followed by multidose testing. If an adequate profile is achieved, a placebo-controlled Phase 2 trial in UC patients would be targeted to begin in the second half of calendar year 2020. We aim to design this patient clinical trial to firmly anchor proof-of-concept for treatment of ulcerative colitis towards attracting a partnership deal.

As stated above, we see significant opportunities in treating Oral Mucositis and IBD with Brilacidin. These data also suggest that other inflammatory conditions including various dermatology disorders and conditions may, likewise, be treated locally and efficaciously with Brilacidin.

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ABSSSI

In February 2016, the Company submitted a Special Protocol Assessment (SPA) request, along with a final protocol, to the FDA, for a Phase 3 clinical trial of Brilacidin for the treatment of Acute Bacterial Skin and Skin Structure Infection (ABSSSI) caused by gram-positive bacteria, including methicillin-resistant Staphylococcus aureus (MRSA). We received from the FDA comments and considerations for incorporation into our study design. Management decided to delay its response to FDA due to the low price per share of our common stock and the approximately $30 million costs required for this study. Our strategy, for now, is to achieve success with other trials and attract partnering opportunities that may provide significant upfront payments and milestone payments, which can then be used to fund the ABSSSI program. We see ABSSSI as the appropriate gateway indication in infectious diseases, enabling potential further studies of Brilacidin’s use for implant coating and biofilm infections.

Expenditures on Brilacidin were approximately $0.2 million and $0.4 million during the quarter ended September 30, 2019 and 2018, respectively.

Kevetrin

The Company has completed a Phase 2a trial of Kevetrin in treating late-stage Ovarian Cancer. The main objective of the trial focused on confirming the modulation by Kevetrin of p53 pathways in tumors, as well as monitoring the response of tumors to the treatment. The study was successful in demonstrating modulation of p53 directly in ovarian cancer tumor tissue in patients. Pharmacokinetic data collected on Kevetrin during the Phase 1 clinical trial demonstrated that the compound has a short half-life of approximately two hours. This short half-life makes it a compelling candidate for an oral drug delivery treatment for the main purpose of allowing simple daily, or multiple-times daily administrations within or outside the hospital setting. Compared to injectable or intravenous treatments, oral therapy is the preferred drug delivery method of patients. Preliminary laboratory studies are encouraging and support the potential of developing an oral formulation, but there are no assurances made or implied that the Company will be successful in completing development of an oral formulation. Toxicology studies for the oral formulation of Kevetrin are approximately half completed, with the remainder of this work to be completed when the Company secures additional financial resources. Next steps in the development of Kevetrin include: completing bridging toxicology work for an oral formulation; developing the oral formulation (pill or tablet); requesting an FDA meeting to discuss trial results to date and the design of future trials; and performing a dosing safety study in healthy volunteers once the oral formulation has been developed. Once completed, these steps would likely quickly lead to Phase 2 testing of oral Kevetrin in both solid tumors and leukemias, with ovarian cancer likely continuing to be the lead indication.

Expenditures on Kevetrin were insignificant during the both quarters ended September 30, 2019 and 2018.

We have no product sales to date and we will not receive any product revenue until we receive approval from the FDA or equivalent foreign regulatory agencies to begin marketing a pharmaceutical product. Developing pharmaceutical products, however, is a lengthy and very expensive process. Assuming we do not encounter any unforeseen safety or efficacy issues during the course of developing our product candidates, we do not expect to complete the development of a product candidate for several years, if ever.

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Going Concern

We have identified conditions and events that raise substantial doubt about our ability to continue as a going concern. As of September 30, 2019, the Company’s cash amounted to $0.9 million and as of the date of this report, the Company’s current cash amounted to approximately $0.3 million, and current liabilities amounted to $7.5 million, of which $3.5 million were payables to related parties with no immediate payment terms and $2.9 million was payable to one shareholder who is our former director and officer of the Company (see Note 10. Related Party Transactions and Note 11. Convertible Note Payable - Related Party to the condensed consolidated financial statements). The Company’s only revenue during the three months ended September 30, 2019 is $0.4 million under the terms of the License Agreement with Alfasigma (see Note 7. Exclusive License Agreement to the condensed consolidated financial statements). We have no product sales as we do not have any products in the market and will continue to not have significant revenues until we begin to market our products after we have obtained the necessary FDA approval. As a result, the Company expects to continue to incur losses over the next 12 months from the date of this filing. Accordingly, the Company’s planned operations, including total budgeted expenditures of approximately $11.5 million for the next twelve months, raise doubt about its ability to continue as a going concern for the next 12 months. If we are not able to continue as a going concern, it is likely that holders of our common stock will lose all of their investment. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

To continue as a going concern, we must secure additional funding to support our current operating plan. The Company expects to seek to obtain additional funding through business development activities (i.e. licensing and partnerships), such as the license agreement with Alfasigma, and future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon our accompanying condensed consolidated financial statements, which have been prepared in conformity with U.S. GAAP, and which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. These estimates are the basis for our judgments about the carrying values of assets and liabilities, which in turn may impact our reported revenue and expenses. Our actual results could differ significantly from these estimates under different assumptions or conditions.

Please see Note 3 of the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the summary of significant accounting policies. In addition, please see Part II, Item 7, “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended June 30, 2019. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended June 30, 2019.

Recently Issued Accounting Pronouncements

Please see Note 3 to the condensed consolidated financial statements, Significant Accounting Policies and Recent Accounting Pronouncements, for a discussion of recent accounting pronouncements and their effect, if any, on our condensed consolidated financial statements.

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Results of Operations

We expect to incur losses from operations for the next few years. We expect to incur increasing research and development expenses, including expenses related to additional clinical trials for our proprietary programs. Based upon our expected rate of expenditures over the next 12 months, we expect to raise additional capital through, among other things, the sale of equity or debt securities to meet all of our anticipated obligations for our current operations through our fiscal year end of June 30, 2020. However, continuing operations for the next 12 months from the date of this filing is very much dependent upon our ability to raise equity from existing or new financing sources. There can be no assurance as to the availability or terms upon which such financing and capital might be available.

For the three months ended September 30, 2019 and 2018

Revenue

We generated revenue of $0.4 million and $0 million for the three months ended September 30, 2019 and 2018, respectively. Revenue during the three months ended September 30, 2019 represented the initial non-refundable payment from the exclusive license agreement signed with Alfasigma S.p.A., a global pharmaceutical company (see Note 7. Exclusive License Agreement to the condensed consolidated financial statements).

We incurred operating expenses of approximately $1.3 million and $2.0 million for the three months ended September 30, 2019 and 2018, respectively.

Research and Development Expenses for Proprietary Programs

Below is a summary of our research and development expenses for our proprietary programs by categories of costs (rounded to nearest thousand):

	For the three months ended				Change
	September 30,				2019 vs. 2018
	2019		2018		$			%
Clinical studies and development research	$	290,000	$	617,000		(327,000	)		(53	)%
Officers’ payroll and payroll tax expenses related to R&D Department		114,000		233,000		(119,000	)		(51	)%
Employees payroll and payroll tax expenses related to R&D Department		70,000		184,000		(114,000	)		(62	)%
Stock-based compensation - officers		189,000		172,000		17,000			10	%
Stock-based compensation - employees		38,000		44,000		(6,000	)		(14	)%
Stock-based compensation - consultants		9,000		13,000		(4,000	)		(31	)%
Depreciation and amortization expenses		93,000		94,000		(1,000	)		(1	)%
Total	$	803,000	$	1,357,000		(554,000	)		(41	)%

Research and development expenses for proprietary programs decreased during the three months ended September 30, 2019 primarily due to less spending on our programs. Clinical studies and development expenses may decrease in future reporting periods depending on the Company’s current and future financial liquidity.

Officers’ payroll decreased during the three months ended September 30, 2019 because the Company’s President of Research resigned in September 2018, which led to the decrease in officers’ payroll during the quarter ended September 30, 2019.

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Employees payroll and payroll tax expenses decreased during the three months ended September 30, 2019 related to fewer employees engaged in preclinical development, which led to the decrease in employees’ payroll during the quarter ended September 30, 2019.

Stock-based compensation - officers increased during the three months ended September 30, 2019 primarily because of lower stock-based compensation expense for an award granted to our President and Chief Medical Officer on September 1, 2018 compared to an award granted on September 1, 2019.

Stock-based compensation - employees decreased during the three months ended September 30, 2019 due to valuation of stock awards vesting being lower to employees during the quarter ended September 30, 2019 compared with the same period in 2018.

Stock-based compensation - consultants decreased during the three months ended September 30, 2019 due to less stock awards were granted to consultants during the quarter ended September 30, 2019 compared with the same period in 2018.

Our research and development expenses include costs related to preclinical and clinical trials, outsourced services and consulting, officers’ payroll and related payroll tax expenses, other wages and related payroll tax expenses, stock-based compensation, depreciation and amortization expenses. We manage our proprietary programs based on scientific data and achievement of research plan goals. Our scientists record their time to specific projects when possible; however, many activities occurring simultaneously benefit multiple projects and cannot be readily attributed to a specific project. Accordingly, the accurate assignment of time and costs to a specific project is difficult and may not give a true indication of the actual costs of a particular project. As a result, we do not report costs on an individual program basis.

General and Administrative Expenses

General and administrative expenses consist mainly of compensation and associated fringe benefits not included in the cost of research and development expenses for proprietary programs and include other management, business development, accounting, information technology and administration costs, including patent filing and prosecution, recruiting, consulting and professional services, travel and meals, sales commissions, facilities, depreciation and other office expenses.

Below is a summary of our general and administrative expenses (rounded to nearest thousand):

	For the three months ended				Change
	September 30,				2019 vs. 2018
	2019		2018		$			%
Insurance and health expense	$	128,000	$	131,000		(3,000	)		(2	)%
Rent and utility expense		59,000		61,000		(2,000	)		(3	)%
Other G&A		78,000		68,000		10,000			15	%
Total	$	265,000	$	260,000		5,000			2	%

General and administrative expenses increased during the three months ended September 30, 2019 primarily related to the increases in promotion, advertising and office expenses.

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Officers’ Payroll and Payroll Tax Expenses

Below is a summary of our Officers’ payroll and payroll tax expenses (rounded to nearest thousand):

	Three months ended				Change
	September 30,				2019 vs. 2018
	2019		2018		$			%
Officers’ payroll and payroll tax expenses	$	118,000	$	123,000		(5,000	)		(2	)%

Officers’ payroll and payroll tax expenses for the Company slightly decreased during the three months ended September 30, 2019.

Professional Fees

Below is a summary of our Professional fees (rounded to nearest thousand):

	Three months ended				Change
	September 30,				2019 vs. 2018
	2019		2018		$			%
Audit, legal and professional fees	$	155,000		259,000		(104,000	)		(40	)%

Professional fees decreased during the three months ended September 30, 2019 primarily related to decrease in legal fees and other professional fees for less legal review of various contracts in 2019.

Other Income (Expense)

Below is a summary of our other income (expense) (rounded to nearest thousand):

	For the Three months ended						Change
	September 30,						2019 vs. 2018
	2019			2018			$			%
Interest expense – debt		(48,000	)		(51,000	)		(3,000	)		6	%
Interest expense – preferred stock liability		(20,000	)		-			20,000			-	%
Change in fair value – Series B preferred stock		102,000			-			(102,000	)		-	%
Impairment expense of operating lease		(643,000	)		-			643,000			-	%
Other Income (Expense), net	$	(609,000	)	$	(51,000	)	$	558,000			(1,094	)%

There was a decrease in interest income of approximately $1,000 relating to the decrease in bank deposits.

There was a decrease in interest expenses paid on the note payable – related party, because the decrease in the note payable due to the Company’s Chairman and CEO since January 29, 2019 (see Note 11. Convertible Note Payable - Related Party to the condensed consolidated financial statements).

There was an increase in interest expense – preferred stock liability of approximately 20,000 relating to the 5% dividend accrued for the Series B preferred stock for the three months ended September 30, 2019. There was an increase in change in value related to the Series B preferred stock (see Note 14. Fair Value Measurement to the condensed consolidated financial statements).

There was an increase in impairment expense of operating lease of approximately $643,000, related to the operating lease right-of-use asset (see Note 8 – Operating Leases to the condensed consolidated financial statements).

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Net Losses

We incurred net losses of $1.6 million and $2.1 million for the three months ended September 30, 2019 and 2018, respectively because of the above-mentioned factors.

Liquidity and Capital Resources

Projected Future Working Capital Requirements - Next 12 Months

As of September 30, 2019, we had approximately $0.9 million in cash compared to $0.6 million of cash as of June 30, 2019. The amount of cash and cash equivalents on the balance sheet as of the date of this filing is approximately $0.3 million and is not adequate to fund our operations. We anticipate that future budget expenditures, based upon us obtaining the adequate financial resources to enable us to operate at our budgeted operations, will be approximately a total of $11.5 million for the next twelve months, including approximately $7.5 million for clinical activities, supportive research, and drug product. This assessment is based on current estimates and assumptions regarding our clinical development programs and business needs. Actual working capital requirements could differ materially from this projection.

Therefore, our current projected budgeted average monthly cash flow shortfall is anticipated to average approximately $1 million per month for the next 12 months from the date of the filing of this report. We are working to reduce our projected monthly cash flow shortfall and we are currently seeking new sources of financing to fund our additional research and development work and general and administrative expenses over the next 12 months from the date of this filing. We have the ability to delay incurring certain operating expenses in the next 12 months, which could reduce our cash flow shortfall, if needed.

We do not currently satisfy the requirements for use of Form S-3 for the primary offerings of our securities but we may utilize Form S-1 to register the future issuance of our securities. The current primary potential source of cash available to us is proceeds from the exercise of outstanding warrants to purchase shares of our Series B preferred stock, which warrants we issued in October 2018 and May 2019. In addition, we may receive payments upon the achievement of milestones pursuant to our license agreement with Alfasigma or similar license agreements in the future. There can be no assurance of the exercise of these warrants or the receipt of these milestone payments in the future.

Our ability to successfully raise sufficient funds through the sale of equity securities, to meet our current and future operating expenditures is uncertain and subject to market conditions generally, the market for our common stock, and our ability to sell our common stock and other risks. These factors, among others, raise substantial doubt about our ability to continue as a going concern for the next 12 months. In the event that we are unable to raise sufficient additional funds, we may be required to delay, reduce or severely curtail our operations or otherwise impede our on-going business efforts, which could have a material adverse effect on our future business, operating results, financial condition and long-term prospects. In addition, we may be forced to cease all operations, in which event investors may lose their entire investment in the Company. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. See Note 2. Going Concern and Liquidity to the financial statements included elsewhere in this report for a further discussion of our liquidity and the conditions and events which raise substantial doubt regarding our ability to continue as a going concern for the next 12 months.

The Company does not currently satisfy the conditions for use of Form S-3 for primary offerings of securities, and the Company will not be able to use a registration statement on Form S-3 to raise capital until the aggregate market value of the Company’s common equity held by non-affiliates equals or exceeds $75 million or the Company lists its common stock on a national securities exchange such as Nasdaq or the NYSE. The Company will utilize Form S-1 to register the sale of its securities, although Form S-1 offers less flexibility on the timing and types of offerings compared to Form S-3.

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Cash Flows

The following table provides information regarding our cash position, cash flows and capital expenditures (rounded to nearest thousand):

	Three Months Ended						Change
	September 30,						Increase/
	2019			2018			(Decrease)
							%
Net cash used in operating activities	$	(620,000	)	$	(2,099,000	)		(70	)%
Net cash used in investing activities		(21,000	)		(19,000	)		(11	)%
Net cash provided by financing activities		972,000			-			-	%
Net decrease in cash	$	331,000		$	(2,118,000	)		(116	)%

The decrease in net cash used in operating activities of $1.5 million versus the prior-year three-month period was mainly due to decreases in our losses from operations of $0.4 million, largely attributable to increase in initial non-refundable payment from the exclusive license agreement signed with Alfasigma S.p.A., a global pharmaceutical company (see Note 7. Exclusive License Agreement to the condensed consolidated financial statements) and less spending for research and development expenses.

Our operating activities used cash of $0.6 million and $2.1 million for the three months ended September 30, 2019 and 2018, respectively. The use of cash in these periods principally resulted from our losses from operations, mentioned above, as adjusted for non-cash charges for stock-based compensation, patent amortization change in fair value of preferred stock, interest expense on preferred stock, impairment expense of operating lease, and changes in our working capital accounts.

Investing activities

The increase in net cash used in investing activities versus the prior-year three-month period was due to an increase in patent costs.

Financing activities

During the three months ended September 30, 2019 and 2018, our total net financing activities provided cash of $1.0 million and $0, respectively.

During the three months ended September 30, 2019, we raised approximately $1.0 million in net cash proceeds, from issuance of Series B preferred stock and exercise of warrants, offset by purchase of treasury stock of $0.1 million.

During the three months ended September 30, 2018, we did not have any financing activity.

Requirement for Additional Working Capital

The Company, dependent on its future sale of its securities, plans to incur total expenses of approximately $11.5 million for the next 12 months, including approximately $7.5 million for clinical activities, supportive research, and drug product development. The Company has limited experience with pharmaceutical drug development. As such, the budget estimate may not be accurate. In addition, the actual work to be performed is not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional work may become necessary or a change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget and on our projected timeline of drug development.

