ipix_10q.htm

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2020 AND JUNE 30, 2019

(Unaudited)

(Rounded to nearest thousand except for shares data)

	March 31,			June 30,
	2020			2019
ASSETS
Current Assets:
Cash	$	775,000		$	579,000
Prepaid expenses and other current assets		36,000			46,000
Total Current Assets		811,000			625,000
Other Assets:
Patent costs - net		3,120,000			3,342,000
Property, plant and equipment - net		—			1,000
Security deposit		78,000			78,000
Total Other Assets		3,198,000			3,421,000
Total Assets	$	4,009,000			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)	$	2,320,000		$	2,127,000
Accrued expenses - (including related party accruals of approx. $78,000 and $45,000, respectively)		118,000			85,000
Accrued salaries and payroll taxes - (including related party accrued salaries of approx. $3,329,000 and $3,129,000, respectively)		3,434,000			3,162,000
Operating lease - current portion		132,000			-
Note payable - related party		1,822,000			1,922,000
Total Current Liabilities		7,826,000			7,296,000
Other Liabilities:
Series B 5% convertible preferred stock liability at $1,080 stated value; 350 and 1,196 shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively		200,000			879,000
Operating lease - non-current portion		454,000			-
Total Liabilities		8,480,000			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 March 31, 2020 and June 30, 2019, respectively, 267,408,840 shares and 202,860,141 shares issued as of March 31, 2020 and June 30, 2019, respectively, 266,749,392 shares and 202,631,923 shares outstanding as of March 31, 2020 and June 30, 2019, respectively		27,000			21,000
Common stock - Class B, (10 votes per share); $.0001 par value, 100,000,000 shares authorized, 1,818,180 shares and 909,090 shares issued and outstanding as of March 31, 2020 and June 30, 2019, respectively		—			—
Additional paid-in capital		95,414,000			90,537,000
Accumulated deficit		(99,766,000	)		(94,596,000	)
Treasury stock, at cost (659,448 shares and 228,218 shares as of March 31, 2020 and June 30, 2019, respectively)		(146,000	)		(91,000	)
Total Stockholders' Deficiency		(4,471,000	)		(4,129,000	)
Total Liabilities and Stockholders' Deficiency	$	4,009,000		$	4,046,000

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

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2020 AND 2019

(Unaudited)

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

	For the three Months Ended						For the Nine Months Ended
	March 31,						March 31,
	2020			2019			2020			2019

Revenues	$	—		$	—		$	400,000		$	—

Operating expenses:
Research and development expenses		276,000			707,000			1,885,000			3,463,000
General and administrative expenses		461,000			250,000			1,080,000			942,000
Officers' payroll and payroll tax expenses		131,000			126,000			367,000			367,000
Professional fees		57,000			45,000			279,000			349,000

Total operating expenses		925,000			1,128,000			3,611,000			5,121,000

Net loss from operations		(925,000	)		(1,128,000	)		(3,211,000	)		(5,121,000	)

Other income (expense)
Other income		—			—			—			40,000
Change in fair value of preferred stock		—			50,000			102,000			50,000
Interest expense – debt		(59,000	)		(44,000	)		(155,000	)		(145,000	)
Interest expense – preferred stock liability		(11,000	)		(15,000	)		(51,000	)		(1,990,000	)
Warrants modification expense		—			—			(1,212,000	)		—
Impairment expense of operating lease		—			—			(643,000	)		—
Total other income (expense)		(70,000	)		9,000			(1,959,000	)		(2,045,000	)

Loss before provision for income taxes		(995,000	)		(1,137,000	)		(5,170,000	)		(7,166,000	)
Provision for income taxes		—			—			—			—

Net loss	$	(995,000	)	$	(1,137,000	)	$	(5,170,000	)	$	(7,166,000	)

Basic and diluted loss per share attributable to common stockholders	$	(0.00	)	$	(0.01	)	$	(0.02	)	$	(0.04	)

Basic and diluted weighted average number of common shares		238,835,390			182,556,203			219,491,850			172,051,124

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

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

FOR THE NINE MONTHS ENDED MARCH 31, 2019

(Unaudited)

(Rounded to nearest thousand, except for shares data)

For the Nine Months Ended March 31, 2019

	Common Stock A					Common Stock B				Additional						Treasury Stock
	Shares			Par Value $0.0001		Shares		Par Value $0.0001		Paid-in Capital			Accumulated 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	)

Shares issued to consultant for services at $0.84 - $1.38		—			—		—		—		2,000			—			—		—			2,000
Shares issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		148,000			—			—		—			148,000
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		—			—		—		—		78,000			—			—		—			78,000
Issuance of 533,334 shares to Officer & 218,946 shares were withheld for tax purposes as Treasury shares, so net issuance was 314,387 shares		(218,946	)		—		—		—		—			—			218,946		(87,000	)		(87,000	)
Issuance of 38,930 shares to employee, 9,272 shares were withheld for tax purposes as Treasury shares, so net issuance was 29,658 shares		(9,272	)		—		—		—		—			—			9,272		(4,000	)		(4,000	)
Issuance of 12,500 shares to Consultant		12,500			—		—		—		—			—			—		—			—
Conversion of 1,310 preferred stocks to 12,808,388 common stock		12,808,388			1,000		—		—		(1,000	)		—			—		—			—
Offering cost for Q2-2019		—			—		—		—		(159,000	)		—			—		—			(159,000	)
To record underlying Series 1, Series 2 and Series 3 Warrants attached to 2,000 shares Series B Preferred Stock		—			—		—		—		817,000			—			—		—			817,000
To record beneficial conversion feature of Series B preferred stock & warrants discounts		—			—		—		—		1,917,000			—			—		—			1,917,000
Transfer of the related preferred stock liability to APIC		—			—		—		—		963,000			—			—		—			963,000
Allocating warrants (proportion of value exercised) to Pref Stock Liability		—			—		—		—		(20,000	)		—			—		—			(20,000	)
Shares issued to employee for services at $0.398 - $1.37		—			—		—		—		15,000			—			—		—			15,000
Stock options issued to employee for services at $0.398 - $1.37		—			—		—		—		34,000			—			—		—			34,000
Net loss for the three months ended 12/31/2018		—			—		—		—		—			(3,979,000	)		—		—			(3,979,000	)
Balance at December 31, 2018		176,268,861		$	18,000		—	$	—	$	87,780,000		$	(91,944,000	)		228,218	$	(91,000	)	$	(4,237,000	)

Shares issued to consultant for services at $0.84 - $1.38		—			—		—		—		2,000			—			—		—			2,000
Shares issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		145,000			—			—		—			145,000
Stock options issued to consultant for services at $0.43 - $0.73		—			—		—		—		17,000			—			—		—			17,000
Stock options issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		77,000			—			—		—			77,000
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		—			—		—		—		33,000			—			—		—			33,000
Cancellation of debt for the purchase of 909,090 shares of Common Stock Class B		—			—		909,090		—		100,000			—			—		—			100,000
5% dividend paid by issuance of preferred stock		—			—		—		—		17,000			—			—		—			17,000
Conversion of 954 preferred stocks to 11,306,457 common stock		11,306,457			1,000		—		—		(1,000	)		—			—		—			—
Transfer of the related preferred stock liability to APIC		—			—		—		—		735,000			—			—		—			735,000
Allocating warrants (proportion of value exercised) to Pref Stock Liability		—			—		—		—		(45,000	)		—			—		—			(45,000	)
Reversal of the stock based compensation related to unvested options and shares		—			—		—		—		(4,000	)		—			—		—			(4,000	)
Net loss for the three months ended 3/31/2019		—			—		—		—		—			(1,137,000	)		—		—			(1,137,000	)

Balance at March 31, 2019		187,575,318		$	19,000		909,090	$	—	$	88,868,000		$	(93,081,000	)		228,218	$	(91,000	)	$	(4,285,000	)

Table of Contents

For the Nine Months Ended March 31, 2020

	Common Stock A					Common Stock B				Additional						Treasury Stock
	Shares			Par Value $0.0001		Shares		Par Value $0.0001		Paid-in Capital			Accumulated 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	)

Stock options issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		65,000			—			—		—			65,000
Shares issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		124,000			—			—		—			124,000
Stock options issued to employee for services at $0.398 - $1.37		—			—		—		—		28,000			—			—		—			28,000
Shares issued to employee for services at $0.398 - $1.37		—			—		—		—		10,000			—			—		—			10,000
Stock options issued to consultant for services at $0.43		—			—		—		—		6,000			—			—		—			6,000
Shares issued to consultant for services at $0.43 - $0.73		—			—		—		—		3,000			—			—		—			3,000
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 three months ended 9/30/2019		—			—		—		—		—			(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	)

Stock options issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		37,000			—			—		—			37,000
Shares issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		71,000			—			—		—			71,000
Stock options issued to employee for services at $0.398 - $1.37		—			—		—		—		16,000			—			—		—			16,000
Shares issued to employee for services at $0.398 - $1.37		—			—		—		—		6,000			—			—		—			6,000
Stock options issued to consultant for services at $0.43		—			—		—		—		6,000			—			—		—			6,000
Shares issued to consultant for services at $0.43 - $0.73		—			—		—		—		2,000			—			—		—			2,000
Conversion of 291 preferred stocks to 6,182,539 common stock		6,182,539			—		—		—		156,000			—			—		—			156,000
Excess of exercise price of 147 warrants over fair value		—			—		—		—		46,000			—			—		—			46,000
Warrants Modification expense		—			—		—		—		1,212,000			—			—		—			1,212,000
Net loss for the three months ended 12/31/2019		—			—		—		—		—			(2,625,000	)		—		—			(2,625,000	)

Balance at December 31, 2019		218,551,663		$	22,000		909,090	$	—	$	93,278,000		$	(98,771,000	)		659,448	$	(146,000	)	$	(5,617,000	)

Stock Options issued to employee for services at $0.398 to $1.37		—			—		—		—		16,000			—			—		—			16,000
Shares issued to employee for services at $0.132 to $0.705		—			—		—		—		6,000			—			—		—			6,000
Stock Options issued to consultants for services at $0.089 to $0.127		—			—		—		—		14,000			—			—		—			14,000
Stock Options issued to directors for services at $0.1		—			—		—		—		103,000			—			—		—			103,000
Shares issued to directors for services at $0.1		—			—		—		—		40,000			—			—		—			40,000
To reverse the option expense & stock awards granted for officer Art - Q3-2020		—			—		—		—		(86,000	)		—			—		—			(86,000	)
To reverse the option expense & stock awards granted for officer- Q3-2020		—			—		—		—		(165,000	)		—			—		—			(165,000	)
Conversion of 2,884 preferred stocks to 48,197,729 common stock		48,197,729			5,000		—		—		1,538,000			—			—		—			1,543,000
Excess of exercise price of 2,945 warrants over fair value		—			—		—		—		552,000			—			—		—			552,000
To adjust the 41 Pref stock from $982.5 to $535.12		—			—		—		—		18,000			—			—		—			18,000
Cancellation of debt for the purchase of 909,090 shares of Common Stock Class B		—			—		909,090		—		100,000			—			—		—			100,000
Net loss for the three months ended 3/31/2020		—			—		—		—		—			(995,000	)		—		—			(995,000	)

Balance at March 31, 2020		266,749,392		$	27,000		1,818,180	$	—	$	95,414,000		$	(99,766,000	)		659,448	$	(146,000	)	$	(4,471,000	)

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED MARCH 31, 2020 AND 2019

(Unaudited)

(Rounded to nearest thousand, except for shares data)