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The Company will be unable to proceed with its planned drug development programs, meet its administrative expense requirements, capital costs, or staffing costs without raising additional capital in the next several months. The current primary potential source of cash available to the Company is proceeds from the exercise of warrants to purchase shares of Series B preferred stock, which warrants were issued in October 2018 and May 2019. In addition, the Company may receive payments upon the achievement of milestones pursuant to its license agreement with Alfasigma or similar license agreements in the future. There can be no assurance of the exercise of warrants or the receipt of milestone payments by the Company in the future.

During the three months ended September 30, 2019, the Company issued 1,045 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of $1.0 million, upon exercise of 1,045 warrants. As of September 30, 2019, Series 1-4 warrants to purchase 6,675 shares of Series B preferred stock were outstanding. As the Company cannot be certain the remaining warrants will be exercised, there can be no assurance those funds or other funds will be available when needed (see Note 13. Equity Transactions to the financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

In the event that we are unable to raise sufficient capital, we may be required to delay, reduce or severely curtail our operations or otherwise impede our on-going business efforts, which could have a material adverse effect on our future business, operating results, financial condition and long-term prospects. The Company expects to seek to obtain additional funding through business development activities (i.e. licensing and partnerships) and future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available. The accompanying financial statements do not include any adjustments related to the carrying values and classifications of assets and liabilities that would be necessary should the Company be unable to continue as a going concern.

Commitments and Contingencies

Contractual Commitments

The Company has total non-cancelable contractual minimum commitments of approximately $2 million to contract research organizations as of September 30, 2019. Expenses are recognized when services are performed by the contract research organizations.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements, as defined in Item 304(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

As of September 30, 2019, management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on such evaluation, as of September 30, 2019, the principal executive officer and principal financial officer of the Company has concluded that the Company’s disclosure controls and procedures are effective.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 1A. RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2019, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended June 30, 2019.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

None

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS

(a) Exhibit index

(1) The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.

EXHIBIT INDEX

Exhibit No.	Title	Method of Filing
3.1	Amended and Restated Articles of Incorporation of Innovation Pharmaceuticals Inc.	Exhibit 3.1 to the Form 10-K for the year ended June 30, 2019 filed on September 30, 2019
10.1	Exclusive License Agreement, dated July 18, 2019, between the Company and Alfasigma S.p.A.	Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on July 22, 2019
31.1	President and Chief Medical Officer Certifications required under Section 302 of the Sarbanes Oxley Act of 2002	Filed herewith
31.2	Chief Executive Officer and Chief Financial Officer Certifications required under Section 302 of the Sarbanes Oxley Act of 2002	Filed herewith
32.1	President and Chief Medical Officer Certifications required under Section 906 of the Sarbanes Oxley Act of 2002	Furnished herewith
32.2	Chief Executive Officer and Chief Financial Officer Certifications required under Section 906 of the Sarbanes Oxley Act of 2002	Furnished herewith
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2019 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) related notes	Filed herewith

44

SIGNATURES

Pursuant to the requirements 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.

	INNOVATION PHARMACEUTICALS INC.
Dated: November 13, 2019	By:	/s/ Leo Ehrlich
	Name:	Leo Ehrlich
	Title:	Chief Executive Officer and Chief Financial Officer (Principal Executive, Accounting and Financial Officer)

Dated: November 13, 2019	By:	/s/ Arthur P. Bertolino
	Name:	Arthur P. Bertolino
	Title:	President and Chief Medical Officer

45

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Arthur P. Bertolino, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Innovation Pharmaceuticals 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(s) 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(s) 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.

 

Dated: November 13, 2019	By:	/s/ Arthur P. Bertolino
	Name:	Arthur P. Bertolino
	Title:	President and Chief Medical Officer

  

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Leo Ehrlich, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Innovation Pharmaceuticals 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(s) 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(s) 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.

  

Dated: November 13, 2019	By:	/s/ Leo Ehrlich
		Leo Ehrlich
		Chief Executive Officer and Chief Financial Officer (Principal Executive, Accounting and Financial Officer)

 

EX-32.1

EXHIBIT 32.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Innovation Pharmaceuticals Inc., a Nevada corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Innovation Pharmaceuticals Inc. and will be retained by Innovation Pharmaceuticals Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: November 13, 2019	By:	/s/ Arthur P. Bertolino
	Name:	Arthur P. Bertolino
	Title:	President and Chief Medical Officer

EX-32.2

EXHIBIT 32.2

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Innovation Pharmaceuticals Inc., a Nevada corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Innovation Pharmaceuticals Inc. and will be retained by Innovation Pharmaceuticals Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: November 13, 2019	By:	/s/ Leo Ehrlich
		Leo Ehrlich
		Chief Executive Officer and Chief Financial Officer and Chairman of the Board of Directors (Principal Executive, Accounting and Financial Officer)

XML

Significant Accounting Policies and Recent Accounting Pronouncements (Tables)

3 Months Ended

Sep. 30, 2019

Basis of Presentation and Nature of Operations

Schedule of components of stock based compensation related to stock options recognized in the company's statement of operations

	Three months ended September 30
	2019		2018
Research and development expenses
Professional fees	$	9,000	$	13,000
Employees’ bonus		38,000		44,000
Officers’ bonus		189,000		172,000
Total stock-based compensation expense	$	236,000	$	229,000

XML

Operating Leases (Tables)

3 Months Ended

Sep. 30, 2019

Operating Leases

Schedule of components of lease expense

	Three Months Ended September 30, 2019
Lease Cost
Operating lease cost (included in general and administrative in the Company’s condensed consolidated statement of operations)	$	56,000
Variable lease cost		2,000
	$	58,000
Other Information
Cash paid for amounts included in the measurement of lease liabilities for the three months ended September 30, 2019	$	58,000
Weighted average remaining lease term – operating leases (in years)	3.92 years
Average discount rate – operating leases		18.00	%

Schedule of operating lease liabilities

	At September 30, 2019
Operating leases
Short-term operating lease liabilities	$	120,000
Long-term operating lease liabilities		523,000
Total operating lease liabilities	$	643,000

Schedule of maturities of the lease liabilities

Fiscal Year Ending June 30,	Operating Leases
2020 (remaining 9 months)	$	168,000
2021		223,000
2022		223,000
2023		223,000
2024 (remaining 3 months)		60,000
Total lease payments		897,000
Less: Imputed interest/present value discount		(254,000	)
Present value of lease liabilities	$	643,000

XML

Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 1)	3 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Jun. 30, 2019
Expected term (in years)	2 years 4 months 28 days		2 years 9 months 3 days
Black-Scholes-Merton [Member]
Expected term (in years)	10 years	10 years
Expected stock price volatility	92.21%	104.11%
Risk-free interest rate	1.50%	2.86%
Expected dividend yield	0.00%	0.00%

XML

Commitments and Contingencies (Details Narrative)	Sep. 30, 2019 USD ($)
Commitments and Contingencies (Details Narrative)
Contractual commitments	$ 2,000,000

XML

Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 6) - USD ($)	3 Months Ended	12 Months Ended
	Sep. 30, 2019	Jun. 30, 2019
Beginning balance, outstanding	22,669,883	41,643,571
Granted	790,826	1,195,826
Exercised		(909,090)
Expired	$ 1.38	$ 0.21
Awards outstanding, Ending balance		22,669,883
Granted	0.13	$ 0.31
Exercised		$ 0.11
Expired	(7,500)	(19,260,424)
Weighted average remaining contractual life, beginning balance	2 years 4 months 28 days	2 years 9 months 3 days
Granted	10 years	7 years 7 months 21 days
Weighted average remaining contractual life, ending balance	2 years 5 months 1 day	2 years 4 months 28 days
Warrant [Member]
Beginning balance, outstanding	8,000,000	8,000,000
Extended
Granted
Exercised
Expired
Awards outstanding, Ending balance	8,000,000	8,000,000
Weighted average grant date fair value, beginning balance	$ 0.38	$ 0.38
Extended
Granted
Exercised
Expired
Weighted average grant date fair value, ending balance	$ 0.38	$ 0.38
Weighted average remaining contractual life, beginning balance	4 years	5 years
Extended
Granted
Exercised
Weighted average remaining contractual life, ending balance	4 years	4 years
Average intrinsic value, beginning balance		$ 0
Average intrinsic value, ending balance	$ 0	$ 0

XML

Fair Value Measurement (Details) - USD ($)	3 Months Ended	12 Months Ended
	Sep. 30, 2019	Jun. 30, 2019
Issuance of preferred stock at fair value	$ 1,116,000
5% accrued dividend (1)	42,000
Series B 5 Percent Convertible Preferred Stock [Member]
Beginning Balance, July 1, 2018
Issuance of preferred stock at fair value		1,116,000
Issuance of preferred stock by exercise of warrants		2,895,000
Conversion of preferred stock to common stock		(3,068,000)
Change in fair value of preferred stock due to modification of terms		(357,000)
Issuance of 100 shares valued at $535.12 per share Series B Preferred Stock per May 2019 Modification		54,000
Contingent consideration of 400 extra shares		214,000
5% accrued dividend (1)		25,000
Ending Balance, June 30, 2019		879,000
Beginning Balance	879,000
Issuance of preferred stock through accrued dividend, valued at fair value	12,000
Issuance of preferred stock by exercise of warrants	559,000
Conversion of preferred stock to common stock	(476,000)
Change in fair value of preferred stock due to modification of terms	(102,000)
5% accrued dividend (1)	20,000
Settlement of accrued dividend by issuance of PS	(24,000)
Ending Balance, September 30, 2019	$ 868,000

XML

Equity Incentive Plans, Stock-Based Compensation, Exercise of Options and Warrants Outstanding

3 Months Ended

Sep. 30, 2019

Equity Incentive Plans, Stock-Based Compensation, Exercise of Options and Warrants Outstanding

Equity Incentive Plans, Stock-Based Compensation, Exercise of Options and Warrants Outstanding

2016 Equity Incentive Plan

On June 30, 2016, the Board of Directors adopted the Company’s 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan became effective upon adoption by the Board of Directors on June 30, 2016.

Up to 20,000,000 shares of the Company’s Class A common stock may be issued under the 2016 Plan (subject to adjustment as described in the 2016 Plan); provided that (1) no Outside Director (as defined in the 2016 Plan) may be granted awards covering more than 250,000 shares of common stock in any year and (2) no participant shall be granted, during any one year period, options to purchase common stock and stock appreciation rights with respect to more than 4,000,000 shares of common stock in the aggregate or any other awards with respect to more than 2,500,000 shares of common stock in the aggregate. The 2016 Plan permits the grant of ISOs, non-qualified stock options, stock appreciation rights, restricted awards, performance share awards and performance compensation awards to employees, directors, and consultants of the Company and its affiliates.

In connection with adoption of the 2016 Plan, the Board of Directors also approved forms of Incentive Stock Option Agreement for Employees, Non-qualified Stock Option Agreement for Employees, Non-qualified Stock Option Agreement for Non-Employee Directors, Restricted Stock Award Agreement for Employees and Restricted Stock Award Agreement for Non-Employee Directors that will be utilized by the Company to grant options and restricted shares under the 2016 Plan.

On January 29, 2019, the Company issued 909,090 shares of Class B common stock at the option exercise price of $0.11 per share to Mr. Ehrlich, the Company’s Chairman and CEO (see Note 11. Convertible Note Payable - Related Party to the condensed consolidated financial statements).

Stock Options Issued and Outstanding

The following table summarizes all stock option activity under the Company’s equity incentive plans:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2018		41,643,571		$	0.22		2.76	$	17,523,113
Granted		1,195,826		$	0.31		7.64
Exercised		(909,090	)	$	0.11
Forfeited/expired		(19,260,424	)	$	0.21
Outstanding at June 30, 2019		22,669,883		$	0.24		2.41	$	1,340,000
Granted		790,826		$	0.13		10.0
Exercised		-		$	-		-
Forfeited/expired		(7,500	)	$	1.38		0
Outstanding at September 30, 2019		23,453,209		$	0.24		2.42	$	-
Exercisable at September 30, 2019		22,034,643		$	0.24		2.00	$	-
Unvested stock options at September 30, 2019		1,418,566		$	0.23		8.95	$	-

The fair value of options granted for the three months ended September 30, 2019 and 2018 was estimated on the date of grant using the Black-Scholes-Merton Model that uses assumptions noted in the following table.

	Three months ended September 30,
	2019			2018
Expected term (in years)		10			10
Expected stock price volatility		92.21	%		104.11	%
Risk-free interest rate		1.50	%		2.86	%
Expected dividend yield		0			0

Stock-Based Compensation

The Company recognized approximately $236,000 and $229,000 of total stock-based compensation costs related to equity grant awards for the three months ended September 30, 2019 and 2018, respectively.

The $236,000 of stock-based compensation expense for the three months ended September 30, 2019 included approximately $140,000 of stock options expense and $96,000 of restricted stock awards.

During the three months ended September 30, 2019 and 2018

On September 1, 2019, the Company issued to Dr. Bertolino for his services rendered 1,066,667 shares of common stock, vesting 50% upon the first anniversary of the grant date and 50% upon the second anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement. The Company also issued 617,839 stock options to purchase shares of the Company’s common stock. These stock options are valued at approximately $71,000, based on the closing bid price as quoted on the OTC on August 30, 2019 at $0.132 per share. These options were issued with an exercise price of $0.132 and vest 50% upon the first anniversary of the grant date and 50% upon the second anniversary of the grant date, with acceleration as defined in award agreement, with a ten year option term. During the three months ended September 30, 2019, the Company recorded approximately $8,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $3,000 of stock option expense and $5,000 of stock awards.

On September 1, 2019, the Company also issued to Ms. Harness 58,394 shares of the Company’s common stock, 33 1/3% vesting upon the first anniversary of the grant date, 33 1/3% upon the second anniversary of the grant date and 33 1/3% upon the third anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement. The Company also issued 172,987 options to purchase common stock. These stock options are valued at approximately $20,000, based on the closing bid price as quoted on the OTC on August 30, 2019 at $0.132 per share. These options were issued with an exercise price of $0.132 and vest 33 1/3% upon the first anniversary of the grant date, 33 1/3% upon the second anniversary of the grant date, and 33 1/3% upon the third anniversary of the grant date, with acceleration of vesting upon certain events. During the three months ended September 30, 2019, the Company recorded approximately $1,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $1,000 of stock option expense.

On September 1, 2018, the Company issued to Dr. Arthur Bertolino, the President and Chief Medical Officer of the Company, for his services rendered 1,066,667 shares of common stock, vesting 50% upon the first anniversary of the grant date and 50% upon the second anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement. The Company also issued 617,839 stock options to purchase shares of the Company’s common stock. These stock options are valued at approximately $225,000, based on the closing bid price as quoted on the OTCQB on August 31, 2018 at $0.40 per share. These options were issued with an exercise price of $0.40 per share and vest 50% upon the first anniversary of the grant date and 50% upon the second anniversary of the grant date, with acceleration as defined in award agreement, with a ten year option term. During the three months ended September 30, 2019, the Company recorded approximately $82,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $28,000 of stock option expense and $54,000 of stock awards. During the three months ended September 30, 2018, the Company recorded approximately $26,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $9,000 of stock option expense and $17,000 of stock awards.

On September 1, 2018, the Company also issued to Ms. Jane Harness, the Senior Vice President, Clinical Sciences and Portfolio Management of the Company, 58,394 shares of the Company’s common stock, 33 1/3% vesting upon the first anniversary of the grant date, 33 1/3% upon the second anniversary of the grant date and 33 1/3% upon the third anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement. The Company also issued 172,987 options to purchase common stock. These stock options are valued at approximately $63,000, based on the closing bid price as quoted on the OTCQB on August 31, 2018 at $0.40 per share. These options were issued with an exercise price of $0.40 per share and vest 33 1/3% upon the first anniversary of the grant date, 33 1/3% upon the second anniversary of the grant date, and 33 1/3% upon the third anniversary of the grant date, with acceleration of vesting upon certain events. During the three months ended September 30, 2019, the Company recorded approximately $7,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $5,000 of stock option expense and $2,000 of stock awards. During the three months ended September 30, 2018, the Company recorded approximately $2,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $1,000 of stock option expense and $1,000 of stock awards.

On September 1, 2017, the Company agreed to grant to Dr. Arthur Bertolino, the President and Chief Medical Officer of the Company, under the 2016 Plan (i) 1,066,667 shares of restricted stock and (ii) a ten-year option to purchase 617,839 shares of the Company’s Class A common stock at an exercise price of $0.705 per share. Both shares and options shall vest upon the earliest to occur of the following: (1) 50% upon the first anniversary of the effective date and the remaining 50% upon the second anniversary of the effective date; (2) shares of the Company’s common stock close above $3.00 per share (as may be adjusted for any stock splits or similar actions); (3) the commencement of trading of shares of the Company’s common stock on a national securities exchange; or (4) upon a change in control of the Company. The 1,066,667 shares were valued at approximately $752,000 and the 617,839 stock options valued at approximately $399,000. Both shares and options were planned to be amortized over 2 years to September 1, 2019 unless the probability of the other above vesting requirements occurring were met at an earlier date. At June 30, 2018, the Company determined that it was not probable that these accelerated vesting provisions would occur earlier than the scheduled vesting date. During the three months ended September 30, 2019, the Company recorded approximately $99,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $34,000 of stock option expense and $65,000 of stock awards. During the three months ended September 30, 2018, the Company recorded approximately $146,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $51,000 of stock option expense and $95,000 of stock awards.