	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,170,000	)	$	(7,166,000	)
*Adjustments to reconcile net loss to net cash used in operating activities:*
Common stock and stock options issued as compensation		302,000			798,000
Amortization of patent costs		279,000			277,000
Patent write-off		—			155,000
Depreciation of equipment		1,000			1,000
Gain on disposal of equipment		—			(40,000	)
Interest expense-preferred stock		51,000			1,990,000
Change in fair value of preferred stock		(102,000	)		(50,000	)
Warrants modification expense		1,212,000			—
Impairment expense of operating lease		643,000			—
*Changes in operating assets and liabilities:*
Prepaid expenses and security deposits		10,000			43,000
Accounts payable		193,000			(930,000	)
Accrued expenses		33,000			(25,000	)
Accrued officers' salaries and payroll taxes		272,000			(45,000	)
Operating lease liability		(58,000	)		—

Net cash used in operating activities		(2,334,000	)		(4,992,000	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Sales proceeds of property, plant and equipment		—			40,000
Patent costs		(57,000	)		(58,000	)

Net cash used in investing activities		(57,000	)		(18,000	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants		2,642,000			1,253,000
Purchase of treasury stock		(55,000	)		(91,000	)
Proceeds from issuance of preferred stocks and warrants, net of financing costs		—			1,892,000

Net cash provided by financing activities		2,587,000			3,054,000

NET INCREASE (DECREASE) IN CASH		196,000			(1,956,000	)
CASH, BEGINNING OF PERIOD		579,000			2,424,000
CASH, END OF PERIOD	$	775,000		$	468,000

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	111,000		$	128,000
Cash paid for tax	$	—		$	—
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INVESTING AND FINANCING ACTIVITIES
Commitment shares issued as deferred offering costs	$	—		$	(159,000	)
Allocating warrants (proportion of value exercised) to preferred stock liability	$	—		$	(65,000	)
Initial warrant valuation	$	1,212,000			817,000
Beneficial conversion features on preferred stock and warrant discounts	$	—		$	1,917,000
Stock dividend paid by issuance of preferred stock	$	—		$	17,000
Conversion of Series B Convertible Preferred stock to Common stock	$	2,169,000		$	1,698,000
Excess of exercise price of warrants at $850-$950 over fair value of $535	$	1,094,000		$	—
Cancellation of shareholder debt for the purchase of 909,090 shares of Common stock Class B shares	$	100,000		$	100,000

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

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2020

(Unaudited)

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 and nine-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 and nine months ended March 31, 2020 and 2019 were not significant.

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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 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.

2. Going Concern and Liquidity

These condensed consolidated 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 March 31, 2020, the Company has an accumulated deficit of approximately $99.8 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 March 31, 2020, the Company’s cash amounted to $0.8 million and current liabilities amounted to $7.8 million. 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 nine months ended March 31, 2020 was approximately $2.3 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 nine months ended March 31, 2020 and 2019, amounted to $5.2 million and $7.2 million, respectively, and we had a working capital deficit of approximately $7.0 million and $6.7 million, respectively, at March 31, 2020 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 nine months ended March 31, 2020, the Company issued 2,945 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of $2.6 million, upon exercise of 2,945 warrants. As of March 31, 2020, Series 1-4 warrants to purchase 4,775 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 amount of cash and cash equivalents at March 31, 2020 is approximately $0.8 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 condensed consolidated 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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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, unvested restricted stock and Series B Convertible Preferred Stock at a conversion price at approximately $0.07 and $0.04 per share for the nine months ended March 31, 2020 and 2019, respectively. Common share equivalents of 38 million shares and 66 million shares of common stock were excluded from the computation of diluted loss per share for the nine months ended March 31, 2020 and 2019, respectively, because we incurred net losses for the nine months ended March 31, 2020 and 2019, and the effect of including these potential common shares in the net loss per share calculations would be antidilutive and are therefore not included in the calculations.

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 March 31, 2020 and June 30, 2019, respectively (see Note 13. Equity Transactions 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).

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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.

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 since 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.

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4. Patents, net

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

	Useful life		March 31, 2020			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		1,175,000			1,118,000
				5,401,000			5,344,000
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds				(1,993,000	)		(1,765,000	)
Accumulated amortization for Patents-Kevetrin and related compounds				(288,000	)		(237,000	)
Total			$	3,120,000		$	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 March 31, 2020 and 2019 was approximately $93,000 and $92,000, respectively, and was approximately $279,000, and $277,000 for the nine months ended March 31, 2020 and 2019, respectively.

During the nine months ended March 31, 2020 and 2019, the Company has written off the Prurisol patent and other patents of approximately $0 and $155,000, respectively and included in general and administrative expenses.

At March 31, 2020, the future amortization period for all patents was approximately 5.43 years to 16.75 years. Future estimated amortization expenses are approximately $93,000 for the year ending June 30, 2020, $373,000 for each year from 2021 to 2024, and total of $1,535,000 for the year ending June 30, 2025 and thereafter.

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5. Accrued Expenses – Related Parties and Other

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

	March 31, 2020		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		70,000		37,000

Total	$	118,000	$	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):

	March 31, 2020		June 30, 2019

Accrued salaries - related parties	$	2,764,000	$	2,647,000
Accrued salaries – ex- President and Chief Medical Officer		425,000		352,000
Accrued payroll taxes - related parties		140,000		130,000
Accrued salaries		30,000		—
Withholding tax – payroll & other taxes		75,000		33,000

Total	$	3,434,000	$	3,162,000

The Company has accrued payroll to Dr. Krishna Menon, ex-President of Research of approximately $1,443,000 for his past services with the Company, and this amount was included in Accrued salaries – related parties. 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. Dr. Menon, on behalf of himself and Kard Scientific, a company controlled by the Menon family, Dr. Krishna Menon, Anita Menon, Rajah Menon, and Doret Menon, demanded payment of these amounts in October 2019; however, the Company disputes the underlying basis for these amounts and notified Dr. Menon in November 2019 of the Company’s intent not to pay them.

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. At this time AlfaSigma has not commenced a Phase 1 clini cal trial with Brilacidin. 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.

The Company generated revenue of $0.4 million and $0.0 million for the nine months ended March 31, 2020 and 2019, respectively. Revenue during the nine months ended March 31, 2020 represented the initial non-refundable payment of $0.4 million received from Alfasigma.

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8. Operating Leases

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 on 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 on 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 since September 30, 2019. The Company vacated the leased office space in December 2019, and in January 2020 the Company initiated a lawsuit against the lessor relating to an automatic extension of the lease for the office space and related matters (See Note 9).

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

	Nine Months Ended March 31, 2020
Lease Cost
Operating lease cost (included in general and administrative in the Company’s condensed consolidated statement of operations)	$	92,000
Variable lease cost		6,000
	$	98,000
Other Information
Cash paid for amounts included in the measurement of lease liabilities for the nine months ended March 31, 2020	$	174,000
Weighted average remaining lease term – operating leases (in years)		3.42
Average discount rate – operating leases		18	%

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

	At March 31, 2020
Operating leases
Short-term operating lease liabilities	$	132,000
Long-term operating lease liabilities		454,000

Total operating lease liabilities	$	586,000

The following table provides maturities of the Company’s lease liabilities at March 31, 2020 as follows:

	Operating Leases
Fiscal Year Ending June 30,
2020 (remaining 3 months)	$	56,000
2021		223,000
2022		223,000
2023		223,000
2024 (remaining 3 months)		60,000
Total lease payments		785,000
Less: Imputed interest/present value discount		(199,000	)

Present value of lease liabilities	$	586,000

Operating lease cost for the three months and the nine months ended March 31, 2020 was approximately $26,000 and $92,000, respectively. Rent expense, net of lease income, under this operating lease agreement was approximately $58,000 and $168,000 for the three months and the nine months ended March 31, 2019, respectively.

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9. Commitments and Contingencies

Litigation

On January 22, 2020, the Company filed a complaint against Cummings Properties, LLC in the Superior Court of the Commonwealth of Massachusetts (C.A. No. 20-77CV00101), seeking, among other things, declaratory relief that the lease for the Company’s prior principal executive offices did not automatically extend for an additional five years from September 2018, return of the Company’s security deposit, and damages. This action is in the preliminary stages and the Company is currently unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any.

Contractual Commitments

The Company has total non-cancellable contractual minimum commitments of approximately $2.0 million to contract research organizations as of March 31, 2020. Expenses are recognized when services are performed by the contract research organizations.

Contingent Liability - Disputed Invoices

As described in Note 8, the Company has accrued payroll to Dr. Krishna Menon, ex-President of Research of approximately $1,443,000 for his past services with the Company, and this amount was included in accrued salaries and payroll taxes. As described in Note 10, the Company has a payable to KARD of approximately $1,486,000 for its research and development expenses and this amount was included in accounts payable. KARD is a company owned by Dr. Menon. 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. Dr. Menon, on behalf of himself and KARD, demanded payment of these amounts in October 2019; however, the Company disputes the underlying basis for these amounts and notified Dr. Menon in November 2019 of the Company’s intent not to pay them.

All of the above disputed invoices were reflected as current liabilities as of March 31, 2020.

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 March 31, 2020 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. Dr. Menon, on behalf of himself and KARD, demanded payment of these amounts in October 2019; however, the Company disputes the underlying basis for these amounts and notified Dr. Menon in November 2019 of the Company’s intent not to pay them.

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Share Issuance

On February 23, 2020, the Company issued (i) options for the purchase of 500,000 shares of Class A common stock at an exercise price of $0.10 per share, which is 110% of the previous per share closing price of $0.09 on February 21, 2020, and (ii) 500,000 shares of Class A common stock to each member of the Company’s Board of Directors, consisting of Leo Ehrlich, Barry Schechter and Zorik Spektor.

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 December 29, 2010, the Company issued 18,000,000 Equity Incentive Options to Mr. Ehrlich, which are exercisable at $0.11 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).

On March 30, 2020, 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 March 31, 2020 and June 30, 2019, the principal balance of this convertible note payable to Mr. Ehrlich, the Company’s Chairman and CEO was approximately $1,822,000 and $1,922,000, respectively.

During the nine months ended March 31, 2020 and 2019, the Company accrued interest of $144,000 and $145,000 to Mr. Ehrlich, respectively and paid the interests in cash of $111,000 and $128,000 to Mr. Ehrlich, respectively.

As of March 31, 2020 and June 30, 2019, the balance of accrued interest payable were $70,000 and $36,000, respectively (see Note 5. Accrued Expenses – Related Parties and Other to the condensed consolidated financial statements).

As of March 31, 2020 and June 30, 2019, the total outstanding balances of principal and interest were approximately $1,892,000 and $1,959,000, respectively.

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

Stock-based Compensation – Stock Options

2016 Equity Incentive Plan

On February 23, 2020, the Board of Directors approved an amendment to Section 4.1 of the Corporation’s 2016 Equity Incentive Plan to increase the annual limit on the number of awards under such Plan to outside directors from 250,000 to 1,500,000.

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).

Stock Options

The fair value of options granted for the nine months ended March 31, 2020 and 2019 was estimated on the date of grant using the Black Scholes model that uses assumptions noted in the following table.

	Nine Months Ended March 31,
	2020	2019
Expected term (in years)	3 - 10	5-10
Expected stock price volatility	73.68% to 92.21%	67.34% to 104.11%
Risk-free interest rate	0.41% to 1.50%	2.51% to 2.86%
Expected dividend yield	0	0

The components of stock-based compensation expense included in the Company’s Condensed Statement of Operations for the three months and nine months ended March 31, 2020 and 2019 are as follows (rounded to nearest thousand):

	Three months ended March 31					Nine months ended March 31
	2020			2019		2020			2019
Stock-based compensation – officers		—			222,000		297,000			620,000
Stock-based compensation – employees		22,000			41,000		82,000			134,000
Stock-based compensation – consultants		14,000			19,000		31,000			44,000
Reversal of forfeited stock-based compensation		(251,000	)		—		(251,000	)		—
– included in Research and Development expenses		(215,000	)		282,000		159,000			798,000

Stock-based compensation – officers – included in General and Administration expenses		143,000			—		143,000			—
Total Stock-based compensation, net		(72,000	)		282,000		302,000			798,000

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During the nine months ended March 31, 2020 and 2019

On February 23, 2020, the Company issued 500,000 options each to our Chairman and CEO and two other Board members, which are exercisable for 10 years at $0.10 per share of common stock. The total value of these options to purchase 1,500,000 shares was approximately $103,000 and we recognized approximately $103,000 of stock-based compensation costs and charged to additional paid-in capital as of March 31, 2020. The assumptions we used in the Black Scholes option-pricing model were disclosed above. On the same date, the Company also issued 500,000 Class A Common shares each to our Chairman and CEO and two other Board members (See Note 13).

On March 30, 2020, the Company issued 250,000 options to a consultant for his one year contract and exercisable for 3 years at $0.086 per share of common stock. The total value of these 250,000 shares of stock option was approximately $12,000 and we recognized approximately $12,000 of stock-based compensation costs and charged to additional paid-in capital as of March 31, 2020. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

On September 1, 2019, the Company issued to Dr. Arthur Bertolino, the President and Chief Medical Officer of the Company, 1,066,667 shares of common stock. 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. Due to the fact that Dr. Bertolino resigned on December 19, 2019, the Company recorded the forfeiture of his options and shares after 60 days of his resignation. During the nine months ended March 30, 2020, the Company reversed the stock-based compensation expenses of approximately $35,000 based on the amount of those unvested options and stock awards we expensed in the prior two quarters of the current year.

On September 1, 2019, 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. 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. During the nine months ended March 31, 2020, the Company recorded approximately $5,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $4,000 of stock option expense and $1,000 of stock awards.

On September 1, 2018, the Company issued to Dr. Bertolino 1,066,667 shares of common stock. 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. As above mentioned of Dr. Bertolino’s resignation on December 19, 2019, the Company recorded the forfeiture of his options and shares after 60 days of his resignation. During the nine months ended March 30, 2020, the Company reversed the stock-based compensation expenses of approximately $216,000 based on the amount of those unvested options and stock awards we expensed in the prior two quarters of the current year and prior years. During the nine months ended March 31, 2020, the Company recorded approximately $52,000 of During the nine months ended March 31, 2019, the Company recorded approximately $188,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $65,000 of stock option expense and $123,000 of stock awards.

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On September 1, 2018, the Company also issued to Ms. Harness 58,394 shares of the Company’s common stock. 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. During the nine months ended March 31, 2020, the Company recorded approximately $22,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $16,000 of stock option expense and $6,000 of stock awards. During the nine months ended March 31, 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.

On September 1, 2017, the Company agreed to grant to Dr. Bertolino 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. 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.. During the nine months ended March 31, 2020, the Company recorded approximately $99,000 of stock-based compensation expense in connection with the forfeiture of the foregoing equity awards, including approximately $34,000 of stock option expense and $65,000 of stock awards. During the nine months ended March 31, 2019, the Company recorded approximately $432,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $150,000 of stock option expense and $282,000 of stock awards.

On September 1, 2017, the Company agreed to grant to Ms. Harness 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. 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 nine months ended March 31, 2020, the Company recorded approximately $38,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $28,000 of stock option expense and $10,000 of stock awards. During the nine months ended March 31, 2019, the Company recorded approximately $38,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $28,000 of stock option expense and $10,000 of stock awards.

On September 1, 2016, the Company and Ms. 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 58,394 shares of restricted stock. 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. 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 nine months ended March 31, 2020, 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 nine months ended March 31, 2019, the Company recorded approximately $75,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $55,000 of stock option expense and $20,000 of stock awards.

During the nine months ended March 31, 2020, the Company recorded approximately $18,000 of stock-based compensation expense to two consultants including approximately $13,000 of stock option expense and $5,000 of stock awards. During the nine months ended March 31, 2019, the Company recorded approximately $44,000 of stock-based compensation expense to consultants including approximately $36,000 of stock option expense and $8,000 of stock awards.

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Exercise of options

On March 30, 2020, 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 909,090 options, paid by the cancellation of debt to Mr. Ehrlich of $100,000 to satisfy the exercise (see Note 11. Convertible Note Payable - Related Party to the condensed consolidated financial statements).

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 909,090 options, 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).

Forfeiture of options

Dr. Bertolino resigned as President and Chief Medical Officer and as a member of the Board of Directors of the Company on December 19, 2019. During the three months ended March 31, 2020, all his 2,858,521 options he held were forfeited, representing the options he was granted since June 27, 2016 to September 1, 2019. The Company reversed the $251,000 of unvested options and shares that were expensed in the current year and prior years.

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		2,540,826		$	0.08		9.32		—
Exercised		(909,090	)	$	0.11		—		—
Forfeited/expired		(2,858,521	)	$	0.66		—		—
Outstanding at March 31, 2020		21,443,098		$	0.18		1.85	$	380,836
Exercisable at March 31, 2020		19,597,124		$	0.18		1.12	$	335,836
Unvested stock options at March 31, 2020		1,845,974		$	0.14		9.69	$	—

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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		2,625,061		$	0.11
Total shares vested		(1,137,561	)	$	0.56
Total shares forfeited		(1,600,001	)	$	0.22
Total unvested shares outstanding at March 31, 2020		1,616,787		$	0.11

Scheduled vesting for outstanding restricted stock awards at March 31, 2020 is as follows:

	Year Ending June 30,
	2020		2021		2022		2023		Total

Scheduled vesting		1,500,000		58,394		38,929		19,464		1,616,787

As of March 31, 2020, there was approximately $118,000 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 $111,000 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 0.48 years.

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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. On December 26, 2019, the Company extended the termination date for each series of warrants to December 31, 2021 (see Note 13. Equity Transactions to the condensed consolidated financial statements).

Exercise of Warrants to Purchase 5% convertible preferred stock

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 nine months ended March 31, 2020, the Company issued 2,945 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of $2.6 million, upon exercise of 2,945 warrants. As of March 31, 2020, Series 1-4 warrants to purchase 4,775 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		(2,945	)		897.02		3.11		—
Expired									—
Outstanding at March 31, 2020		4,775			850.00		1.75		4,224,839

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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. The value of the warrants issued was approximately $1.7 million. Assumptions used in the Black Scholes option-pricing model for these warrants were as follows:

Average risk-free interest rate	2.73	%
Average expected life-years	5
Expected volatility	52.77	%
Expected dividends	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		5.00	$	—

Extended		—		—		—		—
Granted		—		—		—		—
Exercised		—		—		—		—
Expired		—		—		—		—
Outstanding at June 30, 2019		8,000,000	$	0.38		4.00	$	—

Extended		—		—		—		—
Granted		—		—		—		—
Exercised		—		—		—		—
Expired		—		—		—		—
Outstanding at March 31, 2020		8,000,000	$	0.38		3.25	$	—

As of March 31, 2020 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 March 30, 2020, 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 (See Note 11. Convertible Note Payable to the condensed consolidated financial statements).

As of March 31, 2020 and June 30, 2019, the total outstanding number of Class B common stock were 1,818,180 shares and 909,090 shares, respectively.

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Class A Common Stock

On February 23, 2020, the Company issued 500,000 options each to our Chairman and CEO and two other Board members (see Note 12) and the Company also issued 500,000 shares of Class A common stock each to our Chairman and CEO and two other Board members, which shares will vest on June 30, 2020. The total value of these 1,500,000 shares was approximately $135,000 and we recognized approximately $40,000 of stock-based compensation costs and charged to additional paid-in capital as of March 31, 2020 and will recognize the remaining balance of $95,000 as of June 30, 2020.

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 condensed 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.

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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 approximately $32,000 were reflected as a reduction to additional paid-in capital. The issuances costs associated with the Series B preferred stock liability of approximately $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 approximately $102,000 and $50,000 under Other (income) expense in the accompanying condensed consolidated statements of operations for the nine months ended March 31, 2020 and 2019, 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 March 31, 2020 and June 30, 2019.

The total dividends of approximately $52,000 and $32,000 are treated as interest expense – preferred stock during the nine months ended March 31, 2020 and 2019, respectively. Balance of accrued dividends of $12,000 and $24,000 was included at Preferred stock liability as of March 31, 2020 and June 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.

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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 March 31, 2020. On December 26, 2019, the Company extended the termination date for each series of warrants to December 31, 2021 (see below).

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 $4.1 million of their Series 1 to 4 warrants, starting from May 2019 through March 2020. 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.

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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, 1,196 shares of Series B 5% convertible preferred stock were outstanding.

During the nine months ended March 31, 2020, the two preferred stockholders converted 4,065 shares of Series B preferred stock into 63.4 million shares of common stock. As of March 31, 2020, 350 shares of Series B 5% convertible preferred stock were outstanding.

Warrant Amendment Agreement and Extension of Warrant Terms

On December 26, 2019, the Company entered into a Warrant Amendment Agreement with the holders of the warrants to purchase our Series B preferred stock, pursuant to which we have amended the warrants as follows: (i) to extend the termination date for each warrant to December 31, 2021, and (ii) to adjust the exercise price of each warrant from $982.50 to $850.00 per share of Series B preferred stock. The warrants modification expense of $1,212,000 was computed as the incremental value of the modified warrants over the unmodified warrants on the modification date using a per share price of $0.05 per share, which was the market price on December 26, 2019. Assumptions used in the Black Scholes option-pricing model for these warrants were as follows:

Average risk-free interest rate	1.64	%
Average expected life-years	2
Expected volatility	99.03	%
Expected dividends	0	%

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 March 31, 2020.

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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 condensed 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 condensed 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 ( modified on December 26, 2019 as above stated)	$	850.00		$	982.50

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 held in treasury, purchased at a total cumulative cost of $146,000 and $91,000 as of March 31, 2020 and June 30, 2019, respectively.

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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 March 31, 2020.

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) – for the year ended 6.30.2019		42,000
Settlement of accrued dividend by issuance of PS		(17,000	)
Balance, June 30, 2019	$	879,000

Change in fair value of preferred stock due to modification of terms		(102,000	)
Issuance of preferred stock through accrued dividend, valued at fair value		34,000
Issuance of preferred stock by exercise of warrants		1,688,000
Conversion of preferred stock to common stock		(2,287,000	)
5% accrued dividend (1) – for the 9 months ended 3.31.2020		52,000
Settlement of accrued dividend by issuance of PS		(64,000	)
Balance, March 31, 2020	$	200,000

___________

(1)	The 5% accrued dividend is reported in interest expense—preferred stock.

	The total dividends of approximately $52,000 and $42,000 are treated as interest expense – preferred stock during the nine months ended March 31, 2020 and during the year ended June 30, 2019, respectively. The Series B preferred stock dividends of $64,000 was paid by issuance of Series B preferred stocks, and the remaining accrued dividends of $12,000 was included at Preferred stock liability as of March 31, 2020.

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15. Subsequent Events

Equity Transactions

From April 1, 2020 to date of the issuance of these financial statements, the Company issued 1,600 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of approximately $1.4 million, upon exercise of 1,600 warrants. In addition, there were 1,950 preferred stock shares converted to approximately 26.0 million shares of common stock.