On September 1, 2017, the Company agreed to grant to Ms. Jane Harness, the Senior Vice President, Clinical Sciences and Portfolio Management of the Company under the 2016 Plan (i) 58,394 shares of restricted stock and (ii) a ten-year option to purchase 172,987 shares of the Company’s Class A common stock at an exercise price of $0.705 per share. Both shares and options shall vest upon the earliest to occur of the following: (1) one third upon the first anniversary of the effective date, one third upon the second anniversary of the effective date, and the remaining one third upon the third anniversary of the effective date; or (2) upon a change in control of the Company. The 58,394 shares were valued at approximately $41,000 and the 172,987 stock options valued at approximately $112,000. Both shares and options were planned to be amortized over 3 years to September 1, 2020 unless the other vesting requirements are met sooner. During the three months ended September 30, 2019, the Company recorded approximately $13,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $10,000 of stock option expense and $3,000 of stock awards. During the three months ended September 30, 2018, the Company recorded approximately $13,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $10,000 of stock option expense and $3,000 of stock awards.

On September 1, 2016, the Company and Jane Harness entered into an executive employment agreement as the Company’s VP, Clinical Sciences and Project Management, effective on September 1, 2016. Commencing on September 1, 2016, the Company agreed to pay Ms. Harness an annual salary of $250,000. In addition, the Company agreed to grant to Ms. Harness under the Company 2016 Equity Incentive Plan (i) 58,394 shares of restricted stock, which shall vest upon the earliest to occur of the following: (1) one third (33 1/3 %) upon the first anniversary of the effective date, one third (33 1/3 %) upon the second anniversary of the effective date, and the remaining one third (33 1/3 %) upon the third anniversary of the effective date; or (2) upon a Change in Control (as defined in the employment agreement) of the Company. Ten-year options to purchase 172,987 shares of the Company’s common stock were also granted at an exercise price of $1.37 per share, which shall vest upon the earliest to occur of the following: (1) one third (33 1/3 %) upon the first anniversary of the effective date, and the remaining balance vesting monthly in equal portions over the following 24 months; and (2) upon a Change in Control (as defined in the employment agreement) of the Company. The 58,394 shares were valued at approximately $80,000, which were amortized over three years to September 1, 2019. The 172,987 stock options were valued at approximately $220,000 and will be exercisable for 10 years at an exercise price of $1.26 per share. They were amortized over 3 years to September 1, 2019. During the three months ended September 30, 2019, the Company recorded approximately $17,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $12,000 of stock option expense and $5,000 of stock awards. During the three months ended September 30, 2018, the Company recorded approximately $25,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $18,000 of stock option expense and $7,000 of stock awards.

During the three months ended September 30, 2019, the Company recorded approximately $9,000 of stock-based compensation expense to consultants in connection with the foregoing equity awards including approximately $6,000 of stock option expense and $3,000 of stock awards. During the three months ended September 30, 2018, the Company recorded approximately $13,000 of stock-based compensation expense to consultants in connection with the foregoing equity awards including approximately $10,000 of stock option expense and $3,000 of stock awards.

Purchase of Treasury Stock

On September 1, 2019, 58,394 restricted shares issued to Ms. Harness vested. The total taxable compensation to Ms. Harness for the 58,394 vested shares was approximately $1,222, based upon the closing stock price on August 31, 2019 of $0.13 a share. The Company issued 48,775 common shares (net share issuance amount), to Ms. Harness. The remaining 9,619 shares of common stock were withheld from Ms. Harness for the payment of payroll taxes to the Federal and State taxing authorities and these shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

On September 1, 2019, 1,066,667 restricted shares issued to Dr. Bertolino vested. The total taxable compensation to Dr. Bertolino for the 1,066,667 vested shares was approximately $53,545, based upon the closing stock price on August 30, 2019 of $0.13 a share. The Company issued 645,056 common shares (net share issuance amount), to Dr. Bertolino. The remaining 421,611 shares of common stock were withheld from Dr. Bertolino for the payment of payroll taxes to the Federal and State taxing authorities and these shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

On September 1, 2018, 38,930 restricted shares issued to Ms. Harness vested. The total taxable compensation to Ms. Harness for the 38,930 vested shares was approximately $3,690, based upon the closing stock price on August 31, 2018 of $0.40 a share. The Company issued 29,658 common shares (net share issuance amount), to Ms. Harness. The remaining 9,272 shares of common stock were withheld from Ms. Harness for the payment of payroll taxes to the Federal and State taxing authorities and these shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

On September 1, 2018, 533,334 restricted shares issued to Dr. Bertolino vested. The total taxable compensation to Dr. Bertolino for the 533,334 vested shares was approximately $87,140, based upon the closing stock price on August 31, 2018 of $0.40 a share. The Company issued 314,387 common shares (net share issuance amount), to Dr. Bertolino. The remaining 218,946 shares of common stock were withheld from Dr. Bertolino for the payment of payroll taxes to the Federal and State taxing authorities and these shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

There were 659,448 shares and 228,218 shares of treasury stock outstanding, purchased at a total cumulative cost of $146,000 and $91,000 as of September 30, 2019 and June 30, 2019, respectively.

Restricted Stock Awards Outstanding

The following summarizes our restricted stock activity:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Total awards outstanding at June 30, 2018		1,208,157		$	0.72
Total shares granted		1,130,061		$	0.40
Total shares vested		(597,263	)	$	0.72
Total shares forfeited		(11,667	)	$	0.76
Total unvested shares outstanding at June 30, 2019		1,729,288		$	0.51
Total shares granted		1,125,061		$	0.13
Total shares vested		(1,125,061	)	$	0.57
Total shares forfeited		-		$	-
Total unvested shares outstanding at September 30, 2019		1,729,288		$	0.23

Scheduled vesting for outstanding restricted stock awards at September 30, 2019 is as follows:

	Year Ending June 30,
	2020		2021		2022		2023		Total
Scheduled vesting		12,500		1,125,062		572,262		19,464		1,729,288

As of September 30, 2019, there was approximately $0.4 million of net unrecognized compensation cost related to unvested restricted stock-based compensation arrangements. This compensation is recognized on a straight-line basis resulting in approximately $0.3 million of compensation expected to be expensed over the next twelve months, and the total unrecognized stock-based compensation expense having a weighted average recognition period of 1.37 years.

Exercise of options

During the three months ended September 30, 2019 and 2018, there were no stock options exercised.

Stock Warrants Outstanding

Warrants to Purchase 5% convertible preferred stock (“Series B preferred stock”)

On October 5, 2018, the Company entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) with one multi-family office for the sale of 2,000 shares of the Company’s newly-created Series B 5% convertible preferred stock (“Series B preferred stock”), for aggregate gross proceeds of approximately $2.0 million. Each share of preferred stock was initially sold together with three warrants: (i) a Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance (later extended to 15 months following issuance), (ii) a Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance, and (iii) a Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance. On May 9, 2019, the Company entered into a warrant restructuring and additional issuance agreement (the “Issuance Agreement”) with the holders of the Series B preferred stock and warrants pursuant to which the Company issued an additional 100 shares of Series B preferred stock and Series 4 warrants to purchase an additional 2,500 shares of preferred stock, and the holders of the Series B preferred stock and warrants agreed to exercise warrants to purchase up to $2.0 million of Series B preferred stock through November 2019 subject to the conditions set forth in the Issuance Agreement. The Series 4 warrant entitles the holder thereof to purchase 2,500 shares of preferred stock at $982.50 per share for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance. In addition, the Company extended the termination date for the Series 1 warrants by six months, and agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock.

The warrants issued in connection with the Series B preferred stock are deemed to be free standing equity instruments and are recorded in permanent equity (additional paid in capital) based on a relative fair value allocation of proceeds (i.e. warrants’ relative fair value to the Series B preferred stock fair value (without the warrants)) with an offsetting discount to the Series B preferred stock.

Exercise of warrants

During the period from October 5, 2018 (date of issuance of preferred stock and warrants) to June 30, 2019, the Company issued 2,780 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of $2.73 million, upon exercise of 2,780 warrants issued by the Company in October 2018. As of June 30, 2019, Series 1-4 warrants to purchase 7,720 shares of Series B preferred stock were outstanding.

During the three months ended September 30, 2019, the Company issued 1,045 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of $1.0 million, upon exercise of 1,045 warrants. As of September 30, 2019, Series 1-4 warrants to purchase 6,675 shares of Series B preferred stock were outstanding. As the Company cannot be certain the remaining warrants will be exercised, there can be no assurance those funds or other funds will be available when needed (see Note 13. Equity Transactions to the condensed consolidated financial statements).

The following table summarizes the outstanding Series B preferred stock warrants:

	Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2018		-		$	-		-	$	-
Granted		10,500			982.50		2.00
Exercised		(2,780	)		982.50		2.00
Expired		-			-
Outstanding at June 30, 2019		7,720		$	985.50		1.21	$	752,700
Granted		-			-		-
Exercised		(1,045	)		982.50		1.43
Expired		-			-
Outstanding at September30, 2019		6,675		$	985.50		1.06	$	650,813

Warrants to Purchase Common Stock

On June 28, 2018, the Company entered into a Securities Purchase Agreement with Aspire Capital Fund, LLC, pursuant to which the Company agreed to sell up to $7.0 million of shares of the Company’s Class A common stock to Aspire Capital, without an underwriter or placement agent. The Company issued to Aspire Capital warrants to purchase 8,000,000 shares of its common stock exercisable for 5 years at an exercise price of $0.38 per share. The warrants were recorded within stockholders’ deficiency. The fair value of the warrants issued on June 28, 2018 was estimated on the date of issuance using the Black-Scholes-Merton Model that uses assumptions noted in the following table. The value of the warrants issued was approximately $1.7 million.

	Year Ended June 30,
	2019		2018
Expected term (in years)	5 - 10			3
Expected stock price volatility	67.34% - 104.11%			82.36	%
Risk-free interest rate	2.51% - 2.86%			2.73	%
Expected dividend yield		0		0

The following table summarizes the outstanding common stock warrants:

	Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2018		8,000,000	$	0.38		5.0	$	-
Extended		-		-		-
Granted		-		-		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at June 30, 2019		8,000,000	$	0.38		4.0	$	-
Extended		-		-		-
Granted		-		-		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at September 30, 2019		8,000,000	$	0.38		4.0	$	-

As of September 30, 2019 and June 30, 2019, 8,000,000 warrants to purchase shares of the Company’s common stock exercisable for 5 years at an exercise price of $0.38 per share were outstanding.

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Patents, net

3 Months Ended

Sep. 30, 2019

Patents, net

Patents, net

Patents, net consisted of the following (rounded to nearest thousand):

	Useful life		September 30, 2019			June 30, 2019
Purchased Patent Rights- Brilacidin, and related compounds		14	$	4,082,000		$	4,082,000
Purchased Patent Rights-Anti-microbial- surfactants and related compounds		12		144,000			144,000
Patents - Kevetrin and related compounds		17		1,139,000			1,118,000
				5,365,000			5,344,000
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds				(1,841,000	)		(1,765,000	)
Accumulated amortization for Patents-Kevetrin and related compounds				(254,000	)		(237,000	)
Total			$	3,270,000		$	3,342,000

The patents are amortized on a straight-line basis over the useful lives of the assets, determined to be 12-17 years from the date of acquisition

Amortization expense for the three months ended September 30, 2019 and 2018 was approximately $93,000 and $94,000, respectively.

At September 30, 2019, the future amortization period for all patents was approximately 5.93 years to 16.75 years. Future estimated annual amortization expenses are approximately $278,000 for the year ending June 30, 2020, $371,000 for each year from 2021 to 2024, and total of $1,508,000 for the year ending June 30, 2025 and thereafter.

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Operating Leases

3 Months Ended

Sep. 30, 2019

Operating Leases

Operating Leases

The Company renewed a 60-month lease to lease approximately 12,500 square feet of office space on October 1, 2018 for an additional 5 years with an automatic extension for additional successive periods of 5 years unless written notice is given not more than 12 months or less than 6 months prior to the expiration of the then current lease period. Base monthly rent is approximately $19,000 per month, subject to annual changes in the consumer price index, plus operating expenses. A deposit of $78,000 was paid at the commencement of the lease. This office space serves as the Company’s principal executive offices.

Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives. Our variable lease payments primarily consist of maintenance and other operating expenses from our real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components. We have elected to account for these lease and non-lease components as a single lease component. We are also electing not to apply the recognition requirements to short-term leases of twelve months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term.

The Company determined that the operating lease right-of-use asset is fully impaired as of September 30, 2019 because of the Company’s current lack of working capital (see Note 2. Going Concern and Liquidity to the condensed consolidated financial statements) resulting in its limited usage of the leased office. The Company has been unable to enter into a sub-lease agreement for this leased office as of September 30, 2019. As such, the Company recognized an impairment loss of approximately $643,000, after recording amortization of the right-of-use asset for July, August, and September 2019 totaling approximately $27,000, resulting in a carrying value of $0 at September 30, 2019.

The components of lease expense and supplemental cash flow information related to leases for the period are as follows:

	Three Months Ended September 30, 2019
Lease Cost
Operating lease cost (included in general and administrative in the Company’s condensed consolidated statement of operations)	$	56,000
Variable lease cost		2,000
	$	58,000
Other Information
Cash paid for amounts included in the measurement of lease liabilities for the three months ended September 30, 2019	$	58,000
Weighted average remaining lease term – operating leases (in years)	3.92 years
Average discount rate – operating leases		18.00	%

The supplemental balance sheet information related to leases for the period is as follows:

	At September 30, 2019
Operating leases
Short-term operating lease liabilities	$	120,000
Long-term operating lease liabilities		523,000
Total operating lease liabilities	$	643,000

The following table provides maturities of the Company’s lease liabilities at September 30, 2019 as follows:

Fiscal Year Ending June 30,	Operating Leases
2020 (remaining 9 months)	$	168,000
2021		223,000
2022		223,000
2023		223,000
2024 (remaining 3 months)		60,000
Total lease payments		897,000
Less: Imputed interest/present value discount		(254,000	)
Present value of lease liabilities	$	643,000

Lease expenses were approximately $58,000 and $56,000 during the three months ended September 30, 2019 and 2018, respectively.

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($)	Total	Treasury Stock Shares	AdditionalPaid-in Capital	Accumulated Deficit	Common Class A [Member]	Common Class B [Member]
Balance, Shares at Jun. 30, 2018					163,103,927
Balance, Amount at Jun. 30, 2018	$ (2,151,000)		$ 83,747,000	$ (85,915,000)	$ 17,000
Shares issued to consultant for services	3,000		3,000
Shares issued to officer as equity awards	112,000		112,000
Stock options issued to consultant for services	10,000		10,000
Stock options issued to officer as equity awards	60,000		60,000
Issuance of 572,264 shares to Officer and employee, Shares					572,264
Shares issued to employee for services	12,000		12,000
Stock options issued to employee for services	32,000		32,000
Net loss	(2,050,000)			(2,050,000)
Issuance of 572,264 shares to Officer and employee, Amount
Issuance of 1,066,667 shares to Officer 421,611 shares were withheld for tax purposes as Treasury shares, Shares
Issuance of shares for tax purposes as Treasury Shares, Amount
Issuance of shares for tax purposes as Treasury Shares, Amount
Issuance of 58,394 shares to employee 9,619 shares were withheld for tax purposes as Treasury shares, Shares
Conversion of 890 preferred stocks to 9,030,870 common stock, Amount
Issuance of 12,500 shares to Consultant, Shares
Excess of exercise price of 1,045 warrants over fair value
Conversion of 890 preferred stocks to 9,030,870 common stock, Amount
Balance, Shares at Sep. 30, 2018		1			163,676,191
Balance, Amount at Sep. 30, 2018	$ (3,972,000)		83,976,000	(87,965,000)	$ 17,000
Balance, Shares at Jun. 30, 2019		228,218			202,631,923	909,090
Balance, Amount at Jun. 30, 2019	(4,129,000)	$ (91,000)	90,537,000	(94,596,000)	$ 21,000
Shares issued to consultant for services	3,000		3,000
Shares issued to officer as equity awards	65,000		65,000
Stock options issued to consultant for services	6,000		6,000
Stock options issued to officer as equity awards	124,000		124,000
Shares issued to employee for services	28,000		28,000
Stock options issued to employee for services	10,000		10,000
Net loss	(1,550,000)			(1,550,000)
Issuance of shares for tax purposes as Treasury Shares, Amount	(54,000)
Issuance of 58,394 shares to employee 9,619 shares were withheld for tax purposes as Treasury shares, Shares					58,394
Conversion of 890 preferred stocks to 9,030,870 common stock, Amount	476,000		475,000		$ 1,000
Issuance of 12,500 shares to Consultant, Shares					12,500
Issuance of 1,066,667 shares to Officer 421,611 shares were withheld for tax purposes as Treasury shares, Shares					$ 1,066,667
Issuance of shares for tax purposes as Treasury Shares, Shares		421,611			(421,611)
Issuance of shares for tax purpose as Treasury Shares, shares		9,619			(9,619)
Excess of exercise price of 1,045 warrants over fair value	$ 478,000		478,000
Conversion of 890 preferred stocks to 9,030,870 common stock, Shares					9,030,870
Balance, Shares at Sep. 30, 2019		659,448			212,369,124	909,090
Balance, Amount at Sep. 30, 2019	$ (4,544,000)
Balance, Amount at Sep. 30, 2019	$ (4,544,000)	$ (146,000)	$ 91,726,000	$ (96,146,000)	$ 22,000

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Document and Entity Information - shares	3 Months Ended
	Sep. 30, 2019	Nov. 08, 2019
Document And Entity Information
Entity Registrant Name	Innovation Pharmaceuticals Inc.
Entity Central Index Key	0001355250
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Sep. 30, 2019
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2020
Entity Common Stock Shares Outstanding		212,369,124

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Accrued Salaries and Payroll Taxes Related Parties and Other (Details) - USD ($)	Sep. 30, 2019	Jun. 30, 2019
Accrued Salaries and Payroll Taxes Related Parties and Other (Details)
Accrued salaries - related parties	$ 2,999,000	$ 2,999,000
Accrued payroll taxes - related parties	130,000	130,000
Withholding tax - payroll & other taxes	72,000	33,000
Total	$ 3,201,000	$ 3,162,000

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Significant Accounting Policies and Recent Accounting Pronouncements

3 Months Ended

Sep. 30, 2019

Basis of Presentation and Nature of Operations

Significant Accounting Policies and Recent Accounting Pronouncements

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include contract research accruals, recoverability of long-lived assets, valuation of equity grants and income tax valuation. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Basic Loss per Share

Basic and diluted loss per share is computed based on the weighted-average common shares and common share equivalents outstanding during the period. Common share equivalents consist of stock options, convertible notes payable underlying shares and unvested restricted stock. Common share equivalents of 52,456,967 and 56,271,542 shares of common stock were excluded from the computation of diluted loss per share for the three months ended September 30, 2019 and 2018, respectively, because we incurred net losses for the three months ended September 30, 2019 and 2018, and the effect of including these potential common shares in the net loss per share calculations would be anti-dilutive.

Treasury Stock

The Company accounts for treasury stock using the cost method. There were 659,448 shares and 228,218 shares of treasury stock outstanding, purchased at a total cumulative cost of $146,000 and $91,000 as of September 30, 2019 and June 30, 2019, respectively (see Note 12. Equity Incentive Plans, Stock-Based Compensation, Exercise of Options and Warrants Outstanding to the condensed consolidated financial statements).

Treasury stock, representing shares of the Company’s common stock that have been acquired for payroll tax withholding on vested stock grants, is recorded at its acquisition cost and these shares are not considered outstanding.

Revenue Recognition

On July 1, 2019, the Company adopted the new accounting standard ASC 606 (Topic 606), Revenue from Contracts with Customers, and all the related amendments (“new revenue standard”) using the modified retrospective method applied to those contracts which were not completed as of July 1, 2019. The adoption of ASC Topic 606 did not have impact on the Company’s consolidated financial statements or cash flows, for the Company had no revenue and no contracts which were not completed as of July 1, 2019.

The Company has acquired and further developed license rights to Functional Intellectual Property (“functional IP”) that it licenses to customers for defined license periods. A functional IP license is a license to intellectual property that has significant standalone functionality that does not include supporting or maintaining the intellectual property during the license period. The Company’s patented drug formulas have significant standalone functionality in the form of their abilities to treat a disease or condition. Further, there is no expectation that the Company will undertake any activities to change the functionality of the drug formulas during the license periods (see Note 7. Exclusive License Agreement to the condensed consolidated financial statements).

Under the terms of the License Agreement, Alfasigma made an initial non-refundable payment of $0.4 million to the Company and will make additional payments of up to $24.0 million to the Company based upon the achievement of certain milestones, including a $1.0 million payment due following commencement of the first phase III clinical trial of Brilacidin for UP/UPS and an additional $1.0 million payment upon the filing of a marketing approval application with the U.S. Food and Drug Administration or the European Medicines Agency. In addition, Alfasigma will pay a royalty to the Company equal to six percent of net sales of Brilacidin for UP/UPS, subject to adjustment as provided in the License Agreement.

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

Pursuant to ASC 606, a customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps:

(i)	identify the contract(s) with a customer;
(ii)	identify the performance obligations in the contract, including whether they are distinct in the context of the contract;
(iii)	determine the transaction price, including the constraint on variable consideration;
(iv)	allocate the transaction price to the performance obligations in the contract; and
(v)	recognize revenue when (or as) the Company satisfies each performance obligation.

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. If a promised good or service is not distinct, it is combined with other performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The terms of the Company’s licensing agreement include the following:

(i)	up-front fees;
(ii)	milestone payments related to the achievement of development, regulatory, or commercial goals; and
(iii)	royalties on net sales of licensed products.

License of Intellectual Property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. If not distinct, the license is combined with other performance obligations in the contract. For licenses that are combined with other performance obligations, the Company assesses the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone Payments: At the inception of each arrangement that includes developmental and regulatory milestone payments, the Company evaluates whether the achievement of each milestone specifically relates to the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service within a performance obligation. If the achievement of a milestone is considered a direct result of the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone, the associated milestone value is allocated to that distinct good or service. If the milestone payment is not specifically related to the Company’s effort to satisfy a performance obligation or transfer a distinct good or service, the amount is allocated to all performance obligations using the relative standalone selling price method. The Company also evaluates the milestone to determine whether they are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price to be allocated, otherwise, such amounts are constrained and excluded from the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the transaction price. Any such adjustments to the transaction price are allocated to the performance obligations on the same basis as at contract inception. Amounts allocated to a satisfied performance obligation shall be recognized as revenue, or as a reduction of revenue, in the period in which the transaction price changes.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied) in accordance with the royalty recognition constraint.

Accounting for Stock Based Compensation

The stock-based compensation expense incurred by the Company for employees and directors in connection with its stock option plan is based on the employee model of ASC 718, and the fair market value of the options is measured at the grant date. Under ASC 718 employee is defined as “An individual over whom the grantor of a share-based compensation award exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under U.S. “tax regulations.” Our consultants do not meet the employer-employee relationship as defined by the IRS and therefore are accounted for under ASC 505-50. Effective July 1, 2019, the Company adopted ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.

The Company followed the accounting guidance in ASC 505-50-30-11 until July 1, 2019 which provides that an issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date:

i.	The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); and
ii.	The date at which the counterparty’s performance is complete.

Upon the adoption of ASU 2018-07, the Company measured the fair value of equity instruments for nonemployee based payment awards on the grant date.

The components of stock-based compensation expense included in the Company’s Condensed Statement of Operations for the three months ended September 30, 2019 and 2018 are as follows (rounded to nearest thousand):

	Three months ended September 30
	2019		2018
Research and development expenses
Professional fees	$	9,000	$	13,000
Employees’ bonus		38,000		44,000
Officers’ bonus		189,000		172,000
Total stock-based compensation expense	$	236,000	$	229,000

Recent Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which allows companies to account for nonemployee awards in the same manner as employee awards. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. This new pronouncement has been adopted in the first quarter of fiscal 2020 and did not have a material effect on the Company’s financial position, results of operations or cash flows.

Prior to July 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases. Effective July 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients,’ which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs; and all of the new standard’s available transition practical expedients. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on July 1, 2019 resulted in the recognition of operating lease right-of-use assets of approximately $670,000, lease liabilities for operating leases of approximately $670,000, and a zero cumulative-effect adjustment to accumulated deficit. The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less (“short-term leases”). Lease expense is recognized on a straight-line basis over the lease term. The Company determined that the operating lease right-of-use asset is impaired as of September 30, 2019, and it recognized an impairment loss of approximately $643,000, after recording amortization of the right-of-use asset for July, August, and September 2019 totaling approximately $27,000, resulting in a carrying value of $0 at September 30, 2019 (see Note 8. Operating Lease to the condensed consolidated financial statements).

In July 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The adoption of ASU 2017-11, during the year ended June 30, 2019, did not have any impact on the financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which defines how companies should report revenues from contracts with customers. The standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It provides companies with a five-step, principles-based model to use in accounting for revenue and supersedes current revenue recognition requirements, including most industry-specific and transaction-specific revenue guidance. In August 2015, the FASB deferred the effective date of the new revenue standard by one year. The guidance permits an entity to apply the standard retrospectively to all prior periods presented, with certain practical expedients, or apply the requirements in the year of adoption, through a cumulative adjustment. This new pronouncement has been adopted in the first quarter of fiscal 2019 and did not have a material effect on the Company’s financial position, results of operations or cash flows.

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Significant Accounting Policies and Recent Accounting Pronouncements (Details Narrative) - USD ($)		3 Months Ended
	Jul. 02, 2019	Sep. 30, 2019	Sep. 30, 2018	Jul. 18, 2019	Jun. 30, 2019	May 09, 2019	Jun. 30, 2018
Treasury Stock Shares		659,448	228,218		228,218		0
Treasury Stock, at cost (0 shares and 262,080 shares as of June 30, 2018 and 2017, respectively)		$ (146,000)			$ (91,000)
Computation of diluted shares		52,456,967	$ 56,271,542
Operating lease right-of-use assets	$ 670,000
Operating lease liabilities	$ 670,000	643,000
Term of lease	12 months
Impairment expense of operating lease		(643,000)
Amortization of the right-of-use asset		27,000
Operating lease carrying value		0
License Agreement [Member]
Additional payments payable upon achievement of certain milestones under agreement by related party		24,000,000
Payment due following commencement of first phase III clinical trial of Brilacidin		1,000,000
Non-refundable payment		400,000
Payment due upon filing of a marketing approval application				$ 1,000,000

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details Narrative)				1 Months Ended							3 Months Ended		12 Months Ended
	May 09, 2019 USD ($) shares	Oct. 05, 2018 USD ($) shares	Sep. 06, 2017 shares	May 10, 2019 USD ($)	May 10, 2019 USD ($)	May 09, 2019 USD ($) shares	Oct. 05, 2018 USD ($) shares	Jun. 28, 2018 shares	Sep. 06, 2017 shares	Mar. 30, 2015 shares	Sep. 30, 2019 USD ($) integer $ / shares shares	Sep. 30, 2018 USD ($) shares	Jun. 30, 2019 shares	Jan. 29, 2019 $ / shares shares	Jun. 30, 2018 USD ($) $ / shares shares	Jun. 30, 2017 shares
Share based compensation | $											$ 236,000	$ 229,000
Restricted stock awards | $											$ 96,000
Treasury stock outstanding											659,448	228,218	228,218		0
Total cumulative cost | $											$ 146,000	$ 91,000			$ 0
Unrecognized compensation cost related to unvested restricted stock-based compensation | $											$ 400,000
Compensation cost not yet recognized, period for recognition											1 year 4 months 13 days
Expected share based compensation expenses | $											$ 300,000
Stock options to purchase shares, value | $											22,000
Shares award expense | $											$ 11,000	6,000
Options vested or expected to vest											50,000
Preferred stock, shares outstanding (in shares)											0				0
Proceeds from warrant exercises | $											$ 1,027,000
Proceeds from issuance of shares | $											$ 1,116,000
Preferred stock shares issued											0		0		0
Beginning balance, Shares
Granted											790,826		1,195,826
Expired											(7,500)		(19,260,424)
Employees [Member]
Stock option Granted											19,260,424
Securities Purchase Agreement [Member] | Aspire Capital Fund LLC [Member] | Stock And Warrant [Member]
Stock issued during period, shares								8,000,000
Additional Three year [Member]
Options vested or expected to vest											50,000
Stock option expenses | $											$ 0	8,000
Granted											50,000
Stock options granted value | $											$ 8,000
June 1, 2018 [Member | Additional Three year [Member]
Options vested or expected to vest											12,500
June 1, 2018 [Member
Options vested or expected to vest											12,500
Number of installments | integer											4
December 1, 2018 [Member]
Options vested or expected to vest											12,500
December 1, 2018 [Member] | Additional Three year [Member]
Options vested or expected to vest											12,500
June 1, 2019 [Member]
Options vested or expected to vest											12,500
June 1, 2019 [Member] | Additional Three year [Member]
Options vested or expected to vest											12,500
December 1, 2019 [Member]
Options vested or expected to vest											12,500
December 1, 2019 [Member] | Additional Three year [Member]
Options vested or expected to vest											12,500
Common Class A [Member]
Beginning balance, Shares											212,369,124	163,676,191	202,631,923		163,103,927
Common stock shares issued											213,028,572		202,860,141		163,103,927
Beginning balance, Shares											187,575,318				163,103,927
Common Class A [Member] | 30 Million Common Stock Purchase Agreement [Member] | Aspire Capital Fund LLC [Member]
Stock issued during period, shares			300,000							160,000
Stock issued during period, shares									300,000	160,000
Common Class B [Member]
Beginning balance, Shares											909,090		909,090
Common stock shares issued											909,090		909,090		0
Common Class B [Member] | Mr. Ehrlich [Member]
Common stock shares issued											909,090			909,090	0
Exercise price | $ / shares														$ 0.11
Series B [Member]
Proceeds from warrant exercises | $		$ 2,700,000					$ 2,700,000
Stock issued during period, shares
Series B [Member] | Securities Purchase Agreement [Member]
Purchase of warrants															7,720
Series 3 warrant [Member] | Series 1-4 [Member] | Securities Purchase Agreement [Member]
Preferred stock, shares outstanding (in shares)											6,675
Preferred stock shares issued											1,045
Rights and preferences of preferred stock description		Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance					Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance
Warrant [Member]
Granted
Expired
Exercised
Series 1-3 warrants [Member] | Series B [Member]
Purchase of warrants											7,720				8,000,000
Preferred stock shares reserved for future issuance											7,720
Series 1 warrant [Member] | Series B [Member] | Securities Purchase Agreement [Member]
Rights and preferences of preferred stock description		Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance					Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance
Series 2 warrant [Member] | Series B [Member] | Securities Purchase Agreement [Member]
Rights and preferences of preferred stock description		Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance					Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance
Series 4 warrant [Member] | Series B [Member] | Securities Purchase Agreement [Member]
Proceeds from issuance of shares | $	$ 2,000,000					$ 2,000,000
Preferred stock shares issued	100					100
Rights and preferences of preferred stock description	The Series 4 warrant entitles the holder thereof to purchase 2,500 shares of preferred stock at $982.50 per share for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance. In addition, the Company extended the termination date for the Series 1 warrants by six months, and agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock.					The Series 4 warrant entitles the holder thereof to purchase 2,500 shares of preferred stock at $982.50 per share for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance. In addition, the Company extended the termination date for the Series 1 warrants by six months, and agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock.
Additional shares of preferred stock	2,500					2,500
Series 1-2 warrants [Member] | Series B [Member]
Rights and preferences of preferred stock description		Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance					Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance
Exercised											2,780
Investor [Member] | Securities Purchase Agreement [Member]
Proceeds from issuance of warrants | $							$ 7,900,000
Black-Scholes-Merton [Member]
Share based compensation | $											$ 465,000	$ 677,000
Granted											1,195,826	1,175,826
Expired											(19,260,424)	(187,500)
Warrants exercisable period											2 years 4 days
Dr. Bertolino [Member]
Share based compensation | $											$ 9,000	$ 13,000
Stock option expenses | $											$ 6,000	10,000
Stock option exercise price | $ / shares											$ 0.132
Stock awards | $											$ 3,000	3,000
Stock options reserved for future issuance											400,000
Stock options value reserved for future issuance | $											$ 30,000
Consultant 1 [Member]
Stock option exercise price | $ / shares											$ 0.13
Stock option vested or to be vested, description											These options were issued with an exercise price of $0.13 per share and vest 33 1/3% on February 1, 2019, 33 1/3% on August 1, 2019, and 33 1/3% on January 31, 2020
Stock options reserved for future issuance											400,000
Dr. Krishna Menon [Member]
Expired											18,000,000
On September 1, 2016 [Member] | Ms. Jane Harness [Member]
Stock option expenses | $											$ 12,000	18,000
Stock option vested or to be vested, description											the Company’s common stock, 33 1/3% vesting upon the first anniversary of the grant date, 33 1/3% upon the second anniversary of the grant date and 33 1/3% upon the third anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement.
Salary annual | $											$ 250,000
Restricted stock, shares											58,394
Restricted stock, amount											80,000
Common stock, granted											172,987
Common stock, exercise price | $ / shares											$ 1.26
Shares issued, value | $											$ 220,000
Amortization period of restricted stock											3 years
Stock awards | $											$ 5,000	3,000
On September 1, 2018 [Member]
Share based compensation | $											7,000	26,000
Stock option expenses | $											5,000	9,000
Proceeds from issuance of shares | $											1,116,000
Stock awards | $											2,000	17,000
On September 1, 2018 [Member] | Ms. Jane Harness [Member]
Share based compensation | $											7,000	2,000
Stock option expenses | $											$ 5,000	1,000
Stock option vested or to be vested, description											of the Company’s common stock, 33 1/3% vesting upon the first anniversary of the grant date, 33 1/3% upon the second anniversary of the grant date and 33 1/3% upon the third anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement.
Stock awards | $											$ 2,000	1,000
Stock options reserved for future issuance											172,987
Stock issued, shares											58,394
Stock issued, value | $											$ 63,000
Vested shares											58,394
On September 1, 2018 [Member] | Ms. Anne Ponugoti [Member]
Proceeds from warrant exercises | $				$ 540,000	$ 540,000
Stock option exercise price | $ / shares											$ 0.40
Common stock shares issued											5,000
Stock options reserved for future issuance											5,000
Stock issued, shares											5,000
Stock issued, value | $											$ 2,000
Vested shares											5,000
On February 10, 2018 [Member] | Two Consultant [Member] | Stock options [Member]
Share based compensation | $											$ 72,000	1,886,000
Stock options reserved for future issuance											50,000
Stock issued, shares											75,000
Vested shares											75,000
On September 1, 2017 [Member] | Ms. Jane Harness [Member] | Common Class A [Member] | 2016 Equity Incentive Plan [Member]
Share based compensation | $											$ 13,000	13,000
Stock option expenses | $											10,000	10,000
Stock awards | $											$ 3,000	3,000
Stock options reserved for future issuance											172,987
Stock issued, shares											58,394
Stock issued, value | $											$ 112,000
Vested shares											58,394
On September 1, 2017 [Member] | Dr. Arthur Bertolino [Member] | Common Class A [Member] | 2016 Equity Incentive Plan [Member]
Share based compensation | $											$ 99,000	146,000
Stock option expenses | $											$ 34,000	51,000
Stock option exercise price | $ / shares											$ 0.705
Stock awards | $											$ 65,000	95,000
Stock options reserved for future issuance											617,839
Stock issued, shares											1,066,667
Stock issued, value | $											$ 752,000
Vested shares											1,066,667
Exercisable period											10 years
Restricted stock
Stock option vested or to be vested, description											(1) 50% upon the first anniversary of the effective date and the remaining 50% upon the second anniversary of the effective date; (2) shares of the Company’s common stock close above $3.00 per share (as may be adjusted for any stock splits or similar actions); (3) the commencement of trading of shares of the Company’s common stock on a national securities exchange;
On June 28, 2018 [Member] | Common Class A [Member] | Securities Purchase Agreement [Member] | Aspire Capital Fund LLC [Member]
Rights and preferences of preferred stock description		Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance					Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance
Proceeds from issuance of warrants | $												$ 1,700,000
Common stock shares issuable under agreement												7,000,000
On June 28, 2018 [Member] | Warrant [Member]
Proceeds from issuance of shares | $		$ 2,000,000					$ 2,000,000
Beginning balance, Shares		2,000					2,000
Purchase of warrants											8,000,000				8,000,000
Exercise price											0.38	0.38
Warrants exercisable period											5 years	5 years
Rights and preferences of preferred stock description
On September 1, 2018 [Member] | Ms. Jane Harness [Member]
Restricted shares issued											38,930
Taxable share based compensation | $											$ 3,690
Stock option exercise price | $ / shares											$ 0.40
Common stock shares issued											29,658				163,103,927
Remaining common stock shares withheld											9,772
Vested shares											38,930
Rights and preferences of preferred stock description		Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance (later extended to 15 months following issuance)					Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance (later extended to 15 months following issuance)
Closing stock price | $ / shares											$ 0.40
On September 1, 2018 [Member] | Dr. Arthur Bertolino [Member]
Restricted shares issued											533,334
Taxable share based compensation | $											$ 87,140
Stock option exercise price | $ / shares											$ 0.40
Common stock shares issued											314,387
Stock option vested or to be vested, description											vesting 50% upon the first anniversary of the grant date and 50% upon the second anniversary of the grant date, with acceleration in certain circumstances as provided in the award agreement.
Stock options reserved for future issuance											617,839
Stock issued, shares											533,334
Stock issued, value | $											$ 225,000
Vested shares											533,334
Exercisable period											10 years
Closing stock price											59.00%
Remaining common stock shares withheld | $											$ 218,946
Vesting percentage											59.00%
On June 30, 2016 [Member] | 2016 Equity Incentive Plan [Member]
Stock option vested or to be vested, description											Up to 20,000,000 shares of the Company’s Class A common stock may be issued under the 2016 Plan (subject to adjustment as described in the 2016 Plan); provided that (1) no Outside Director (as defined in the 2016 Plan) may be granted awards covering more than 250,000 shares of common stock in any year and (2) no participant shall be granted, during any one year period, options to purchase common stock and stock appreciation rights with respect to more than 4,000,000 shares of common stock in the aggregate or any other awards with respect to more than 2,500,000 shares of common stock in the aggregate.
On September 1, 2019 [Member] | Dr. Bertolino [Member]
Stock option exercise price | $ / shares											$ 0.132
Stock option vested or to be vested, description											These options were issued with an exercise price of $0.13 per share and vest 33 1/3% on February 1, 2019, 33 1/3% on August 1, 2019, and 33 1/3% on January 31, 2020
Stock options reserved for future issuance											400,000
On February 1, 2018 [Member] | Consultant [Member] | Stock options [Member]
Stock issued, shares											75,000
Vested shares											75,000
On September 1, 2019 [Member] | Ms. Harness [Member]
Restricted shares issued											58,394
Vested shares											58,394
Taxable share based compensation | $											$ 1,222
Stock option exercise price | $ / shares											$ 0.13
Common stock shares issued											48,775				163,103,927
Remaining common stock shares withheld											9,619
On September 1, 2019 [Member] | Dr. Bertolino [Member]
Restricted shares issued											1,066,667
Vested shares											1,066,667
Taxable share based compensation | $											$ 53,545
Stock option exercise price | $ / shares											$ 0.13
Common stock shares issued											645,056				163,103,927
Remaining common stock shares withheld											421,611