COVID-19

Recently, due to the global COVID-19 pandemic, the Company has been approached by a number of organizations regarding a desire to conduct research on Brilacidin against the novel coronavirus, following release of information on its potential as a treatment. Material Transfer Agreements have been signed with a couple academic institutions and Brilacidin drug substance (Brilacidin tetrahydrochloride) provided for experimental research on the antiviral properties of Brilacidin. Available research data has been released, with subsequent testing imminent. Grant applications for funding of further development of Brilacidin in treatment of COVID-19 are either filed or in progress of being filed. Partnering opportunities, with industry and academic partners, are also ongoing. Given the safety and efficacy data already known about Brilacidin from multiple routes of administration, a Phase 2 study with Brilacidin (as intravenous solution) is in planning.

The Company has evaluated events subsequent to March 31, 2020 through the issuance of these financial statements and determined that there were no additional events requiring disclosure.

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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 February 13, 2020, the Company announced that its Phase 1 trial of orally administered Brilacidin for Ulcerative Colitis met its primary endpoints with positive topline results.

On February 18, 2020, the Company announced that it is exploring Brilacidin as a potential novel coronavirus treatment.

On March 5, 2020, the Company announced that it is planning for a Phase 2 clinical trial of Brilacidin for Ulcerative Colitis and had begun interacting with vendors in preparation for the study.

On April 1, 2020, the Company announced that it received data from a U.S. Regional Biocontainment Laboratory (RBL) supporting Brilacidin’s direct inhibition of SARS-COV-2, the novel coronavirus responsible for COVID-19.

On April 6, 2020, the Company announced that it is in discussions to advance Brilacidin into human trials against COVID-19. The Company has received numerous inquiries and remains involved in procuring clinical trial supplies as it prepares for interaction with the U.S. Food and Drug Administration to advance this initiative.

On April 20, 2020, the Company announced that a publication indicated that screening of 11,552 compounds identified Brilacidin as one of the most promising potential inhibitors of SARS-CoV-2. In addition, the Company announced that the U.S. Regional Biocontainment Laboratory that had conducted the initial tests will advance Brilacidin to the next stage of testing and that a majority of drugs tested at the RBL did not meet the threshold to advance. The next stage of testing has been commenced as of date of the filing.

On May 5, 2020, the Company announced that the Company has executed a Material Transfer Agreement (MTA) with a leading U.S.-based Public Health Research Institute to evaluate the immunomodulatory and antiviral properties of Brilacidin in relation to COVID-19.

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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.

In July 2019, the Company entered into a license agreement with Alfasigma, granting Alfasigma the worldwide right to develop, manufacture and commercialize rectally administered 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 (OM)	Phase 2 Study (completed) Phase 3 in preparation
	Inflammatory Bowel Disease (IBD)	Phase 2 UP/UPS Proof of Concept Study (completed) Phase 1 Safety/toleration/PK of oral dosage form (completed) Phase 2 UC Safety/toleration/PK and Proof of Concept in preparation
	ABSSSI (Acute Bacterial Skin and Skin Structure Infection)	Phase 2 (completed)
	COVID-19	Phase 2 in preparation
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 drugs. Developing pharmaceutical products, however, is a lengthy and very expensive process and there can be no assurance that we will complete such development or commercialize such 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.

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

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Brilacidin

COVID-19 — Recently, due to the global COVID-19 pandemic, the Company has been approached by a number of organizations regarding a desire to conduct research on Brilacidin against the novel coronavirus, following release of information on its potential as a treatment. Material Transfer Agreements have been signed with academic institutions and Brilacidin drug substance (Brilacidin tetrahydrochloride) was provided for experimental research on the antiviral properties of Brilacidin. Available research data has been released (see Recent Developments), with subsequent testing now ongoing. Grant applications for funding of further development of Brilacidin in treatment of COVID-19 are either filed or in progress of being filed. Partnering opportunities, with industry and academic partners, are also ongoing. Given the safety and efficacy data already known about Brilacidin from multiple routes of administration, a Phase 2 study with Brilacidin (as intravenous solution) is in planning.

Oral Mucositis (OM) study — In a 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). A Phase 2a trial comprised 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. Future development work with locally-administered Brilacidin for UP/UPS will be conducted by Alfasigma.

IBD, 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 utilizing BDD Pharma’s patented OralogiK™ tablet technology to achieve selective delivery of Brilacidin to the colon. Initial clinical testing in a Phase 1 single-dose escalation trial was conducted in January 2020, which tested a radio (gamma) isotope labeled Brilacidin oral formulation in healthy volunteers to assess targeting, dispersion, safety, toleration, and the pharmacokinetic profile. Following multidose testing in healthy volunteers, a placebo-controlled Phase 2 clinical 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.

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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 $0.1 million during the three months ended March 31, 2020 and 2019, respectively, and approximately $0.6 million and $1.1 million during the nine months ended March 31, 2020 and 2019, respectively.

For Brilacidin overall, we see significant potential in treatment of COVID-19 (by the IV route), and in treatment of Oral Mucositis (by oral rinse) and IBD (by oral tablet). The available clinical data also suggest that other inflammatory conditions including various dermatology disorders and conditions may, likewise, be treated locally and efficaciously with Brilacidin.

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 the quarters and nine months ended March 31, 2020 and 2019.

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 and there can be no assurance that we will complete such development or commercialize such 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 March 31, 2020, we had approximately $0.8 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 $1.5 million and is not adequate to fund our operations. The Company’s only revenue during the nine months ended March 31, 2020 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 $11.8 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 condensed consolidated 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.

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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.

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 March 31, 2020 and 2019

Revenue

We generated no revenue for the three months ended March 31, 2020 and 2019, respectively.

We incurred operating expenses of approximately $0.9 million and $1.1 million for the three months ended March 31, 2020 and 2019, 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 for the three months ended March 31, 2020 and 2019, respectively (rounded to nearest thousand):

	For the three months ended					Change
	March 31,					2020 vs. 2019
	2020			2019		$			%

Clinical studies and development research	$	323,000		$	128,000	$	195,000			152	%
Officers’ payroll and payroll tax expenses related to R&D Department		—			120,000		(120,000	)		(100	)%
Employees payroll and payroll tax expenses related to R&D Department		77,000			84,000		(7,000	)		(8	)%
Stock-based compensation – officers		—			222,000		(222,000	)		(100	)%
Stock-based compensation – employees		22,000			41,000		(19,000	)		(46	)%
Stock-based compensation – consultants		13,000			19,000		(6,000	)		(32	)%
Reversal of forfeited stock-based compensation		(251,000	)		—		(251,000	)		—
Depreciation and amortization expenses		92,000			93,000		(1,000	)		(1	)%
Total	$	276,000		$	707,000	$	(431,000	)		(61	)%

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Research and development expenses for proprietary programs decreased during the three months ended March 31, 2020 compared with the same period in 2019, due to less spending on our programs due to our current lack of working capital. Clinical studies and development expenses will continue to decrease in future reporting periods if there is no increase in the Company’s financial liquidity.

Officers’ payroll decreased during the three months ended March 31, 2020 compared with the same period in 2019, due to the fact that the Company’s President and Chief Medical Officer resigned on December 19, 2019, which led to no officers’ payroll under research and development during the quarter ended March 31, 2020.

Employees payroll and payroll tax expenses decreased during the three months ended March 31, 2020 compared with the same period in 2019, due to fewer employees engaged in preclinical development after March 31, 2019, which led to the decrease in employees’ payroll during the quarter ended March 31, 2020.

Stock-based compensation - officers decreased during the three months ended March 31, 2020 compared with the same period in 2019, due to the fact that the Company’s President and Chief Medical Officer resigned on December 19, 2019 and the Company reversed the stock-based compensation expenses of approximately $251,000 based on the amount of those unvested options and stock awards we expensed in the current year and all prior periods.

Stock-based compensation - employees decreased during the three months ended March 31, 2020 compared with the same period in 2019, due to the decrease of vesting in the number of stock awards granted to employees during the three months ended March 31, 2020.

Stock-based compensation - consultants decreased during the three months ended March 31, 2020 compared with the same period in 2019, due to less stock awards being granted to two consultants during the three months ended March 31, 2020.

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.

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General and Administrative Expenses

General and administrative expenses consist mainly of compensation and associated fringe benefits not included in 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, facilities, depreciation and other office expenses.

Below is a summary of our general and administrative expenses for the three months ended March 31, 2020 and 2019, respectively (rounded to nearest thousand):

	For the three months ended				Change
	March 31,				2020 vs. 2019
	2020		2019		$			%

Insurance and health expense	$	105,000	$	121,000	$	(16,000	)		(13	)%
Operating lease and utility expense		36,000		59,000		(23,000	)		(39	)%
Stock-based compensation-Officers		143,000		—		143,000		-%
Business development expense		143,000		27,000		116,000			430	%
Other G&A		34,000		43,000		(9,000	)		(21	)%
Total	$	461,000	$	250,000	$	211,000			84	%

General and administrative expenses increased during the three months ended March 31, 2020 compared with the same period in 2019, primarily due to the increase in stock-based compensation - officers of $143,000 (see Note 13) and business development expense of $116,000, which offset by the decrease in operating lease expense of $23,000.

Officers’ Payroll and Payroll Tax Expenses

Below is a summary of our Officers’ payroll and payroll tax expenses for the three months ended March 31, 2020 and 2019, respectively (rounded to nearest thousand):

	Three months ended				Change
	March 31,				2020 vs. 2019
	2020		2019		$		%

Officers’ payroll and payroll tax expenses	$	131,000	$	126,000	$	5,000		4	%

Officers’ payroll and payroll tax expenses increased during the three months ended March 31, 2020 compared with the same period in 2019, primarily related to an increase in payroll tax liabilities in this period.

Professional Fees

Below is a summary of our Professional fees for the three months ended March 31, 2020 and 2019, respectively (rounded to nearest thousand):

	Three months ended				Change
	March 31,				2020 vs. 2019
	2020		2019		$		%

Audit, legal and professional fees	$	57,000	$	45,000	$	12,000		27	%

Professional fees increased during the three months ended March 31, 2020 compared with the same period in 2019, primarily related to an increase in legal fees of $20,000, offset by decrease in audit and accounting fees.

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Other Income (Expense)

Below is a summary of our other income (expense) for the three months ended March 31, 2020 and 2019, respectively (rounded to nearest thousand):

	Three months ended						Change
	March 31,						2020 vs. 2019
	2020			2019			$			%

Change in fair value – Series B preferred stock		—			50,000			(50,000	)		(100	)%
Interest expense – debt	$	(58,000	)	$	(44,000	)	$	(14,000	)		32	%
Interest expense – preferred stock liability		(12,000	)		(15,000	)		3,000			(20	)%

Other Income (Expense), net	$	(70,000	)	$	(9,000	)	$	(61,000	)		(678	)%

There was a decrease in change in fair value related to the Series B preferred stock for the three months ended March 31, 2020 compared with the same period in 2019, due to no change in fair value related to the Series B preferred stock for the three months ended March 31, 2020 (see Note 14. Fair Value Measurement to the condensed consolidated financial statements).

There was an increase in interest expense – debt during the three months ended March 31, 2020 compared with the same period in 2019, due to the increase in finance charge of paying insurance. In addition, there was a decrease in the note payable to related party in connection to the cancellation of debt to Mr. Ehrlich of $100,000 in January 2019 to satisfy the exercise price of 909,090 shares of Class B common stock at the option exercise price of $0.11 per share (see Note 11. Convertible Note Payable - Related Party to the condensed consolidated financial statements).

There was a decrease in interest expense – preferred stock liability of approximately $3,000 during the three months ended March 31, 2020 compared with the same period in 2019, due to the decrease in 5% dividend accrued for the Series B preferred stock for the three months ended March 31, 2020.

Net Losses

We incurred net losses of $1.0 million and $1.1 million for the three months ended March 31, 2020 and 2019, respectively because of the above-mentioned factors.

For the nine months ended March 31, 2020 and 2019

Revenue

We generated revenue of $0.4 million and $0 million for the nine months ended March 31, 2020 and 2019, respectively. Revenue during the nine months ended March 31, 2020 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 $3.6 million and $5.1 million for the nine months ended March 31, 2020 and 2019, respectively.