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Fair Value Measurement (Details Narrative) - USD ($)	3 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Dividends recorded as interest expense	$ (48,000)	$ (51,000)
Amount of series B preferred stock dividends paid	17,000
Series B Preferred Stock [Member]
Dividends recorded as interest expense	20,000
Amount of series B preferred stock dividends paid	24,000
5% accrued dividend (1)	$ 21,000

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Accrued Expenses - Related Parties and Other

3 Months Ended

Sep. 30, 2019

Accrued Expenses - Related Parties and Other

Accrued Expenses - Related Parties and Other

Accrued expenses consisted of the following (rounded to nearest thousand):

	September 30, 2019		June 30, 2019
Accrued research and development consulting fees	$	40,000	$	40,000
Accrued rent (Note 10) - related parties		8,000		8,000
Accrued interest (Note 11) - related parties		34,000		37,000
Total	$	82,000	$	85,000

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Commitments and Contingencies

3 Months Ended

Sep. 30, 2019

Commitments and Contingencies

Commitments and Contingencies

Contractual Commitment

The Company has total non-cancelable contractual minimum commitments of approximately $2 million to contract research organizations as of September 30, 2019. Expenses are recognized when services are performed by the contract research organizations.

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Equity Transactions

3 Months Ended

Sep. 30, 2019

Equity Transactions

Equity Transactions

Class B common stock

On January 29, 2019, the Company issued 909,090 shares of Class B common stock at the option exercise price of $0.11 per share to Mr. Ehrlich, the Company’s Chairman and CEO (See Note 11. Convertible Note Payable to the condensed consolidated financial statements). As of September 30, 2019 and June 30, 2019, 909,090 shares of Class B common stock were outstanding.

Series B 5% convertible preferred stock purchase agreement

On October 5, 2018, as modified on May 9, 2019 (see Warrant Restructuring and Additional Issuance Agreement as described below), the Company entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) with one multi-family office for the sale of an aggregate of 2,000 shares of the Company’s newly-created Series B 5% convertible preferred stock ( “Series B preferred stock” or “preferred stock”), for aggregate gross proceeds of approximately $2.0 million. An initial closing for the sale of 1,250 shares of the Series B preferred stock closed on October 9, 2018, and a second closing for the sale of 750 shares of the Series B preferred stock closed on October 12, 2018. Under the Securities Purchase Agreement, the Company also issued to the investors warrants to purchase up to an additional 8,000 shares of preferred stock.

The Series B preferred stock is mandatorily redeemable under certain circumstances and, as such, is presented as a liability on the consolidated balance sheets. The Company has elected to measure the value of its preferred stock using the fair value method with offsetting discounts associated with the fair value allocated to the warrants and for the intrinsic value attributed to the beneficial conversion feature (“BCF”). The fair value of the Series B preferred stock (without the warrants) will be assessed at each subsequent reporting date with changes in fair value recorded in the profit and loss as a separate line item below the “loss from operations” section, in accordance with ASC 480-10-35-5.

The warrants issued in connection with the Series B preferred stock are deemed to be free standing equity instruments and are recorded in permanent equity (additional paid in capital) based on a relative fair value allocation of proceeds (i.e. warrants’ relative fair value to the Series B preferred stock fair value (without the warrants)) with an offsetting discount to the Series B preferred stock. Given that the Series B preferred stock is convertible at any time under these features, the underlying warrant discounts were accreted upon issuance and recorded as interest (resulting in no remaining discount to the Series B preferred stock liability after the issuance).

The Company recorded the October 9, 2018 issuance of 1,250 shares Series B Preferred Stock at approximately $0.7 million and the underlying Series 1, Series 2 and Series 3 warrants at approximately $0.5 million in total by allocating the gross proceeds to Series B preferred stock (without the warrants) and warrants based on their relative fair values or direct valuation as appropriate. The Company recorded BCF of approximately $1.2 million associated with the issuance of the 1,250 shares of Series B preferred stock to additional paid-in capital. The Company then recorded interest of approximately $1.2 million for the BCF and warrant discounts as a first day interest given that the Series B preferred shares can be converted at any time to common stock and given no set term.

The Company recorded the October 12, 2018 issuance of 750 shares Series B Preferred Stock at approximately $0.4 million and the underlying Series 1, Series 2 and Series 3 warrants at approximately $0.3 million in total by allocating the gross proceeds to Series B preferred stock (without the warrants) and warrants based on their relative fair values or direct valuation as appropriate. The Company recorded BCF of approximately $0.7 million associated with the issuance of the 750 shares of Series B preferred stock to additional paid-in capital. The Company then recorded interest of approximately $0.7 million for the BCF and warrant discounts as a first day interest given that Series B preferred shares can be converted at any time to common stock and given no set term.

The issuance costs associated with the Series B preferred stock transaction were attributed to the Series B preferred stock (without the warrants) and to the Series 1, Series 2 and Series 3 warrants based on their relative fair values. The issuance costs attributed to the warrants of $32,000 were reflected as a reduction to additional paid-in capital. The issuances costs associated with the Series B preferred stock liability of $41,000 was recorded immediately as an element of interest cost, which are reflected in interest expense - preferred stock. The Company recognized change in fair value of preferred stock liabilities of $102,000 and $0 under Other (income) expense in the accompanying consolidated Statements of Operations for the three months ended September 30, 2019 and 2018, respectively.

Underlying Series B preferred stock dividends, paid quarterly, was accrued as interest (given the liability classification of the Series B preferred stock) on a daily basis given fixed dividend terms under the Series B preferred stock. The Company recorded 5% dividend accretion on total outstanding Series B preferred stock at September 30, 2019 and June 30, 2019

The total dividends of approximately $42,000 are treated as interest during the period from October 5, 2018 (date of issuance of preferred stock and warrants) to June 30, 2019. The approximately $17,000 dividends was paid by issuance of Series B preferred stocks, so the remaining accrued dividends of $25,000 was recorded under Preferred stock liability as of June 30, 2019 and was paid by issuance of Series B preferred stocks subsequent to the balance sheet date.

The total dividends of approximately $20,000 are treated as interest expense – preferred stock during the three months ended September 30, 2019. The approximately $24,000 of the Series B preferred stock dividends was paid by issuance of Series B preferred stocks, so the remaining accrued dividends of $21,000 was included at Preferred stock liability as of September 30, 2019.

Terms of the Preferred Stock

The rights and preferences of the preferred stock are set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series B 5% Convertible Preferred Stock filed with the Nevada Secretary of State on October 5, 2018 (the “Certificate of Designation”). Each share of preferred stock has an initial stated value of $1,080 and may be converted at any time at the holder’s option into shares of the Company’s common stock at a conversion price equal of the lower of (i) $0.32 per share and (ii) 85% of the lowest volume weighted average price of the Company’s common stock on a trading day during the ten trading days prior to and ending on, and including, the conversion date. The conversion price may be adjusted following certain triggering events and subsequent equity sales and is subject to appropriate adjustment in the event of stock splits, stock dividends, recapitalization or similar events affecting the Company’s common stock.

The holders of the preferred stock are limited in the amount of stated value of the preferred stock they can convert on any trading day. The conversion cap limits conversions by the holders to the greater of $75,000 and an amount equal to 30% of the aggregate dollar trading volume of the Company’s common stock for the five trading days immediately preceding, and including, the conversion date. However, the conversion cap will be increased if the trading volume in the first 30 minutes of any trading session exceeds certain trailing average daily volume amounts. In addition, the holders of the preferred stock may not convert shares of preferred stock if, after giving effect to the conversion, a holder together with its affiliates would beneficially own in excess of 9.99% of the outstanding shares of the Company’s common stock.

Redemption Rights

Following 30 days after the initial closing, the Company may elect to redeem the preferred stock for 120% of the aggregate stated value then outstanding, plus all accrued but unpaid dividends and all liquidated damages and other amounts due in respect of the preferred stock. The Company’s right to redeem the preferred stock is contingent upon it having complied with a number of conditions, including compliance with its obligations under the Certificate of Designation. Shares of preferred stock generally have no voting rights, except as required by law and except that the Company shall not take certain actions without the consent of the holders of the preferred stock.

Warrants

Each share of preferred stock was initially sold together with three warrants: (i) a Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up nine months following issuance (later extended to 15 months following issuance), (ii) a Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance, and (iii) a Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance. On May 9, 2019, the Company entered into a warrant restructuring and additional issuance agreement (the “Issuance Agreement”) with the holders of the Series B preferred stock and warrants pursuant to which the Company issued an additional 100 shares of Series B preferred stock and Series 4 warrants to purchase an additional 2,500 shares of preferred stock, and the holders of the Series B preferred stock and warrants agreed to exercise warrants to purchase up to $2.0 million of Series B preferred stock through November 2019 subject to the conditions set forth in the Issuance Agreement. The Series 4 warrant entitles the holder thereof to purchase 2,500 shares of preferred stock at $982.50 per share for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance. In addition, the Company extended the termination date for the Series 1 warrants by six months, and agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock, all 400 shares of which had been issued as of September 30, 2019.

The Series B Preferred shareholders’ warrants held were modified on May 9, 2019 (see Warrant Restructuring and Additional Issuance Agreement described below). Pursuant to this warrant restructuring agreement, the Company had the option to compel these shareholders to exercise each month up to $400,000 of their Series 1 warrants. These warrant holders exercised a total of approximately $2.5 million of their Series 1 to 4 warrants, starting from May 2019 through September 2019. In addition, subject to the satisfaction of certain circumstances, the Company may call for cancellation any or all of the warrants following 90 days after their issuance, for a payment in cash equal to 8% of the aggregate exercise price of the warrants being called. The warrants subject to any such call notice will be cancelled 30 days following the Company’s payment of the call fee, provided that the warrant holders have not exercised the warrants prior to cancellation.

Conversion of preferred stock to common stock

During the year ended June 30, 2019, the two preferred stockholders converted 3,891 shares of Series B preferred stock into 39.2 million shares of common stock. With regard to conversions, the Company reversed Series B preferred stock liability relating to the conversion and recorded as Additional paid-in capital at par value. The Company reversed the amount of approximately $3,068,000 based on the proportion of Series B preferred stock converted relative to the original total issued. As of June 30, 2019, 1,096 shares of Series B 5% convertible preferred stock were outstanding.

During the three months ended September 30, 2019, the two preferred stockholders converted 890 shares of Series B preferred stock into 9.0 million shares of common stock. As of September 30, 2019, 1,584 shares of Series B 5% convertible preferred stock were outstanding.

Warrant Restructuring and Additional Issuance Agreement

On May 9, 2019, the Company entered into a Warrant Restructuring and Additional Issuance Agreement (“Issuance Agreement”) with the Series B investors of its Series B preferred stock and warrants to purchase Series B preferred stock. Pursuant to the Issuance Agreement, the Series B investors have agreed, subject to the conditions set forth therein, to exercise existing warrants to purchase 500 shares of preferred stock and to amend the existing warrants to permit the Company to compel the exercise of up to $400,000 of existing warrants each calendar month commencing June 3, 2019 and ending November 1, 2019, or, if earlier, until the aggregate amount of the forced exercises is $2,000,000. As consideration for the Series B investors entering into the Issuance Agreement, the Company has issued 100 shares of preferred stock and warrants to purchase 2,500 shares of preferred stock (“Series 4 warrants”) to the Series B investors. In addition, the Company extended the termination date for the Series 1 warrants issued in October 2018 by six months, and has agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock, all 400 shares of which had been issued as of September 30, 2019.

The warrants were modified in accordance with ASC 470-50 and, as a result, immediately prior to the modification, the Company recognized a loss of approximately $63,000 to change in fair value of preferred stock liabilities under Other (income) expense in the accompanying consolidated Statements of Operations.

Subsequent to the modification, the Company recognized an expense of approximately $294,000 due to the above modification of Series B preferred stock terms in the accompanying consolidated statements of operations

The fair value of the Series B convertible preferred stock is measured in accordance with ASC 820 “Fair Value Measurement,” using “Monte Carlo simulation” modeling, incorporating the following inputs:

	June 30, 2019			May 9, 2019
Expected dividend yield		0.00	%		0.00	%
Expected stock-price volatility		54.5	%		51.9	%
Risk-free interest rate		2.18	%		2.43	%
Expected term of warrants (years)		0.1			0.25
Stock price	$	535.12		$	535.12
Exercise price	$	982.50		$	982.50

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Accrued Expenses Related Parties and Other (Details) - USD ($)	Sep. 30, 2019	Jun. 30, 2019
Accrued Expenses Related Parties and Other (Details)
Accrued research and development consulting fees	$ 40,000	$ 40,000
Accrued rent - related parties	8,000	8,000
Accrued interest - related parties	34,000	37,000
Total	$ 82,000	$ 85,000

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Going Concern and Liquidity

3 Months Ended

Sep. 30, 2019

Going Concern and Liquidity

Going Concern and Liquidity

These financial statements have been prepared on the assumption that the Company is a going concern, which contemplates the realization of its assets and the settlement of its liabilities in the normal course of operations.

We have incurred recurring losses since inception and expect to continue to incur losses as a result of costs and expenses related to our research and development of our compounds and our corporate general and administrative expenses. As of September 30, 2019, the Company has an accumulated deficit of approximately $96.1 million, representative of recurring losses since inception. The Company earned $0.4 million as an initial upfront payment under the terms of the License Agreement with Alfasigma (see Note 7. Exclusive License Agreement to the condensed consolidated financial statements). The Company does not currently have any products on the market and will continue to not have significant revenues until it begins to market its products after it has obtained the necessary Federal Drug Administration (the “FDA”) and/ or other health authorities approval, or generates income from the licensing of its drugs. As a result, the Company expects to continue to incur losses over the next 12 months from the date of this filing. Accordingly, the Company’s planned operations, including total budgeted expenditures of approximately $11.5 million for the next twelve months, raise substantial doubt about its ability to continue as a going concern.

As of September 30, 2019, the Company’s cash amounted to $0.9 million and current liabilities amounted to $7.5 million, of which $3.5 million were payables to related parties with no immediate payment terms and $2.9 million was payable to one shareholder who is our former director and officer of the Company (see Note 10. Related Party Transactions and Note 11. Convertible Note Payable - Related Party to the condensed consolidated financial statements). The Company had expended substantial funds on its clinical trials and expects to continue our spending on research and development expenditures. The Company’s net cash used in operating activities for the three months ended September 30, 2019 was approximately $0.6 million, and current projections indicate that the Company will continue to have negative cash flows from operating activities for the foreseeable future. Our net losses incurred for the three months ended September 30, 2019 and 2018, amounted to $1.6 million and $2.1 million, respectively, and we had a working capital deficit of approximately $6.5 million and $6.7 million, respectively at September 30, 2019 and June 30, 2019.

The Company’s primary sources of liquidity are cash and cash equivalents as well as issuances of its equity securities. During the three months ended September 30, 2019, the Company issued 1,045 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of $1.0 million, upon exercise of 1,045 warrants. As of September 30, 2019, Series 1-4 warrants to purchase 6,675 shares of Series B preferred stock were outstanding. As the Company cannot be certain the remaining warrants will be exercised, there can be no assurance those funds or other funds will be available when needed (see Note 13. Equity Transactions to to the condensed consolidated financial statements).

The amount of cash and cash equivalents at September 30, 2019 is approximately $0.9 million. The Company expects to seek to obtain additional funding through business development activities (i.e. licensing and partnerships) and future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available. The Company will be unable to proceed with its planned drug development programs, meet its administrative expense requirements, capital costs, or staffing costs without raising additional capital in the future. These financial statements do not include any adjustments related to the carrying values and classifications of assets and liabilities that would be necessary should the Company be unable to continue as a going concern.

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Significant Accounting Policies and Recent Accounting Pronouncements (Details) - USD ($)	3 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Professional fees	$ 155,000	$ 259,000
Total stock-based compensation expense	236,000	229,000
Research and Development Expense [Member]
Professional fees	9,000	13,000
Employees' bonus	38,000	44,000
Officers' bonus	189,000	172,000
Total stock-based compensation expense	$ 236,000	$ 229,000

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Revenues
Licensing income	$ 400,000
Operating expenses:
Research and development expenses	803,000	1,357,000
General and administrative expenses	265,000	260,000
Officers' payroll and payroll tax expenses	118,000	123,000
Professional fees	155,000	259,000
Total operating expenses	1,341,000	1,999,000
Loss from operations	(941,000)	(1,999,000)
Other income (expense)
Interest expense	(48,000)	(51,000)
Interest expense- preferred stock	(20,000)
Change in fair value of preferred stock	102,000
Impairment expense of operating lease	(643,000)
Total other expense - net	(609,000)	(51,000)
Loss before provision for income taxes	(1,550,000)	(2,050,000)
Provision for income taxes
Net loss	$ (1,550,000)	$ (2,050,000)
Basic and diluted loss per share attributable to common stockholders	$ (0.01)	$ (0.01)
Weighted average number of common shares	205,666,583	163,284,314

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Patents, net (Tables)

3 Months Ended

Sep. 30, 2019

Patents, net (Tables)

Schedule of patents

	Useful life		September 30, 2019			June 30, 2019
Purchased Patent Rights- Brilacidin, and related compounds		14	$	4,082,000		$	4,082,000
Purchased Patent Rights-Anti-microbial- surfactants and related compounds		12		144,000			144,000
Patents - Kevetrin and related compounds		17		1,139,000			1,118,000
				5,365,000			5,344,000
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds				(1,841,000	)		(1,765,000	)
Accumulated amortization for Patents-Kevetrin and related compounds				(254,000	)		(237,000	)
Total			$	3,270,000		$	3,342,000

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Tables)

3 Months Ended

Sep. 30, 2019

Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Tables)

Schedule of stock option activity

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2018		41,643,571		$	0.22		2.76	$	17,523,113
Granted		1,195,826		$	0.31		7.64
Exercised		(909,090	)	$	0.11
Forfeited/expired		(19,260,424	)	$	0.21
Outstanding at June 30, 2019		22,669,883		$	0.24		2.41	$	1,340,000
Granted		790,826		$	0.13		10.0
Exercised		-		$	-		-
Forfeited/expired		(7,500	)	$	1.38		0
Outstanding at September 30, 2019		23,453,209		$	0.24		2.42	$	-
Exercisable at September 30, 2019		22,034,643		$	0.24		2.00	$	-
Unvested stock options at September 30, 2019		1,418,566		$	0.23		8.95	$	-

Schedule of fair value of options granted

	Three months ended September 30,
	2019			2018
Expected term (in years)		10			10
Expected stock price volatility		92.21	%		104.11	%
Risk-free interest rate		1.50	%		2.86	%
Expected dividend yield		0			0

Schedule of Restricted Stock Award Activity

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Total awards outstanding at June 30, 2018		1,208,157		$	0.72
Total shares granted		1,130,061		$	0.40
Total shares vested		(597,263	)	$	0.72
Total shares forfeited		(11,667	)	$	0.76
Total unvested shares outstanding at June 30, 2019		1,729,288		$	0.51
Total shares granted		1,125,061		$	0.13
Total shares vested		(1,125,061	)	$	0.57
Total shares forfeited		-		$	-
Total unvested shares outstanding at September 30, 2019		1,729,288		$	0.23

Schedule of vesting outstanding restricted stock

	Year Ending June 30,
	2020		2021		2022		2023		Total
Scheduled vesting		12,500		1,125,062		572,262		19,464		1,729,288

Schedule of outstanding Series B preferred stock warrants

	Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2018		-		$	-		-	$	-
Granted		10,500			982.50		2.00
Exercised		(2,780	)		982.50		2.00
Expired		-			-
Outstanding at June 30, 2019		7,720		$	985.50		1.21	$	752,700
Granted		-			-		-
Exercised		(1,045	)		982.50		1.43
Expired		-			-
Outstanding at September30, 2019		6,675		$	985.50		1.06	$	650,813

Schedule of fair value of the warrants assumptions

	Year Ended June 30,
	2019		2018
Expected term (in years)	5 - 10			3
Expected stock price volatility	67.34% - 104.11%			82.36	%
Risk-free interest rate	2.51% - 2.86%			2.73	%
Expected dividend yield		0		0

Schedule of outstanding common stock warrants

	Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2018		8,000,000	$	0.38		5.0	$	-
Extended		-		-		-
Granted		-		-		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at June 30, 2019		8,000,000	$	0.38		4.0	$	-
Extended		-		-		-
Granted		-		-		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at September 30, 2019		8,000,000	$	0.38		4.0	$	-

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details) - USD ($)	3 Months Ended	12 Months Ended
	Sep. 30, 2019	Jun. 30, 2019
Number of Options
Beginning balance, outstanding	22,669,883	41,643,571
Granted	790,826	1,195,826
Exercised		(909,090)
Forfeited/expired	(7,500)	(19,260,424)
Ending balance, outstanding	23,453,209	22,669,883
Exercisable	22,034,643
Unvested stock options	1,418,566
Weighted Average Exercise Price
Weighted average exercise price, beginning balance	$ 0.24	$ 0.22
Granted	0.13	0.31
Exercised		0.11
Forfeited/expired	1.38	0.21
Weighted average exercise price, ending balance	0.24	$ 0.24
Weighted average exercise price, exercisable	0.24
Weighted average exercise price, unvested stock options	$ 0.23
Weighted Average Remaining Contractual Life (Years)
Weighted average remaining contractual life, beginning balance	2 years 4 months 28 days	2 years 9 months 3 days
Granted	10 years	7 years 7 months 21 days
Weighted average remaining contractual life, ending balance	2 years 5 months 1 day	2 years 4 months 28 days
Weighted average remaining contractual life, Exercisable	2 years
Weighted average remaining contractual life, Unvested stock options	8 years 11 months 12 days
Aggregate Intrinsic Value
Aggregate intrinsic value, beginning balance		$ 17,523,113

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Operating Leases (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended
	Oct. 02, 2018	Sep. 30, 2019	Sep. 30, 2018
Impairment expense of operating lease		$ (643,000)
Amortization of the right-of-use asset		27,000
Operating lease carrying value		0
Operating lease expense		$ 58,000	$ 56,000
Operating Leases [Member]
Term of lease renewed	60 months
Extended lease term	5 years
Additional successive period	5 years
Rent expense (Monthly)	$ 19,000
Prepaid rent	$ 78,000
Operating Leases [Member] | Maximum [Member]
Period of notice	12 months
Operating Leases [Member] | Minimum [Member]
Period of notice	6 months

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 5) - Warrant [Member]	12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Expected term (in years)		3 years
Expected stock price volatility		82.36%
Risk-free interest rate		2.73%
Expected dividend yield	0.00%	0.00%
Minimum [Member]
Expected term (in years)	5 years
Expected stock price volatility	67.34%
Risk-free interest rate	2.51%
Maximum [Member]
Expected term (in years)	10 years
Expected stock price volatility	104.11%
Risk-free interest rate	2.86%

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Equity Transaction (Details Narrative) - USD ($)						1 Months Ended							3 Months Ended
	May 09, 2019	Nov. 12, 2018	Oct. 12, 2018	Oct. 05, 2018	Sep. 06, 2017	May 10, 2019	May 10, 2019	May 09, 2019	Oct. 09, 2018	Oct. 05, 2018	Jun. 28, 2018	Mar. 30, 2015	Sep. 30, 2019	Sep. 30, 2018	Jun. 30, 2019	Jan. 29, 2019	Jun. 30, 2018	Jun. 30, 2017
Proceeds from issuance of shares													$ 1,116,000
Proceeds from warrant exercises													$ 1,253,000
Conversion of preferred stock to common stock description													the two preferred stockholders converted 3,891 shares of Series B preferred stock into 39.2 million shares of common stock
Conversion of Series B Convertible Preferred stock to Common stock, reversed													$ 3,068,000
Amount of series B preferred stock dividends paid													17,000
5% accrued dividend													$ 42,000
Beginning balance, Shares
Proceeds from warrant exercises													$ 1,027,000
Preferred stock, shares outstanding (in shares)													0		0		0
Exercise price	$ 535.12							$ 535.12							$ 535.12
On September 1, 2018 [Member]
Proceeds from issuance of shares													$ 1,116,000
5% accrued dividend													$ 25,000
On September 1, 2018 [Member] | Ms. Anne Ponugoti [Member]
Conversion of preferred stock to common stock description						In addition, there were 375 preferred stock shares converted to 4,557,103 common stock.
Proceeds from warrant exercises						$ 540,000	$ 540,000
On September 1, 2018 [Member] | Ms. Jane Harness [Member]
Rights and preferences of the preferred stock description				Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance (later extended to 15 months following issuance)						Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance (later extended to 15 months following issuance)
Warrants exercised description
Warrant [Member]
Preferred stock, shares outstanding (in shares)													7,720				0
Stock issuance cost													$ 32,000
Warrant [Member] | On June 28, 2018 [Member]
Proceeds from issuance of shares				$ 2,000,000						$ 2,000,000
Beginning balance, Shares				2,000						2,000
Rights and preferences of the preferred stock description
Stock issued description				An initial closing for the sale of 1,250 shares of preferred stock closed on October 9, 2018, and a subsequent closing for the sale
Warrants to purchase additional shares				8,000
Conversion cap limits description				The conversion cap limits conversions by the holders to the greater of $75,000 and an amount equal to 30% of the aggregate dollar trading volume of the Company’s common stock for the five trading days immediately preceding, and including, the conversion date.
Purchase of warrants													8,000,000				8,000,000
Securities Purchase Agreement [Member] | Aspire Capital Fund LLC [Member] | Stock And Warrant [Member]
Stock issued during period, shares											8,000,000
Beneficial conversion feature											$ 700,000
Common Class A [Member]
Beginning balance, Shares													212,369,124	163,676,191	202,631,923		163,103,927
Beginning balance, Shares													187,575,318				163,103,927
Common Class A [Member] | 30 Million Common Stock Purchase Agreement [Member] | Aspire Capital Fund LLC [Member]
Stock issued during period, shares					300,000							160,000
Common Class A [Member] | Securities Purchase Agreement [Member] | On June 28, 2018 [Member] | Aspire Capital Fund LLC [Member]
Rights and preferences of the preferred stock description				Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance						Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance
Series 1-4 [Member] | Securities Purchase Agreement [Member] | Series 3 warrant [Member]
Preferred stock, shares outstanding (in shares)													1,096
Rights and preferences of the preferred stock description				Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance						Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance
Purchase shares of Series B preferred stock													1,000,000
Series B [Member]
Proceeds from warrant exercises				$ 2,700,000						$ 2,700,000
Stock issued during period, shares
Series B [Member] | Series 1-3 warrants [Member]
Purchase of warrants													7,720				8,000,000
Series B [Member] | Series 1-2 warrants [Member]
Rights and preferences of the preferred stock description				Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance						Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance
Series B [Member] | Securities Purchase Agreement [Member]
Purchase of warrants																	7,720
Series B [Member] | Securities Purchase Agreement [Member] | Series 1 warrant [Member]
Rights and preferences of the preferred stock description				Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance						Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance
Terms of agreement	the Company issued an additional 100 shares of Series B preferred stock and Series 4 warrants to purchase an additional 2,500 shares of preferred stock, and the holders of the Series B preferred stock and warrants agreed to exercise warrants to purchase up to $2.0 million of Series B preferred stock through November 2019 subject to the conditions set forth in the Issuance Agreement. The Series 4 warrant entitles the holder thereof to purchase 2,500 shares of preferred stock at $982.50 per share for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance. In addition, the Company extended the termination date for the Series 1 warrants by six months, and agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock
Series B [Member] | Securities Purchase Agreement [Member] | Series 2 warrant [Member]
Rights and preferences of the preferred stock description				Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance						Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance
Terms of agreement	the Series B investors have agreed, subject to the conditions set forth therein, to exercise existing warrants to purchase 500 shares of preferred stock and to amend the existing warrants to permit the Company to compel the exercise of up to $400,000 of existing warrants each calendar month commencing June 3, 2019 and ending November 1, 2019, or, if earlier, until the aggregate amount of the forced exercises is $2,000,000. As consideration for the Series B investors entering into the Issuance Agreement, the Company has issued 100 shares of preferred stock and warrants to purchase 2,500 shares of preferred stock (“Series 4 warrants”) to the Series B investors. In addition, the Company extended the termination date for the Series 1 warrants issued in October 2018 by six months, and has agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock
Series B [Member] | Securities Purchase Agreement [Member] | Series 4 warrant [Member]
Proceeds from issuance of shares	$ 2,000,000							$ 2,000,000
Rights and preferences of the preferred stock description	The Series 4 warrant entitles the holder thereof to purchase 2,500 shares of preferred stock at $982.50 per share for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance. In addition, the Company extended the termination date for the Series 1 warrants by six months, and agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock.							The Series 4 warrant entitles the holder thereof to purchase 2,500 shares of preferred stock at $982.50 per share for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance. In addition, the Company extended the termination date for the Series 1 warrants by six months, and agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock.
Common Class B [Member]
Beginning balance, Shares													909,090		909,090
Common Class B [Member] | Leo Ehrlich [Member]
Common stock shares issued upon extinguishment of debt																909,090
Amount of debt extinguished																$ 100,000
Exercise price																$ 0.11
Series B Preferred Stock [Member]
Conversion of Series B Convertible Preferred stock to Common stock, reversed													$ 294,000
Amount of series B preferred stock dividends paid													24,000
5% accrued dividend													17,000
Proceeds from warrant exercises		$ 245,625	$ 300,000	$ 2,730,000					$ 500,000				$ 1,000,000
Preferred stock, shares outstanding (in shares)													1,027				0
5% accrued dividend													$ 21,000
Number of warrants exercised				2,780						2,780			1,045
Exercised													1,045
Purchase shares of Series B preferred stock													6,675
Stock issued during period, shares			750	2,780					1,250
Stock issued during period, value			$ 400,000						$ 700,000
Beneficial conversion feature			$ 700,000						$ 1,200,000
Stock issuance cost													$ 41,000
Change in fair value of preferred stock liabilities													102,000
Loss due to change in fair value of preferred stock													$ 63,000