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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 for the nine months ended March 31, 2020 and 2019, respectively (rounded to nearest thousand):

	For the nine months ended					Change
	March 31,					2020 vs. 2019
	2020			2019		$			%

Clinical studies and development research	$	999,000		$	1,542,000	$	(543,000	)		(35	)%
Officers’ payroll and payroll tax expenses related to R&D Department		232,000			466,000		(234,000	)		(50	)%
Employees payroll and payroll tax expenses related to R&D Department		217,000			379,000		(162,000	)		(43	)%
Stock-based compensation – officers		298,000			620,000		(322,000	)		(52	)%
Stock-based compensation – employees		82,000			134,000		(52,000	)		(39	)%
Stock-based compensation – consultants		29,000			44,000		(15,000	)		(34	)%
Reversal of forfeited stock-based compensation		(251,000	)		—		(251,000	)		—	%
Depreciation and amortization expenses		279,000			278,000		1,000			—	%
Total	$	1,885,000		$	3,463,000	$	(1,578,000	)		(46	)%

Research and development expenses for proprietary programs decreased during the nine months ended March 31, 2020 compared with the same period in 2019, primarily due to less spending on our programs due to our current lack of working capital. Clinical studies and development expenses will continue to decrease in future reporting periods if there is no increase in the Company’s financial liquidity.

Officers’ payroll decreased during the nine months ended March 31, 2020 compared with the same period in 2019, due to the fact that the Company’s President and Chief Medical Officer resigned on December 19, 2019, which led to no officers’ payroll under research and development during the nine months ended March 31, 2020.

Employees payroll and payroll tax expenses decreased during the nine months ended March 31, 2020 compared with the same period in 2019, due to fewer employees engaged in preclinical development after March 31, 2019, which led to the decrease in employees’ payroll during the nine months ended March 31, 2020.

Stock-based compensation - officers decreased during the nine months ended March 31, 2020 compared with the same period in 2019, due to the fact that the Company’s President and Chief Medical Officer resigned on December 19, 2019 and the Company reversed the stock-based compensation expenses of approximately $251,000 based on the amount of those unvested options and stock awards we expensed in the current year and all prior periods.

Stock-based compensation - employees decreased during the nine months ended March 31, 2020 compared with the same period in 2019, due to the decrease of vesting in the number of stock awards granted to employees in 2020.

Stock-based compensation - consultants decreased during the nine months ended March 31, 2020 compared with the same period in 2019, due to less stock awards being granted to consultants during the nine months ended March 31, 2020.

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General and Administrative Expenses

Below is a summary of our general and administrative expenses for the nine months ended March 31, 2020 and 2019, respectively (rounded to nearest thousand):

	For the nine months ended				Change
	March 31,				2020 vs. 2019
	2020		2019		$			%

Insurance and health expense	$	357,000	$	376,000	$	(19,000	)		(5	)%
Operating lease and utility expense		104,000		181,000		(77,000	)		(43	)%
Stock-based compensation-Officers		143,000		—		143,000			—	%
Patent write off expense		—		155,000		(155,000	)		(100	)%
Business development expense		325,000		73,000		252,000			345	%
Other G&A		151,000		157,000		(6,000	)		(4	)%
Total	$	1,080,000	$	942,000	$	138,000			15	%

General and administrative expenses increased during the nine months ended March 31, 2020 compared with the same period in 2019, primarily due to the increase in stock-based compensation - officers of $143,000 (see Note 13) and business development expense of $252,000, which offset by the decrease in patent write off expense of $155,000 and operating lease expense of $77,000.

Officers’ Payroll and Payroll Tax Expenses

Below is a summary of our Officers’ payroll and payroll tax expenses for the nine months ended March 31, 2020 and 2019, respectively (rounded to nearest thousand):

	For the nine months ended				Change
	March 31,				2020 vs. 2019
	2020		2019		$		%

Officers’ payroll and payroll tax expenses	$	367,000	$	367,000	$	—	—	%

There was no change in officers’ payroll and payroll tax expenses for the Company during the nine months ended March 31, 2020 compared with the same period in 2019.

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Professional Fees

Below is a summary of our Professional fees for the nine months ended March 31, 2020 and 2019, respectively (rounded to nearest thousand):

	For the nine months ended				Change
	March 31,				2020 vs. 2019
	2020		2019		$			%

Audit, legal and professional fees	$	279,000	$	349,000	$	(70,000	)		(20	)%

Professional fees decreased during the nine months ended March 31, 2020 compared with the same period in 2019, due to less audit and accounting fees and legal fees.

Other Income (Expense)

Below is a summary of our other income (expense) for the nine months ended March 31, 2020 and 2019, respectively (rounded to nearest thousand):

	For the nine months ended						Change
	March 31,						2020 vs. 2019
	2020			2019			$			%

Other Income	$	—		$	40,000		$	(40,000	)		(95	)%
Change in fair value – Series B preferred stock		102,000			50,000			52,000			104	%
Interest expense – debt		(154,000	)		(145,000	)		(9,000	)		6	%
Interest expense – preferred stock liability		(52,000	)		(1,990,000	)		1,938,000			(97	)%
Warrants Modification Expense		(1,212,000	)		—			(1,212,000	)		—	%
Impairment expense of operating lease		(643,000	)		—			(643,000	)		—	%
Other Income (Expense), net	$	(1,959,000	)	$	(2,045,000	)	$	(86,000	)		(4	)%

Other income decreased during the nine months ended March 31, 2020, as compared to the same period in 2019, due to no disposal of lab equipment.

There was an increase in change in fair value related to the Series B preferred stock during the nine months ended March 31, 2020 compared with the same period in 2019, due to more exercise of warrants to purchase Preferred stock (see Note 14. Fair Value Measurement to the condensed consolidated financial statements).

There was an increase in interest expense – debt during the nine months ended March 31, 2020 compared with the same period in 2019, due to the increase in finance charge of paying insurance. In addition, there was a decrease in the note payable to related party in connection to the cancellation of debt to Mr. Ehrlich of $100,000 in January 2019 to satisfy the exercise price of 909,090 shares of Class B common stock at the option exercise price of $0.11 per share (see Note 11. Convertible Note Payable - Related Party to the condensed consolidated financial statements).

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There was a decrease in interest expense – preferred stock liability of approximately $1,938,000 during the nine months ended March 31, 2020 compared with the same period in 2019, due to the decrease in the issuance expenses of Series B preferred stock of approximately $1,975,000 and a decrease in 5% dividend accrued for the Series B preferred stock of approximately $37,000 during the nine months ended March 31, 2020.

There was an increase in impairment expense of operating lease of approximately $643,000 during the nine months ended March 31, 2020 compared with the same period in 2019, due to the increase in write off the operating lease right-of-use asset (see Note 8 – Operating Leases to the condensed consolidated financial statements).

There was an increase in warrants modification expense of approximately $1,212,000 during the nine months ended March 31, 2020 compared with the same period in 2019, due to increase in modification expense in connection with the extension of the termination date for each warrant to December 31, 2021 (see 13. Equity Transactions to the condensed consolidated financial statements).

Net Losses

We incurred net losses of $5.2 million and $7.2 million for the nine months ended March 31, 2020 and 2019, respectively because of the above-mentioned factors.

Liquidity and Capital Resources

Projected Future Working Capital Requirements - Next 12 Months

As of March 31, 2020, we had approximately $0.8 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 $1.5 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 $11.8 million for the next twelve months, including approximately $8.3 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.

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.

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Our ability to successfully raise sufficient funds through the sale of equity securities, and 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 condensed consolidated 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 condensed consolidated 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.

Cash Flows

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

	Nine Months Ended						Change
	March 31,						Increase/
	2020			2019			(Decrease)
							%
Net cash used in operating activities	$	(2,334,000	)	$	(4,992,000	)		(53	)%
Net cash used in investing activities		(57,000	)		(18,000	)		217	%
Net cash provided by financing activities		2,587,000			3,054,000			(15	)%
Net increase (decrease) in cash	$	196,000		$	(1,956,000	)		(110	)%

The decrease in net cash used in operating activities of $2.7 million versus the prior-year nine-month period was mainly due to decreases in our losses from operations of $1.9 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 $2.3 million and $5.0 million for the nine months ended March 31, 2020 and 2019, 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 nine-month period was due to decrease in sales proceeds of property, plant and equipment.

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Financing activities

During the nine months ended March 31, 2020 and 2019, our total net financing activities provided cash of $2.6 million and $3.1 million, respectively.

During the nine months ended March 31, 2020 and 2019, we raised approximately $2.6 million and $3.1 million in net cash proceeds from exercise of warrants and from issuance of Series B preferred stock and exercise of warrants, respectively.

Requirement for Additional Working Capital

The Company, dependent on its future sale of its securities, plans to incur total expenses of approximately $11.8 million for the next 12 months, including approximately $8.3 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.

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.

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 condensed consolidated 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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Commitments and Contingencies

Please see Note 9 to the condensed consolidated financial statements, Commitments and Contingencies, for a discussion of recent contractual commitments and contingent liability - disputed invoices.

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.

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 March 31, 2020, 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 March 31, 2020, 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 March 31, 2020, 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

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

31.1	Chief Executive Officer and Chief Financial Officer Certifications required under Section 302 of the Sarbanes Oxley Act of 2002	Filed herewith

32.1	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 nine months ended March 31, 2020 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

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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: May 14, 2020	By:	/s/ Leo Ehrlich
	Name:	Leo Ehrlich
	Title:	Chief Executive Officer and Chief Financial Officer (Principal Executive, Accounting and Financial Officer)

EX-31.1 2 ipix_ex311.htm CERTIFICATION ipix_ex311.htm

EXHIBIT 31.1

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: May 14, 2020

By:

/s/ Leo Ehrlich

Leo Ehrlich

Chief Executive Officer and Chief Financial Officer

(Principal Executive, Accounting and Financial Officer)

EX-32.1 3 ipix_ex321.htm CERTIFICATION ipix_ex321.htm

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 March 31, 2020 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: May 14, 2020

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)