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Patents, net (Details) - USD ($)	3 Months Ended
	Sep. 30, 2019	Jun. 30, 2019
Purchased Patent Rights	$ 5,365,000	$ 5,344,000
Patent costs - net	3,270,000	3,342,000
Patents [Member]
Purchased Patent Rights	$ 4,082,000	4,082,000
Useful life	14 years
Accumulated amortization	$ (1,841,000)	(1,765,000)
Patents Two [Member]
Purchased Patent Rights	$ 144,000	144,000
Useful life	12 years
Patents Three [Member]
Purchased Patent Rights	$ 1,139,000	1,118,000
Useful life	17 years
Accumulated amortization	$ (254,000)	$ (237,000)

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Basis of Presentation and Nature of Operations (Details Narrative)	3 Months Ended
	Sep. 30, 2019
Basis of Presentation and Nature of Operations (Details Narrative)
State of incorporation	Nevada
Date of incorporation	Aug. 01, 2005

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Exclusive License Agreement (Details Narrative) - License Agreement [Member] - USD ($)	Sep. 30, 2019	Jul. 18, 2019	Jun. 30, 2019
Non-refundable payment		$ 400,000
Payment due following commencement of first phase III clinical trial of Brilacidin		1,000,000
Payment due upon filing of a marketing approval application		1,000,000
Additional payments payable upon achievement of certain milestones under agreement by related party		$ 24,000,000

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	3 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (1,550,000)	$ (2,050,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock and stock options issued as compensation	236,000	229,000
Amortization of patent costs	93,000	94,000
Interest expense-preferred stock	20,000
Change in fair value of preferred stock	(102,000)
Impairment expense of operating lease	643,000
Changes in operating assets and liabilities:
Prepaid expenses and security deposits	(11,000)	43,000
Accounts payable	16,000	(395,000)
Accrued expenses	(3,000)	(92,000)
Accrued officers' salaries and payroll taxes	38,000	72,000
Net cash used in operating activities	(620,000)	(2,099,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent costs	(21,000)	(19,000)
Net cash used in investing activities	(21,000)	(19,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants	1,027,000
Purchase of treasury stock	(55,000)
Net cash provided by financing activities	972,000
NET DECREASE IN CASH	331,000	(2,118,000)
CASH, BEGINNING OF PERIOD	579,000	2,424,000
CASH, END OF PERIOD	910,000	306,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	51,000	63,000
Cash paid for tax
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INVESTING AND FINANCING ACTIVITIES
Conversion of Series B Convertible Preferred stock to Common stock	$ 476,000
Excess of exercise price of 1,045 warrant over fair value	$ 478,000

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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2019	Jun. 30, 2019
ASSETS
Cash	$ 910,000	$ 579,000
Prepaid expenses and other current assets	57,000	46,000
Total Current Assets	967,000	625,000
Other Assets:
Patent costs - net	3,270,000	3,342,000
Property, plant and equipment -net		1,000
Security deposit	78,000	78,000
Total Other Assets	3,348,000	3,421,000
Total Assets	4,315,000	4,046,000
Current Liabilities:
Accounts payable - (including related party payables of approx. $1,498,000 and $1,511,000, respectively)	2,143,000	2,127,000
Accrued expenses - (including related party accruals of approx. $42,000 and $45,000, respectively)	82,000	85,000
Accrued salaries and payroll taxes -(including related party accrued salaries of approx. $3,129,000 and $3,129,000, respectively)	3,201,000	3,162,000
Operating lease current liability	120,000
Note payable - related party	1,922,000	1,922,000
Total Current Liabilities	7,468,000	7,296,000
Series B 5% convertible preferred stock liability at $1,080 stated value; 1,584 and 1,196 shares issued and outstanding at September 30, 2019 and June 30, 2019, respectively	868,000	879,000
Operating lease long term liability	523,000
Total Liabilities	8,859,000	8,175,000
Commitments and contingencies (Note 9)
Stockholders' Deficiency
Preferred stock, $0.001 par value, 10,000,000 designated shares, no shares issued and outstanding
Additional paid-in capital	91,726,000	90,537,000
Accumulated deficit	(96,146,000)	(94,596,000)
Treasury Stock, at cost (659,448 shares and 228,218 shares as of September 30, 2019 and June 30, 2019, respectively)	(146,000)	(91,000)
Total Stockholders' Deficiency	(4,544,000)	(4,129,000)
Total Liabilities and Stockholders' Deficiency	4,315,000	4,046,000
Common Class A [Member]
Stockholders' Deficiency
Total Stockholders' Deficiency		21,000
Common Stock - Class B, (10 votes per share); $.0001 par value, 100,000,000 shares authorized, 909,090 shares and 909,090 shares issued and outstanding as of September 30, 2019 and June 30, 2019, respectively	22,000	21,000
Common Class B [Member]
Stockholders' Deficiency
Total Stockholders' Deficiency
Common Stock - Class B, (10 votes per share); $.0001 par value, 100,000,000 shares authorized, 909,090 shares and 909,090 shares issued and outstanding as of September 30, 2019 and June 30, 2019, respectively

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Exclusive License Agreement

3 Months Ended

Sep. 30, 2019

Exclusive License Agreement

Exclusive License Agreement

On July 18, 2019, the Company entered into an Exclusive License Agreement (the “License Agreement”) with Alfasigma S.p.A., a global pharmaceutical company (“Alfasigma”), granting Alfasigma the worldwide right to develop, manufacture and commercialize locally-administered Brilacidin for the treatment of ulcerative proctitis/ulcerative proctosigmoiditis (UP/UPS).

Under the terms of the License Agreement, Alfasigma made an initial upfront non-refundable payment of $0.4 million to the Company and will make additional payments of up to $24.0 million to the Company based upon the achievement of certain milestones, including a $1.0 million payment due following commencement of the first phase III clinical trial of Brilacidin for UP/UPS and an additional $1.0 million payment upon the filing of a marketing approval application with the U.S. Food and Drug Administration or the European Medicines Agency. In addition to the milestones, Alfasigma will pay a royalty to the Company equal to six percent of net sales of Brilacidin for UP/UPS, subject to adjustment as provided in the License Agreement.

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Convertible Note Payable - Related Party

3 Months Ended

Sep. 30, 2019

Convertible Note Payable - Related Party

Convertible Note Payable - Related Party

The Ehrlich Promissory Note C is an unsecured demand note with Mr. Ehrlich, the Company’s Chairman and CEO, that originated in 2010, bears 9% simple interest per annum and is convertible into the Company’s Class A common stock at $0.50 per share.

On May 8, 2012, the Company did not have the ability to repay the Ehrlich Promissory Note C loan of approximately $2,022,000 and agreed to change the interest rate from 9% simple interest to 10% simple interest, and the Company issued 2,000,000 Equity Incentive Options exercisable at $0.51 per share equal to 110% of the closing bid price of $0.46 per share on May 7, 2012. Options are valid for ten years from the date of issuance.

On January 29, 2019, the Company issued 909,090 shares of Class B common stock at the option exercise price of $0.11 per share to Mr. Ehrlich, the Company’s Chairman and CEO, for his partial exercise of his option, paid by the cancellation of debt to Mr. Ehrlich of $100,000 to satisfy the exercise price (as permitted pursuant to the terms of the option agreement).

As of September 30, 2019 and June 30, 2019, the principal balance of this convertible note payable to Mr. Ehrlich, the Company’s Chairman and CEO was approximately $1,922,000 after the above mentioned cancellation of debt of $100,000 to satisfy the exercise price of his option on January 29, 2019.

During the three months ended September 30, 2019 and 2018, the Company accrued interest of $48,000 and $52,000 to Mr. Ehrlich, respectively and paid the interests in cash of $51,000 and $63,000 to Mr. Ehrlich, respectively. As of September 30, 2019 and June 30, 2019, the balance of accrued interest payable were $34,000 and $37,000, respectively (see Note 5. Accrued Expenses – Related Parties and Other to the condensed consolidated financial statements).

As of September 30, 2019 and June 30, 2019, the total outstanding balances of principal and interest were approximately $1,955,000 and $1,959,000, respectively.

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Fair Value Measurement (Tables)

3 Months Ended

Sep. 30, 2019

Fair Value Measurement (Tables)

Schedule of renconciliation of the company

Series B 5% convertible preferred stock liability
Balance, July 1, 2018	$	—
Issuance of preferred stock at fair value		1,116,000
Issuance of preferred stock by exercise of warrants		2,895,000
Conversion of preferred stock to common stock		(3,068,000	)
Change in fair value of preferred stock due to modification of terms		(357,000	)
Issuance of 100 shares valued at $535.12 per share Series B Preferred Stock per May 2019 Modification		54,000
Contingent consideration of 400 extra shares		214,000
5% accrued dividend (1)		25,000
Balance, June 30, 2019	$	879,000
Issuance of preferred stock through accrued dividend, valued at fair value		12,000
Issuance of preferred stock by exercise of warrants		559,000
Conversion of preferred stock to common stock		(476,000	)
Change in fair value of preferred stock due to modification of terms		(102,000	)
5% accrued dividend (1)		20,000
Settlement of accrued dividend by issuance of PS		(24,000	)
Balance, September 30, 2019	$	868,000

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Significant Accounting Policies and Recent Accounting Pronouncements (Policies)

3 Months Ended

Sep. 30, 2019

Basis of Presentation and Nature of Operations

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include contract research accruals, recoverability of long-lived assets, valuation of equity grants and income tax valuation. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Basic Loss per Share

Basic and diluted loss per share is computed based on the weighted-average common shares and common share equivalents outstanding during the period. Common share equivalents consist of stock options, convertible notes payable underlying shares and unvested restricted stock. Common share equivalents of 52,456,967 and 56,271,542 shares of common stock were excluded from the computation of diluted loss per share for the three months ended September 30, 2019 and 2018, respectively, because we incurred net losses for the three months ended September 30, 2019 and 2018, and the effect of including these potential common shares in the net loss per share calculations would be anti-dilutive.

Treasury Stock

The Company accounts for treasury stock using the cost method. There were 659,448 shares and 228,218 shares of treasury stock outstanding, purchased at a total cumulative cost of $146,000 and $91,000 as of September 30, 2019 and June 30, 2019, respectively (see Note 12. Equity Incentive Plans, Stock-Based Compensation, Exercise of Options and Warrants Outstanding to the condensed consolidated financial statements).

Treasury stock, representing shares of the Company’s common stock that have been acquired for payroll tax withholding on vested stock grants, is recorded at its acquisition cost and these shares are not considered outstanding.

Revenue Recognition

On July 1, 2019, the Company adopted the new accounting standard ASC 606 (Topic 606), Revenue from Contracts with Customers, and all the related amendments (“new revenue standard”) using the modified retrospective method applied to those contracts which were not completed as of July 1, 2019. The adoption of ASC Topic 606 did not have impact on the Company’s consolidated financial statements or cash flows, for the Company had no revenue and no contracts which were not completed as of July 1, 2019.

The Company has acquired and further developed license rights to Functional Intellectual Property (“functional IP”) that it licenses to customers for defined license periods. A functional IP license is a license to intellectual property that has significant standalone functionality that does not include supporting or maintaining the intellectual property during the license period. The Company’s patented drug formulas have significant standalone functionality in the form of their abilities to treat a disease or condition. Further, there is no expectation that the Company will undertake any activities to change the functionality of the drug formulas during the license periods (see Note 7. Exclusive License Agreement to the condensed consolidated financial statements).

Under the terms of the License Agreement, Alfasigma made an initial non-refundable payment of $0.4 million to the Company and will make additional payments of up to $24.0 million to the Company based upon the achievement of certain milestones, including a $1.0 million payment due following commencement of the first phase III clinical trial of Brilacidin for UP/UPS and an additional $1.0 million payment upon the filing of a marketing approval application with the U.S. Food and Drug Administration or the European Medicines Agency. In addition, Alfasigma will pay a royalty to the Company equal to six percent of net sales of Brilacidin for UP/UPS, subject to adjustment as provided in the License Agreement.

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

Pursuant to ASC 606, a customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps:

(i)	identify the contract(s) with a customer;
(ii)	identify the performance obligations in the contract, including whether they are distinct in the context of the contract;
(iii)	determine the transaction price, including the constraint on variable consideration;
(iv)	allocate the transaction price to the performance obligations in the contract; and
(v)	recognize revenue when (or as) the Company satisfies each performance obligation.

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. If a promised good or service is not distinct, it is combined with other performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The terms of the Company’s licensing agreement include the following:

(i)	up-front fees;
(ii)	milestone payments related to the achievement of development, regulatory, or commercial goals; and
(iii)	royalties on net sales of licensed products.

License of Intellectual Property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. If not distinct, the license is combined with other performance obligations in the contract. For licenses that are combined with other performance obligations, the Company assesses the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone Payments: At the inception of each arrangement that includes developmental and regulatory milestone payments, the Company evaluates whether the achievement of each milestone specifically relates to the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service within a performance obligation. If the achievement of a milestone is considered a direct result of the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone, the associated milestone value is allocated to that distinct good or service. If the milestone payment is not specifically related to the Company’s effort to satisfy a performance obligation or transfer a distinct good or service, the amount is allocated to all performance obligations using the relative standalone selling price method. The Company also evaluates the milestone to determine whether they are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price to be allocated, otherwise, such amounts are constrained and excluded from the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the transaction price. Any such adjustments to the transaction price are allocated to the performance obligations on the same basis as at contract inception. Amounts allocated to a satisfied performance obligation shall be recognized as revenue, or as a reduction of revenue, in the period in which the transaction price changes.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied) in accordance with the royalty recognition constraint.

Accounting for Stock Based Compensation

The stock-based compensation expense incurred by the Company for employees and directors in connection with its stock option plan is based on the employee model of ASC 718, and the fair market value of the options is measured at the grant date. Under ASC 718 employee is defined as “An individual over whom the grantor of a share-based compensation award exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under U.S. “tax regulations.” Our consultants do not meet the employer-employee relationship as defined by the IRS and therefore are accounted for under ASC 505-50. Effective July 1, 2019, the Company adopted ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.

The Company followed the accounting guidance in ASC 505-50-30-11 until July 1, 2019 which provides that an issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date:

i.	The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); and
ii.	The date at which the counterparty’s performance is complete.

Upon the adoption of ASU 2018-07, the Company measured the fair value of equity instruments for nonemployee based payment awards on the grant date.

The components of stock-based compensation expense included in the Company’s Condensed Statement of Operations for the three months ended September 30, 2019 and 2018 are as follows (rounded to nearest thousand):

	Three months ended September 30
	2019		2018
Research and development expenses
Professional fees	$	9,000	$	13,000
Employees’ bonus		38,000		44,000
Officers’ bonus		189,000		172,000
Total stock-based compensation expense	$	236,000	$	229,000

Recent Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which allows companies to account for nonemployee awards in the same manner as employee awards. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. This new pronouncement has been adopted in the first quarter of fiscal 2020 and did not have a material effect on the Company’s financial position, results of operations or cash flows.

Prior to July 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases. Effective July 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients,’ which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs; and all of the new standard’s available transition practical expedients. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on July 1, 2019 resulted in the recognition of operating lease right-of-use assets of approximately $670,000, lease liabilities for operating leases of approximately $670,000, and a zero cumulative-effect adjustment to accumulated deficit. The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less (“short-term leases”). Lease expense is recognized on a straight-line basis over the lease term. The Company determined that the operating lease right-of-use asset is impaired as of September 30, 2019, and it recognized an impairment loss of approximately $643,000, after recording amortization of the right-of-use asset for July, August, and September 2019 totaling approximately $27,000, resulting in a carrying value of $0 at September 30, 2019 (see Note 8. Operating Lease to the condensed consolidated financial statements).

In July 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The adoption of ASU 2017-11, during the year ended June 30, 2019, did not have any impact on the financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which defines how companies should report revenues from contracts with customers. The standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It provides companies with a five-step, principles-based model to use in accounting for revenue and supersedes current revenue recognition requirements, including most industry-specific and transaction-specific revenue guidance. In August 2015, the FASB deferred the effective date of the new revenue standard by one year. The guidance permits an entity to apply the standard retrospectively to all prior periods presented, with certain practical expedients, or apply the requirements in the year of adoption, through a cumulative adjustment. This new pronouncement has been adopted in the first quarter of fiscal 2019 and did not have a material effect on the Company’s financial position, results of operations or cash flows.