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debt Interest expense - preferred stock liability Warrants modification expense Impairment expense of operating lease Total other income (expense) Loss before provision for income taxes Provision for income taxes Net loss Basic and diluted loss per share attributable to common stockholders Basic and diluted weighted average number of common shares CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited) Equity Components [Axis] Common Stock A [Member] Common Stock B [Member] Additional Paid-In Capital Accumulated Deficit [Member] Treasury Stock [Member] Balance, shares [Shares, Issued] Balance, amount Shares issued to consultant for services at $0.84 - $1.38, shares Shares issued to consultant for services at $0.84 - $1.38, amount Shares issued to officer as equity awards at $0.398 to $0.705, shares Shares issued to officer as equity awards at $0.398 to $0.705, amount Stock options issued to consultant for services at $0.43 - $0.73, shares Stock options issued to consultant for services at $0.43 - $0.73, amount Stock options issued to officer as equity awards at $0.398 to $0.705, shares Stock options issued to officer as equity awards at $0.398 to $0.705, amount Issuance of 572,264 shares to Officer and employee, shares Issuance of 572,264 shares to Officer and employee, amount Shares issued to employee for services at $0.398 - $1.37, shares Shares issued to employee for services at $0.398 - $1.37, amount Stock options issued to employee for services at $0.398 - $1.37, shares Stock options issued to employee for services at $0.398 - $1.37, amount Net loss [Net Income (Loss), Including Portion Attributable to Noncontrolling Interest] Issuance of 533,334 shares to Officer & 218,946 shares were withheld for tax purposes as Treasury shares, so net issuance was 314,387 shares, shares Issuance of 533,334 shares to Officer & 218,946 shares were withheld for tax purposes as Treasury shares, so net issuance was 314,387 shares, amount Issuance of 38,930 shares to employee, 9,272 shares were withheld for tax purposes as Treasury shares, so net issuance was 29,658 shares, shares Issuance of 38,930 shares to employee, 9,272 shares were withheld for tax purposes as Treasury shares, so net issuance was 29,658 shares, amount Issuance of 12,500 shares to Consultant, shares Issuance of 12,500 shares to Consultant, amount Conversion of 1,310 preferred stocks to 12,808,388 common stock, shares Conversion of 1,310 preferred stocks to 12,808,388 common stock, amount Offering cost for Q2-2019, shares Offering cost for Q2-2019, amount To record underlying Series 1, Series 2 and Series 3 Warrants attached to 2,000 shares Series B Preferred Stock, shares To record underlying Series 1, Series 2 and Series 3 Warrants attached to 2,000 shares Series B Preferred Stock, amount To record beneficial conversion feature of Series B preferred stock & warrants discounts, shares To record beneficial conversion feature of Series B preferred stock & warrants discounts, amount Transfer of the related preferred stock liability to APIC, shares Transfer of the related preferred stock liability to APIC, amount Allocating warrants (proportion of value exercised) to Pref Stock Liability, shares Allocating warrants (proportion of value exercised) to Pref Stock Liability, amount Cancellation of debt for the purchase of 909,090 shares of Common Stock Class B, shares Cancellation of debt for the purchase of 909,090 shares of Common Stock Class B, amount 5% dividend paid by issuance of preferred stock, shares 5% dividend paid by issuance of preferred stock, amount Conversion of 954 preferred stocks to 11,306,457 common stock, shares Conversion of 954 preferred stocks to 11,306,457 common stock, amount Reversal of the stock based compensation related to unvested options and shares, shares Reversal of the stock based compensation related to unvested options and shares, amount Stock options issued to consultant for services at $0.43, shares Stock options issued to consultant for services at $0.43, amount Shares issued to consultant for services at $0.43 - $0.73, shares Shares issued to consultant for services at $0.43 - $0.73, amount Issuance of 1,066,667 shares to Officer & 421,611 shares were withheld for tax purposes as Treasury shares, shares Issuance of 1,066,667 shares to Officer & 421,611 shares were withheld for tax purposes as Treasury shares, amount Issuance of shares for tax purposes as Treasury Shares, shares 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 Issuance of 58,394 shares to employee & 9,619 shares were withheld for tax purposes as Treasury shares, amount Issuance of shares for tax purposes as Treasury Shares, Amount Issuance of shares for tax purposes as Treasury Shares, shares [Issuance of shares for tax purposes as Treasury Shares, shares] Conversion of 890 preferred stocks to 9,030,870 common stock, shares Conversion of 890 preferred stocks to 9,030,870 common stock, amount Excess of exercise price of 1,045 warrants over fair value, shares Excess of exercise price of 1,045 warrants over fair value, amount Conversion of 291 preferred stocks to 6,182,539 common stock, shares Conversion of 291 preferred stocks to 6,182,539 common stock, amount Excess of exercise price of 147 warrants over fair value, shares Excess of exercise price of 147 warrants over fair value, amount Warrants Modification expense, shares Warrants Modification expense, amount Stock Options issued to employee for services at $0.398 to $1.37, amount Shares issued to employee for services at $0.132 to $0.705, shares Shares issued to employee for services at $0.132 to $0.705, amount Stock Options issued to consultants for services at $0.089 to $0.127, shares Stock Options issued to consultants for services at $0.089 to $0.127, amount Stock Options issued to directors for services at $0.1, shares Stock Options issued to directors for services at $0.1, amount Shares issued to directors for services at $0.1, shares Shares issued to directors for services at $0.1, amount To reverse the option expense & stock awards granted for officer Art - 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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2020	Jun. 30, 2019
Current Assets:
Cash	$ 775,000	$ 579,000
Prepaid expenses and other current assets	36,000	46,000
Total Current Assets	811,000	625,000
Other Assets:
Patent costs - net	3,120,000	3,342,000
Property, plant and equipment - net		1,000
Security deposit	78,000	78,000
Total Other Assets	3,198,000	3,421,000
Total Assets	4,009,000	4,046,000
Current Liabilities:
Accounts payable - (including related party payables of approx. $1,498,000 and $1,511,000, respectively)	2,320,000	2,127,000
Accrued expenses - (including related party accruals of approx. $78,000 and $45,000, respectively)	118,000	85,000
Accrued salaries and payroll taxes - (including related party accrued salaries of approx. $3,329,000 and $3,129,000, respectively)	3,434,000	3,162,000
Operating lease - current portion	132,000
Note payable - related party	1,822,000	1,922,000
Total Current Liabilities	7,826,000	7,296,000
Other Liabilities:
Series B 5% convertible preferred stock liability at $1,080 stated value; 350 and 1,196 shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively	200,000	879,000
Operating lease - non-current portion	454,000
Total Liabilities	8,480,000	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 March 31, 2020 and June 30, 2019, respectively, 267,408,840 shares and 202,860,141 shares issued as of March 31, 2020 and June 30, 2019, respectively, 266,749,392 shares and 202,631,923 shares outstanding as of March 31, 2020 and June 30, 2019, respectively	27,000	21,000
Common stock - Class B, (10 votes per share); $.0001 par value, 100,000,000 shares authorized, 1,818,180 shares and 909,090 shares issued and outstanding as of March 31, 2020 and June 30, 2019, respectively
Additional paid-in capital	95,414,000	90,537,000
Accumulated deficit	(99,766,000)	(94,596,000)
Treasury stock, at cost (659,448 shares and 228,218 shares as of March 31, 2020 and June 30, 2019, respectively)	(146,000)	(91,000)
Total Stockholders' Deficiency	(4,471,000)	(4,129,000)
Total Liabilities and Stockholders' Deficiency	$ 4,009,000	$ 4,046,000

XML 11 R41.htm IDEA: XBRL DOCUMENT

Operating Leases (Details 2)	Mar. 31, 2020 USD ($)
Fiscal Year Ending June 30,
2020 (remaining 3 months)	$ 56,000
2021	223,000
2022	223,000
2023	223,000
2024 (remaining 3 months)	60,000
Total lease payments	785,000
Less: Imputed interest/present value discount	(199,000)
Present value of lease liabilities	$ 586,000

XML 12 R45.htm IDEA: XBRL DOCUMENT

Convertible Note Payable Related Party (Details Narrative) - USD ($)		3 Months Ended		9 Months Ended
	May 07, 2012	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Mar. 31, 2019	Mar. 30, 2020	Jun. 30, 2019	Jan. 29, 2019	May 08, 2012
Accrued interest - related parties		$ 70,000		$ 70,000			$ 36,000
Interest expense - debt		(59,000)	$ (44,000)	(155,000)	$ (145,000)
Cash paid for interest				111,000	128,000
Ehrlich Promissory Note C [Member]
Exercise price	$ 0.51
Principal balance of demand notes									$ 2,022,000
Equity incentive shares	2,000,000
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%
Mr. Ehrlich [Member]
Interest expense - debt				144,000	145,000
Cash paid for interest				111,000	$ 128,000
Principal balance of demand notes		1,822,000		1,822,000			1,922,000
Total outstanding balance of principal and interest		$ 1,892,000		$ 1,892,000			$ 1,959,000
Mr. Ehrlich [Member] \| Common Class B [Member]
Exercise price						$ 0.11		$ 0.11
Amount of debt extinguished						$ 100,000		$ 100,000
Common stock shares issued upon extinguishment of debt						909,000		909,090
December 29, 2010 [Member] \| Dr. Krishna [Member]
Exercise price		$ 0.11		$ 0.11
Option issued				18,000,000
Originated In 2010 [Member] \| Ehrlich Promissory Note C [Member]
Interest rate		9.00%		9.00%
Common stock price per share		$ 0.50		$ 0.50

XML 13 R6.htm IDEA: XBRL DOCUMENT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (5,170,000)	$ (7,166,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock and stock options issued as compensation	302,000	798,000
Amortization of patent costs	279,000	277,000
Patent write-off		155,000
Depreciation of equipment	1,000	1,000
Gain on disposal of equipment		(40,000)
Interest expense-preferred stock	51,000	1,990,000
Change in fair value of preferred stock	(102,000)	(50,000)
Warrants modification expense	1,212,000
Impairment expense of operating lease	643,000
Changes in operating assets and liabilities:
Prepaid expenses and security deposits	10,000	43,000
Accounts payable	193,000	(930,000)
Accrued expenses	33,000	(25,000)
Accrued officers' salaries and payroll taxes	272,000	(45,000)
Operating lease liability	(58,000)
Net cash used in operating activities	(2,334,000)	(4,992,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales proceeds of property, plant and equipment		40,000
Patent costs	(57,000)	(58,000)
Net cash used in investing activities	(57,000)	(18,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants	2,642,000	1,253,000
Purchase of treasury stock	(55,000)	(91,000)
Proceeds from issuance of preferred stocks and warrants, net of financing costs		1,892,000
Net cash provided by financing activities	2,587,000	3,054,000
NET INCREASE (DECREASE) IN CASH	196,000	(1,956,000)
CASH, BEGINNING OF PERIOD	579,000	2,424,000
CASH, END OF PERIOD	775,000	468,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	111,000	128,000
Cash paid for tax
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INVESTING AND FINANCING ACTIVITIES
Commitment shares issued as deferred offering costs		(159,000)
Allocating warrants (proportion of value exercised) to preferred stock liability		(65,000)
Initial warrant valuation	1,212,000	817,000
Beneficial conversion features on preferred stock and warrant discounts		1,917,000
Stock dividend paid by issuance of preferred stock		17,000
Conversion of Series B Convertible Preferred stock to Common stock	2,169,000	1,698,000
Excess of exercise price of warrants at $850-$950 over fair value of $535	1,094,000
Cancellation of shareholder debt for the purchase of 909,090 shares of Common stock Class B shares	$ 100,000	$ 100,000

XML 14 R49.htm IDEA: XBRL DOCUMENT

Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 3) - Restricted Stock [Member] - $ / shares	9 Months Ended	12 Months Ended
	Mar. 31, 2020	Jun. 30, 2019
Awards outstanding, Beginning balance	1,729,288	1,208,157
Total shares granted	2,625,061	1,130,061
Total shares vested	(1,137,561)	(597,263)
Total shares forfeited	(1,600,001)	(11,667)
Awards outstanding, Ending balance	1,616,787	1,729,288
Weighted average grant date fair value
Weighted average, opening balance	$ 0.51	$ 0.72
Granted	0.11	0.40
Vested	0.56	0.72
Forfeited/expired	0.22	0.76
Weighted average exercise price, beginning balance	$ 0.11	$ 0.51

XML 15 R28.htm IDEA: XBRL DOCUMENT

Equity Transactions (Tables)

9 Months Ended

Mar. 31, 2020

Equity Transactions (Tables)

Schedule assumptions used in the black scholes option-pricing mode

Average risk-free interest rate	1.64	%
Average expected life-years	2
Expected volatility	99.03	%
Expected dividends	0	%

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 ( modified on December 26, 2019 as above stated)	$	850.00		$	982.50

XML 16 R24.htm IDEA: XBRL DOCUMENT

Accrued Expenses Related Parties and Other (Tables)

9 Months Ended

Mar. 31, 2020

Accrued Expenses Related Parties and Other (Tables)

Schedule of accrued expenses

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

	March 31, 2020		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		70,000		37,000

Total	$	118,000	$	85,000

XML 17 R20.htm IDEA: XBRL DOCUMENT

Fair Value Measurement

9 Months Ended

Mar. 31, 2020

Fair Value Measurement

Note 14. Fair Value Measurement

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) – for the year ended 6.30.2019		42,000
Settlement of accrued dividend by issuance of PS		(17,000	)
Balance, June 30, 2019	$	879,000

Change in fair value of preferred stock due to modification of terms		(102,000	)
Issuance of preferred stock through accrued dividend, valued at fair value		34,000
Issuance of preferred stock by exercise of warrants		1,688,000
Conversion of preferred stock to common stock		(2,287,000	)
5% accrued dividend (1) – for the 9 months ended 3.31.2020		52,000
Settlement of accrued dividend by issuance of PS		(64,000	)
Balance, March 31, 2020	$	200,000

___________

(1)	The 5% accrued dividend is reported in interest expense—preferred stock.

	The total dividends of approximately $52,000 and $42,000 are treated as interest expense – preferred stock during the nine months ended March 31, 2020 and during the year ended June 30, 2019, respectively. The Series B preferred stock dividends of $64,000 was paid by issuance of Series B preferred stocks, and the remaining accrued dividends of $12,000 was included at Preferred stock liability as of March 31, 2020.

XML 18 R31.htm IDEA: XBRL DOCUMENT

Going Concern and Liquidity (Details Narrative) - USD ($)		1 Months Ended	3 Months Ended		9 Months Ended
	Oct. 05, 2018	Nov. 30, 2019	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Mar. 31, 2019	Jun. 30, 2019	Jun. 30, 2018
Cash			$ 775,000	$ 468,000	$ 775,000	$ 468,000	$ 579,000	$ 2,424,000
Accumulated deficit			(99,766,000)		(99,766,000)		(94,596,000)
Total Current Liabilities			7,826,000		7,826,000		7,296,000
Upfront payment received					400,000
Total budgeted expenditures					11,500,000
Net loss			(995,000)	$ (1,137,000)	(5,170,000)	(7,166,000)
Net cash used in operating activities					(2,334,000)	(4,992,000)
Working capital (deficit)			$ (7,000,000)		(7,000,000)		$ (6,700,000)
Proceeds from exercise of warrants					$ 2,642,000	$ 1,253,000
Preferred stock issued, shares			0		0		0
Securities Purchase Agreement [Member] \| Series 1-4 [Member] \| Series 3 warrant [Member]
Proceeds from exercise of warrants	$ 2,900,000				$ 2,642,000
Preferred stock issued, shares			2,945		2,945
Preferred stock, shares outstanding (in shares)			4,775		4,775
Warrants, Exercised			2,945		2,945

XML 19 R35.htm IDEA: XBRL DOCUMENT

Accrued Expenses Related Parties and Other (Details) - USD ($)	Mar. 31, 2020	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	70,000	37,000
Total	$ 118,000	$ 85,000

XML 20 R39.htm IDEA: XBRL DOCUMENT

Operating Leases (Details)	9 Months Ended
Operating Leases (Details)	Mar. 31, 2020 USD ($)
Lease Cost
Operating lease cost (included in general and administrative in the Company's condensed consolidated statement of operations)	$ 92,000
Variable lease cost	6,000
Total operating cost	98,000
Cash paid for amounts included in the measurement of lease liabilities for the nine months ended March 31, 2020	$ 174,000
Weighted average remaining lease term - operating leases (in years)	3 years 5 months 1 day
Average discount rate - operating leases	18.00%

XML 21 R16.htm IDEA: XBRL DOCUMENT

Related Party Transactions	9 Months Ended
Related Party Transactions	Mar. 31, 2020
Related Party Transactions
Note 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 March 31, 2020 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. Dr. Menon, on behalf of himself and KARD, demanded payment of these amounts in October 2019; however, the Company disputes the underlying basis for these amounts and notified Dr. Menon in November 2019 of the Company’s intent not to pay them. Share Issuance On February 23, 2020, the Company issued (i) options for the purchase of 500,000 shares of Class A common stock at an exercise price of $0.10 per share, which is 110% of the previous per share closing price of $0.09 on February 21, 2020, and (ii) 500,000 shares of Class A common stock to each member of the Company’s Board of Directors, consisting of Leo Ehrlich, Barry Schechter and Zorik Spektor. Other related party transactions are disclosed in Note 11 below.

XML 22 R12.htm IDEA: XBRL DOCUMENT

Accrued Salaries and Payroll Taxes - Related Parties and Other

9 Months Ended

Mar. 31, 2020

Accrued Salaries and Payroll Taxes - Related Parties and Other

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

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

	March 31, 2020		June 30, 2019

Accrued salaries - related parties	$	2,764,000	$	2,647,000
Accrued salaries – ex- President and Chief Medical Officer		425,000		352,000
Accrued payroll taxes - related parties		140,000		130,000
Accrued salaries		30,000		—
Withholding tax – payroll & other taxes		75,000		33,000

Total	$	3,434,000	$	3,162,000

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Fair Value Measurement (Details) - USD ($)	9 Months Ended		12 Months Ended
Fair Value Measurement (Details) - USD ($)	Mar. 31, 2020	Mar. 31, 2019	Jun. 30, 2019
Issuance of preferred stock by exercise of warrants		$ 17,000
5% accrued dividend (1) - for the year ended 6.30.2019	52,000
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) - for the year ended 6.30.2019			42,000
Settlement of accrued dividend by issuance of PS			(17,000)
Ending Balance, June 30, 2019			879,000
Beginning Balance	879,000
Change in fair value of preferred stock due to modification of terms	(102,000)
Issuance of preferred stock through accrued dividend, valued at fair value	34,000
Issuance of preferred stock by exercise of warrants	1,688,000
Conversion of preferred stock to common stock	(2,287,000)
5% accrued dividend (1) - for the 9 months ended 3.31.2020	52,000
Settlement of accrued dividend by issuance of PS	(64,000)
Ending Balance, March 31, 2020	$ 200,000

XML 25 R54.htm IDEA: XBRL DOCUMENT

Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details Narrative) - USD ($)		1 Months Ended				3 Months Ended		9 Months Ended		12 Months Ended
	Oct. 05, 2018	Nov. 30, 2019	Jun. 30, 2019	May 09, 2019	Oct. 05, 2018	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Mar. 31, 2019	Jun. 30, 2019	Mar. 30, 2020	Jan. 29, 2019	Jun. 30, 2018	Jun. 30, 2017
Unrecognized compensation cost related to unvested restricted stock-based compensation						$ 118,000		$ 118,000
Compensation cost not yet recognized, period for recognition								5 months 23 days
Expected share based compensation expenses								$ 111,000
Share based compensation						$ (72,000)	$ 282,000	$ 302,000	$ 798,000
Exercised								659,448
Beginning balance, Shares
Proceeds from issuance of warrants									1,892,000
Proceeds from warrant exercises								$ 2,642,000	1,253,000
Stock Option [Member]
Exercised								(909,090)		(909,090)
Warrant [Member]
Exercised
Common Class B [Member]
Common stock shares issued			909,090			1,818,180		1,818,180		909,090
Common stock, per share			$ 0.0001			$ 0.0001		$ 0.0001		$ 0.0001
Common Class A [Member]
Common stock shares issued			202,860,141			267,408,840		267,408,840		202,860,141
Common stock, per share			$ 0.0001			$ 0.0001		$ 0.0001		$ 0.0001
Series B [Member]
Proceeds from warrant exercises	$ 2,700,000
Series B [Member] \| Securities Purchase Agreement [Member]
Purchase of warrants													7,720
Series B [Member] \| Series 1 warrant [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 B [Member] \| Series 2 warrant [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
Proceeds from warrant exercises		$ 2,500,000
Series B [Member] \| Series 4 warrant [Member] \| Securities Purchase Agreement [Member]
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.
Proceeds from warrant exercises		2,500,000
Series B [Member] \| Series 1-4 warrants [Member]
Stock issued, shares								2,780
Purchase shares of Series B preferred stock			7,720					4,775
Exercise warrants issued								2,780
Exercised								2,780
Exercised								2,945
Proceeds from warrant exercises	2,730,000							$ 2,600,000
Series 1-4 [Member] \| Series 3 warrant [Member] \| Securities Purchase Agreement [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
Proceeds from warrant exercises	$ 2,900,000							$ 2,642,000
On June 28, 2018 [Member] \| Warrant [Member]
Purchase of warrants						8,000,000		8,000,000
Beginning balance, Shares	2,000				2,000
On June 28, 2018 [Member] \| Common Class A [Member] \| Securities Purchase Agreement [Member] \| Aspire Capital Fund LLC [Member]
Purchase of warrants						8,000,000		8,000,000
Proceeds from issuance of warrants								$ 1,700,000
Warrants exercisable period								5 years
Exercise price								0.38
Common stock shares issuable under agreement								7,000,000
Proceeds from warrant exercises	$ 2,500,000
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).
Annual limit description								The Board of Directors approved an amendment to Section 4.1 of the Corporation’s 2016 Equity Incentive Plan to increase the annual limit on the number of awards under such Plan to outside directors from 250,000 to 1,500,000.
Dr. Bertolino [Member] \| December 19, 2019 [Member]
Forfeited shares issued								2,858,521
Dr. Bertolino [Member] \| On September 1, 2019 [Member]
Common stock shares issued						645,056		645,056				909,090
Stock option expenses								$ 216,000	123,000
Share based compensation								52,000	188,000
Stock awards									65,000
Stock options to purchase shares, value								$ 225,000
Stock issued, shares								1,066,667
Exercised								617,839
Closing stock price						$ 0.132		$ 0.132
Shares issued, value								$ 53,545
Restricted shares issued								1,066,667
Vested shares								1,066,667
Dr. Bertolino [Member] \| On September 1, 2017 [Member] \| Common Class A [Member] \| 2016 Equity Incentive Plan [Member]
Stock option expenses								$ 34,000	150,000
Share based compensation								99,000	432,000
Stock awards								$ 65,000	282,000
Exercisable period								10 years
Stock options reserved for future issuance								617,839
Stock options to purchase shares, value								$ 399,000
Stock issued, shares								1,066,667
Exercised								617,839
Amortization period of restricted stock								3 years
Stock option exercise price						$ 0.705		$ 0.705
Stock issued, value								$ 752,000
Vested shares								1,066,667
Restricted stock
Mr. Ehrlich [Member] \| Common Class B [Member]
Exercise price											$ 0.11	$ 0.11
Common stock shares issued						909,090		909,090				909,090	0
Amount of debt extinguished											$ 100,000	$ 100,000
Common stock shares issued upon extinguishment of debt											909,000	909,090
Mr. Ehrlich [Member] \| Common Class B [Member] \| Exercise options [Member]
Exercise price											$ 0.11	$ 0.11
Common stock shares issued											909,090	909,090
Amount of debt extinguished											$ 100,000	$ 100,000
Common stock shares issued upon extinguishment of debt											909,090	909,090
Two Consultants [Member] \| On September 1, 2016 [Member]
Stock option expenses								$ 13,000	36,000
Share based compensation								18,000	44,000
Stock awards								5,000	8,000
Consultant [Member] \| On March 30, 2020 [Member] \| Stock Option [Member]
Share based compensation								$ 12,000
Exercisable period								3 years
Common stock, per share						$ 0.086		$ 0.086
Stock options reserved for future issuance								250,000
Stock options to purchase shares, value								$ 12,000
Chairman and CEO [Member] \| On February 23, 2020 [Member] \| Common Class A [Member] \| Two other Board Members [Member]
Share based compensation								$ 40,000
Exercisable period								10 years
Common stock, per share						0.10		$ 0.10
Stock options reserved for future issuance								500,000
Stock options to purchase shares, value								$ 135,000
Stock issued, shares								500,000
Exercised								1,500,000
Ms. Harness [Member] \| On September 1, 2016 [Member]
Stock option expenses								$ 12,000	55,000
Share based compensation								17,000	75,000
Stock awards								$ 5,000	20,000
Exercisable period								10 years
Stock issued, shares								58,394
Exercised								172,987
Options purchase period								10 years
Salary annual								$ 250,000
Restricted stock, shares								58,394
Restricted stock, amount								80,000
Common stock, granted								172,987
Common stock, exercise price								$ 1.37
Shares issued, value								$ 220,000
Amortization period of restricted stock								3 years
Stock option exercise price						1.26		$ 1.26
Ms. Harness [Member] \| On September 1, 2018 [Member]
Stock option expenses								$ 16,000	12,000
Share based compensation								22,000	17,000
Stock awards								$ 6,000	5,000
Stock options reserved for future issuance								172,987
Stock option exercise price						0.40		$ 0.40
Stock issued, value								$ 63,000
Vested shares								58,394
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)
Dr. Arthur Bertolino [Member] \| On September 1, 2019 [Member]
Share based compensation								$ 35,000
Stock options to purchase shares, value								$ 71,000
Exercised								617,839
Closing stock price						$ 0.132		$ 0.132
Restricted shares issued								1,066,667
Ms. Harness [Member] \| On September 1, 2019 [Member]
Common stock shares issued						48,775		48,775				909,090
Stock option expenses								$ 4,000
Share based compensation								5,000
Stock awards								$ 1,000
Stock options reserved for future issuance								172,987
Stock options to purchase shares, value								$ 20,000
Closing stock price						$ 0.132		$ 0.132
Shares issued, value								$ 1,222
Restricted shares issued								58,394
Vested shares								58,394
Ms. Harness [Member] \| On September 1, 2017 [Member] \| Common Class A [Member] \| 2016 Equity Incentive Plan [Member]
Stock option expenses								$ 28,000	28,000
Share based compensation								38,000	38,000
Stock awards								$ 10,000	$ 10,000
Stock options reserved for future issuance								172,987
Stock options to purchase shares, value								$ 41,000
Stock issued, shares								58,394
Exercised								172,987
Stock option exercise price						$ 0.705		$ 0.705
Restricted shares issued								58,394
Stock issued, value								$ 112,000
Vested shares								58,394