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Accrued Salaries and Payroll Taxes Related Parties And Other (Tables)

3 Months Ended

Sep. 30, 2019

Accrued Salaries and Payroll Taxes Related Parties And Other (Tables)

Schedule of accrued salaries and payroll taxes

	September 30, 2019		June 30, 2019
Accrued salaries - related parties	$	2,999,000	$	2,999,000
Accrued payroll taxes - related parties		130,000		130,000
Withholding tax – payroll & other taxes		72,000		33,000
Total	$	3,201,000	$	3,162,000

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Related Party Transactions (Details Narrative) - USD ($)	2 Months Ended
	Aug. 31, 2018	Sep. 30, 2019	Jun. 30, 2019
Kard Scientific [Member]
Rent expense	$ 1,800
Clinical Studies [Member]
Accrued research and development expenses		$ 1,486,000	$ 1,486,000

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Operating Leases (Details 1) - USD ($)	Sep. 30, 2019	Jul. 02, 2019	Jun. 30, 2019
Operating leases
Short-term operating lease liabilities	$ 120,000
Long-term operating lease liabilities	523,000
Total operating lease liabilities	$ 643,000	$ 670,000

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 2) - $ / shares	3 Months Ended	12 Months Ended
	Sep. 30, 2019	Jun. 30, 2019
Number of shares
Beginning balance, outstanding	22,669,883	41,643,571
Awards outstanding, Ending balance		22,669,883
Restricted Stock [Member]
Number of shares
Beginning balance, outstanding	1,729,288	1,208,157
Total shares granted	1,125,061	1,130,061
Total shares vested	(1,125,061)	(597,263)
Total shares forfeited		(11,667)
Awards outstanding, Ending balance	1,729,288	1,729,288
Weighted Average Grant Date Fair Value
Weighted average grant date fair value, beginning balance	$ 0.51	$ 0.72
Weighted average grant date fair value, shares granted	0.13	0.40
Weighted average grant date fair value, shares vested	0.57	0.72
Weighted average grant date fair value, shares forfeited		0.76
Weighted average grant date fair value, ending balance	$ 0.23	$ 0.51

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Fair Value Measurement

3 Months Ended

Sep. 30, 2019

Fair Value Measurement

Fair Value Measurement

The Company has elected to measure its preferred stock using the fair value method. The fair value of the preferred stock is the estimated amount that would be paid to redeem the liability in an orderly transaction between market participants at the measurement date. The Company calculates the fair value of the Series B Preferred stock using a lattice model that takes into consideration the future redemption value on the instrument, which is tied to the Company’s stock price.

These valuations are considered to be Level 3 fair value measurements as the significant inputs are unobservable and require significant management judgment or estimation. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company’s estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. Significant assumptions used in the fair value models include: the estimates of the redemption dates; credit spreads; dividend payments; and the market price of the Company’s common stock. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values.

The table below sets forth a reconciliation of the Company’s beginning and ending Level 3 preferred stock liability balance for the period from October 5, 2018 (date of issuance of preferred stock and warrants) to June 30, 2019 and September 30, 2019.

Series B 5% convertible preferred stock liability
Balance, July 1, 2018	$	—
Issuance of preferred stock at fair value		1,116,000
Issuance of preferred stock by exercise of warrants		2,895,000
Conversion of preferred stock to common stock		(3,068,000	)
Change in fair value of preferred stock due to modification of terms		(357,000	)
Issuance of 100 shares valued at $535.12 per share Series B Preferred Stock per May 2019 Modification		54,000
Contingent consideration of 400 extra shares		214,000
5% accrued dividend (1)		25,000
Balance, June 30, 2019	$	879,000
Issuance of preferred stock through accrued dividend, valued at fair value		12,000
Issuance of preferred stock by exercise of warrants		559,000
Conversion of preferred stock to common stock		(476,000	)
Change in fair value of preferred stock due to modification of terms		(102,000	)
5% accrued dividend (1)		20,000
Settlement of accrued dividend by issuance of PS		(24,000	)
Balance, September 30, 2019	$	868,000

(1)	The 5% accrued dividend is reported in interest expense—preferred stock.
	The total dividends of approximately $20,000 are treated as interest expense – preferred stock during the three months ended September 30, 2019. The approximately $24,000 of the Series B preferred stock dividends was paid by issuance of Series B preferred stocks, so the remaining accrued dividends of $21,000 was included at Preferred stock liability as of September 30, 2019.

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Accrued Expenses Related Parties and Other (Tables)

3 Months Ended

Sep. 30, 2019

Accrued Expenses Related Parties and Other (Tables)

Schedule of accrued expenses

	September 30, 2019		June 30, 2019
Accrued research and development consulting fees	$	40,000	$	40,000
Accrued rent (Note 10) - related parties		8,000		8,000
Accrued interest (Note 11) - related parties		34,000		37,000
Total	$	82,000	$	85,000

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Equity Transactions (Tables)

3 Months Ended

Sep. 30, 2019

Equity Transactions (Tables)

Schedule of fair value of the Series B convertible preferred stock

	June 30, 2019			May 9, 2019
Expected dividend yield		0.00	%		0.00	%
Expected stock-price volatility		54.5	%		51.9	%
Risk-free interest rate		2.18	%		2.43	%
Expected term of warrants (years)		0.1			0.25
Stock price	$	535.12		$	535.12
Exercise price	$	982.50		$	982.50

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 3)	3 Months Ended
	Sep. 30, 2019 shares
Scheduled vesting	1,729,288
Year Ending June 30, 2020 [Member]
Scheduled vesting	12,500
Year Ending June 30, 2022 [Member]
Scheduled vesting	572,262
Year Ending June 30, 2023 [Member]
Scheduled vesting	19,464
Year Ending June 30, 2021 [Member]
Scheduled vesting	1,125,062

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Convertible Note Payable Related Party (Details Narrative) - USD ($)		3 Months Ended
	May 07, 2012	Sep. 30, 2019	Sep. 30, 2018	Jun. 30, 2019	Jan. 29, 2019	May 08, 2012
Accrued interest - related parties		$ 34,000		$ 37,000
Cash paid for interest		51,000	$ 63,000
Mr. Ehrlich [Member]
Accrued interest - related parties		48,000	52,000
Principal balance of demand notes		1,922,000		1,922,000
Cash paid for interest		51,000	$ 63,000
Amount of debt extinguished					$ 100,000
Total outstanding balance of principal and interest		$ 1,955,000		$ 1,959,000
Mr. Ehrlich [Member] | Common Class B [Member]
Amount of debt extinguished					$ 100,000
Exercise price					$ 0.11
Common stock shares issued upon extinguishment of debt					909,090
Ehrlich Promissory Note C [Member]
Principal balance of demand notes						$ 2,022,000
Equity incentive shares	2,000,000
Exercise price	$ 0.51
Closing bid price per share	$ 0.46
Percentage of closing bid price	110.00%
Ehrlich Promissory Note C [Member] | Minimum [Member]
Interest rate						9.00%
Ehrlich Promissory Note C [Member] | Maximum [Member]
Interest rate						10.00%
Ehrlich Promissory Note C [Member] | Originated In 2010 [Member]
Interest rate		9.00%
Common stock price per share		$ 0.50

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Operating Leases (Details 2)	Sep. 30, 2019 USD ($)
Fiscal Year Ending June 30,
2020 (remaining 9 months)	$ 168,000
2021	223,000
2022	223,000
2023	223,000
2024 (remaining 3 months)	60,000
Total lease payments	897,000
Less: Imputed interest/present value discount	(254,000)
Present value of lease liabilities	$ 643,000

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 4) - USD ($)	3 Months Ended	12 Months Ended
	Sep. 30, 2019	Jun. 30, 2019
Beginning balance, outstanding	22,669,883	41,643,571
Granted	790,826	1,195,826
Exercised		(909,090)
Expired	(7,500)	(19,260,424)
Awards outstanding, Ending balance		22,669,883
Granted	$ 0.13	$ 0.31
Exercised		0.11
Expired	$ 1.38	$ 0.21
Weighted average remaining contractual life, beginning balance	2 years 4 months 28 days	2 years 9 months 3 days
Granted	10 years	7 years 7 months 21 days
Weighted average remaining contractual life, ending balance	2 years 5 months 1 day	2 years 4 months 28 days
Series B preferred stock warrants [Member]
Beginning balance, outstanding	7,720
Granted		10,500
Exercised	(1,045)	(2,780)
Expired
Awards outstanding, Ending balance	6,675	7,720
Weighted average grant date fair value, beginning balance	$ 982.50
Granted		982.50
Exercised	982.50	982.50
Expired
Weighted average grant date fair value, ending balance	$ 982.50	$ 982.50
Weighted average remaining contractual life, beginning balance	1 year 2 months 16 days
Granted		2 years
Exercised	1 year 5 months 5 days	2 years
Weighted average remaining contractual life, ending balance	1 year 22 days	1 year 2 months 16 days
Average intrinsic value, beginning balance
Average intrinsic value, ending balance	$ 650,813	$ 752,700

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Equity Transactions (Details) - $ / shares		12 Months Ended
	May 09, 2019	Jun. 30, 2019
Equity Transactions (Details)
Expected dividend yield	0.00%	0.00%
Expected stock-price volatility	51.90%	54.50%
Risk-free interest rate	2.43%	2.18%
Expected term of warrants (years)	3 months	1 month 6 days
Stock price	$ 535.12	$ 535.12
Exercise price	$ 982.50	$ 982.50

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Operating Leases (Details) - USD ($)	3 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Lease Cost
Operating lease cost (included in general and administrative in the Company's condensed consolidated statement of operations)	$ 56,000
Variable lease cost	2,000
Total operating lease cost	58,000	$ 56,000
Other Information
Cash paid for amounts included in the measurement of lease liabilities for the three months ended September 30, 2019	$ 58,000
Weighted average remaining lease term ? operating leases (in years)	3 years 11 months 1 day
Average discount rate ? operating leases	18.00%

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Basis of Presentation and Nature of Operations

3 Months Ended

Sep. 30, 2019

Basis of Presentation and Nature of Operations

Basis of Presentation and Nature of Operations

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements of Innovation Pharmaceuticals Inc. have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with our audited financial statements for the year ended June 30, 2019, included in our Annual Report on Form 10-K for the year ended June 30, 2019.

In the opinion of the management of Innovation Pharmaceuticals Inc., all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month periods have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year. When used in these notes, the terms “Company,” “we,” “us” or “our” mean Innovation Pharmaceuticals Inc.

Basis of Presentation

Innovation Pharmaceuticals Inc. (“Innovation”) was incorporated on August 1, 2005 in the State of Nevada. Effective June 5, 2017, the Company amended its Articles of Incorporation and changed its name from Cellceutix Corporation to Innovation Pharmaceuticals Inc. On February 15, 2019, the Company formed IPIX Pharma Limited (“IPIX Pharma”), a wholly-owned subsidiary incorporated under the Companies Act 2014 of Ireland. IPIX Pharma is a Private Company Limited by Shares. The subsidiary will serve as a key hub for strategic collaboration with European companies and medical communities in addition to providing cost-saving efficiencies and flexibility with respect to developing Brilacidin under European Medicines Agency standards.

The Company is a clinical stage biopharmaceutical company. The Company’s common stock is quoted on OTCQB, symbol “IPIX.”

Basis of Consolidation

These consolidated financial statements include the accounts of Innovation, a Nevada corporation, and our wholly-owned subsidiary, IPIX Pharma, an Ireland limited company. All significant intercompany transactions and balances have been eliminated in consolidation. Translation gains and losses for the three months ended September 30, 2019 and 2018 were not significant.

Nature of Operations - Overview

We are in the business of developing innovative small molecule therapies to treat diseases with significant medical need, particularly in the areas of inflammatory diseases, cancer, dermatology and anti-infectives. Our strategy is to use our business and scientific expertise to maximize the value of our pipeline. We will do this by focusing initially on our lead compounds, Brilacidin and Kevetrin, and advancing them as quickly as possible along the regulatory pathway. We aim to develop the highest quality data and broadest intellectual property to support our compounds. We discontinued our Prurisol psoriasis program.

We currently own all development and marketing rights to our products, other than the rights granted to Alfasigma S.p.A. in July 2019, for the development, manufacturing and commercialization of locally-administered Brilacidin for UP/UPS. In order to successfully develop and market our products, we may have to partner with additional companies. Prospective partners may require that we grant them significant development and/or commercialization rights in return for agreeing to share the risk of development and/or commercialization.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Sep. 30, 2019	Jun. 30, 2019
Current Liabilities
Related party payables	$ 1,498,000	$ 1,511,000
Related party expenses	42,000	45,000
Related party accrued salaries	3,129,000	3,129,000
Other Liabilities:
Convertible preferred stock liability, stated value	$ 1,080	$ 0
Convertible preferred stock, shares issued	1,584	1,196
Convertible preferred stock, shares outstanding	1,584	1,196
Stockholders' Deficiency
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares designated	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Treasury Stock Shares	659,448	228,218
Common Class A [Member]
Stockholders' Deficiency
Common stock , par value	$ 0.0001	$ 0.0001
Common Stock, shares authorized	600,000,000	300,000,000
Common Stock, shares issued	213,028,572	202,860,141
Common Stock, shares outstanding	212,369,124	202,631,923
Common Class B [Member]
Stockholders' Deficiency
Common stock , par value	$ 0.0001	$ 0.0001
Common Stock, shares authorized	100,000,000	100,000,000
Common Stock, shares issued	909,090	909,090
Common Stock, shares outstanding	909,090	909,090

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Patents, net (Details Narrative) - USD ($)	3 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Amortization expense	$ 93,000	$ 94,000
Patents [Member]
Future amortization period	14 years
June 30, 2020 [Member]
Estimated annual amortization expense	$ 278,000
Year 2021 - 2024 [Member]
Estimated annual amortization expense	371,000
June 30, 2025 and Thereafter [Member]
Estimated annual amortization expense	$ 1,508,000
Minimum [Member] | IntangibleAssets [Member] | Patents [Member]
Estimated remaining useful lives of the assets	12 years
Future amortization period	5 years 11 months 4 days
Maximum [Member] | IntangibleAssets [Member] | Patents [Member]
Estimated remaining useful lives of the assets	17 years
Future amortization period	16 years 9 months

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Going Concern and Liquidity (Details Narrative) - USD ($)	3 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Jun. 30, 2019	May 09, 2019	Oct. 05, 2018	Jun. 30, 2018	Jun. 30, 2017
Accumulated deficit	$ (96,146,000)		$ (94,596,000)
Total Current Liabilities	7,468,000		7,296,000
Cash	910,000	$ 306,000	579,000			$ 2,424,000	$ 4,141,000
Upfront payment received	400,000
Total budgeted expenditures	11,500,000
Due to related party	3,500,000
Net cash used in operating activities	(620,000)	(2,099,000)
Net loss	(1,550,000)	(2,050,000)
Working capital (deficit)	(6,500,000)		$ (6,700,000)
Proceeds from exercise of warrants	$ 1,027,000
Convertible preferred stock, shares outstanding	1,584		1,196
Preferred stock, shares outstanding (in shares)	0		0			0
Preferred stock issued, shares	0		0			0
Preferred stock value
Preferred stock, shares outstanding (in shares)	0					0
Securities Purchase Agreement [Member] | Investor [Member]
Preferred stock value					$ 2,000,000
Convertible preferred stock, shares					2,000
Securities Purchase Agreement [Member] | Series 1-4 [Member] | Series 3 warrant [Member]
Preferred stock, shares outstanding (in shares)	1,096
Preferred stock issued, shares	1,045
Preferred stock purchased	1,000,000
Preferred stock, shares outstanding (in shares)	6,675
Warrants, Exercised	1,045
Issuance Agreement [Member]
Preferred stock issued, shares
Preferred stock value
Preferred stock purchased
Former Director And Officer [Member]
Payable to related parties	$ 2,900,000

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Accrued Salaries and Payroll Taxes - Related Parties and Other

3 Months Ended

Sep. 30, 2019

Accrued Salaries and Payroll Taxes - Related Parties and Other

Accrued Salaries and Payroll Taxes - Related Parties and Other

Accrued salaries and payroll taxes consisted of the following (rounded to nearest thousand):

	September 30, 2019		June 30, 2019
Accrued salaries - related parties	$	2,999,000	$	2,999,000
Accrued payroll taxes - related parties		130,000		130,000
Withholding tax – payroll & other taxes		72,000		33,000
Total	$	3,201,000	$	3,162,000

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Related Party Transactions

3 Months Ended

Sep. 30, 2019

Related Party Transactions

Related Party Transactions

Office Lease

The Company charged Kard Scientific (“KARD”) $1,800 for space for the two months of July and August, 2018. Dr. Menon, a significant shareholder of the Company and the former President of Research and former director of the Company, also serves as the Chief Operating Officer and Director of Kard Scientific. Dr. Menon’s employment was terminated with the Company on September 18, 2018, and Dr. Menon resigned from the Company’s Board of Directors on December 11, 2018. As of September 1, 2018, KARD no longer leases space from the Company.

Pre-clinical Studies

The Company previously engaged KARD to conduct specified pre-clinical studies. The Company did not have an exclusive arrangement with KARD. All work performed by KARD needed prior approval by the executive officers of the Company, and the Company retained all intellectual property resulting from the services by KARD. The Company no longer uses KARD. At September 30, 2019 and June 30, 2019, the accrued research and development expenses payable to KARD was approximately $1,486,000 and this amount was included in accounts payable. The Company is now reviewing these charges.

Other related party transactions are disclosed in Note 11 below.