XML 26 R50.htm IDEA: XBRL DOCUMENT

Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 4)	9 Months Ended
	Mar. 31, 2020 shares
Scheduled vesting	1,616,787
Year Ending June 30, 2020 [Member]
Scheduled vesting	1,500,000
Year Ending June 30, 2021 [Member]
Scheduled vesting	58,394
Year Ending June 30, 2022 [Member]
Scheduled vesting	38,929
Year Ending June 30, 2023 [Member]
Scheduled vesting	19,464

XML 27 R38.htm IDEA: XBRL DOCUMENT

Exclusive License Agreement (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Mar. 31, 2019	Jul. 18, 2019
Revenues			$ 400,000
License Agreement [Member]
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

XML 28 R30.htm IDEA: XBRL DOCUMENT

Basis of Presentation and Nature of Operations (Details Narrative)	9 Months Ended
	Mar. 31, 2020
Basis of Presentation and Nature of Operations (Details Narrative)
State of incorporation	Nevada
Date of incorporation	Aug. 01, 2005

XML 29 R34.htm IDEA: XBRL DOCUMENT

Patents, net (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
Patents, net (Details Narrative) - USD ($)	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Mar. 31, 2019
Amortization expense	$ 93,000	$ 92,000	$ 279,000	$ 277,000
Patent write off				$ 155,000
Patents [Member]
June 30, 2020	93,000		93,000
June 30, 2021	373,000		373,000
June 30, 2022	373,000		373,000
June 30, 2023	373,000		373,000
June 30, 2024	373,000		373,000
June 30, 2025 and Thereafter	$ 1,535,000		$ 1,535,000
Future amortization period			14 years
Patents [Member] \| Minimum [Member] \| IntangibleAssets [Member]
Estimated remaining useful lives of the assets			12 years
Future amortization period			5 years 5 months 4 days
Patents [Member] \| Maximum [Member] \| IntangibleAssets [Member]
Estimated remaining useful lives of the assets			17 years
Future amortization period			16 years 9 months

XML 30 R17.htm IDEA: XBRL DOCUMENT

Convertible Note Payable - Related Party	9 Months Ended
Convertible Note Payable - Related Party	Mar. 31, 2020
Convertible Note Payable - Related Party
Note 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 December 29, 2010, the Company issued 18,000,000 Equity Incentive Options to Mr. Ehrlich, which are exercisable at $0.11 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). On March 30, 2020, 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 March 31, 2020 and June 30, 2019, the principal balance of this convertible note payable to Mr. Ehrlich, the Company’s Chairman and CEO was approximately $1,822,000 and $1,922,000, respectively. During the nine months ended March 31, 2020 and 2019, the Company accrued interest of $144,000 and $145,000 to Mr. Ehrlich, respectively and paid the interests in cash of $111,000 and $128,000 to Mr. Ehrlich, respectively. As of March 31, 2020 and June 30, 2019, the balance of accrued interest payable were $70,000 and $36,000, respectively (see Note 5. Accrued Expenses – Related Parties and Other to the condensed consolidated financial statements). As of March 31, 2020 and June 30, 2019, the total outstanding balances of principal and interest were approximately $1,892,000 and $1,959,000, respectively.

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Exclusive License Agreement	9 Months Ended
Exclusive License Agreement	Mar. 31, 2020
Exclusive License Agreement
Note 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. At this time AlfaSigma has not commenced a Phase 1 clini cal trial with Brilacidin. 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. The Company generated revenue of $0.4 million and $0.0 million for the nine months ended March 31, 2020 and 2019, respectively. Revenue during the nine months ended March 31, 2020 represented the initial non-refundable payment of $0.4 million received from Alfasigma.

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Equity Transactions (Details)	9 Months Ended
Equity Transactions (Details)	Mar. 31, 2020
Expected volatility	52.77%
Expected dividends	0.00%
Warrant Amendment Agreement [Member]
Average risk-free interest rate	1.64%
Average expected life-years	2 years
Expected volatility	99.03%
Expected dividends	0.00%

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 5) - USD ($)	9 Months Ended	12 Months Ended
	Mar. 31, 2020	Jun. 30, 2019
Exercised	659,448
Series B preferred stock warrants [Member]
Beginning balance, outstanding	7,720
Granted		10,500
Exercised	(2,945)	(2,780)
Expired
Awards outstanding, Ending balance	4,775	7,720
Weighted Average Exercise Price
Weighted average exercise price, beginning balance	$ 985.50
Granted		982.50
Exercised	897.02	982.50
Forfeited/expired
Weighted average exercise price, ending balance	$ 850.00	$ 985.50
Weighted Average Remaining Contractual Life (Years)
Weighted average remaining contractual life, beginning balance	1 year 2 months 16 days
Granted		2 years
Exercised	3 years 1 month 9 days	2 years
Weighted average remaining contractual life, ending balance	1 year 8 months 30 days	1 year 2 months 16 days
Aggregate Intrinsic Value
Aggregate intrinsic value	$ 4,224,839	$ 752,700

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Fair Value Measurement (Details Narrative) - Subsequent Event [Member] - Series B Convertible Preferred Stock [Member] - USD ($)	9 Months Ended	12 Months Ended
	Mar. 31, 2020	Jun. 30, 2019
Dividends recorded as interest expense	$ 52,000	$ 42,000
Amount of series B preferred stock dividends paid	64,000
Accrued dividend	$ 12,000

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 2) - USD ($)	9 Months Ended	12 Months Ended
	Mar. 31, 2020	Jun. 30, 2019
Number of Options
Exercised	659,448
Stock Option [Member]
Number of Options
Beginning balance, outstanding	22,669,883	41,643,571
Granted	2,540,826	1,195,826
Exercised	(909,090)	(909,090)
Forfeited/expired	(2,858,521)	(19,260,424)
Ending balance, outstanding	21,443,098	22,669,883
Exercisable	19,597,124
Unvested stock options	1,845,974
Weighted Average Exercise Price
Weighted average exercise price, beginning balance	$ 0.24	$ 0.22
Granted	0.08	0.31
Exercised	0.11	0.11
Forfeited/expired	0.66	0.21
Weighted average exercise price, ending balance	0.18	$ 0.24
Weighted average exercise price, exercisable	0.18
Weighted average exercise price, unvested stock options	$ 0.14
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	9 years 3 months 25 days	7 years 7 months 21 days
Weighted average remaining contractual life, ending balance	1 year 10 months 6 days	2 years 4 months 28 days
Weighted average remaining contractual life, Exercisable	1 year 1 month 13 days
Weighted average remaining contractual life, Unvested stock options	9 years 8 months 8 days
Aggregate Intrinsic Value
Aggregate intrinsic value beginning	$ 1,340,000	$ 17,523,113
Aggregate intrinsic value ending	380,836	$ 1,340,000
Aggregate intrinsic value Exercisable	335,836
Aggregate intrinsic value unvested stock options

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Mar. 31, 2020	Jun. 30, 2019
Related party payables	$ 1,498,000	$ 1,511,000
Related party expenses	78,000	45,000
Related party accrued salaries	3,329,000	3,129,000
Convertible preferred stock liability, stated value	$ 1,080	$ 1,080
Convertible preferred stock, shares issued	350	1,196
Convertible preferred stock, shares outstanding	350	1,196
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]
Common stock , par value	$ 0.0001	$ 0.0001
Common Stock, shares authorized	600,000,000	300,000,000
Common Stock, shares issued	267,408,840	202,860,141
Common Stock, shares outstanding	266,749,392	202,631,923
Common Class B [Member]
Common stock , par value	$ 0.0001	$ 0.0001
Common Stock, shares authorized	100,000,000	100,000,000
Common Stock, shares issued	1,818,180	909,090
Common Stock, shares outstanding	1,818,180	909,090

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Operating Leases (Details 1) - USD ($)	Mar. 31, 2020	Jul. 01, 2019
Operating leases
Short-term operating lease liabilities	$ 132,000
Long-term operating lease liabilities	454,000
Total operating lease liabilities	$ 586,000	$ 670,000

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Related Party Transactions (Details Narrative) - USD ($)	2 Months Ended
	Feb. 23, 2020	Aug. 31, 2018	Mar. 31, 2020	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2017
Shres issued
Kard Scientific [Member]
Rent expense		$ 1,800
Clinical Studies [Member]
Accrued research and development expenses			$ 1,486,000	$ 1,486,000
Common Class A [Member]
Options to purchase shares	500,000
Exercise price	$ 0.10
Exercise price description	A common stock at an exercise price of $0.10 per share, which is 110% of the previous per share closing price of $0.09 on February 21, 2020,
Common Class A [Member] \| Zorik Spektor [Member]
Shres issued			500,000
Common Class A [Member] \| Barry Schechter [Member]
Shres issued			500,000
Common Class A [Member] \| Leo Ehrlich [Member]
Shres issued			500,000

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Basis of Presentation and Nature of Operations	9 Months Ended
Basis of Presentation and Nature of Operations	Mar. 31, 2020
Basis of Presentation and Nature of Operations
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 and nine-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 and nine months ended March 31, 2020 and 2019 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 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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Accrued Salaries and Payroll Taxes Related Parties And Other (Tables)

9 Months Ended

Mar. 31, 2020

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

Schedule of accrued salaries and payroll taxes

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

	March 31, 2020		June 30, 2019

Accrued salaries - related parties	$	2,764,000	$	2,647,000
Accrued salaries – ex- President and Chief Medical Officer		425,000		352,000
Accrued payroll taxes - related parties		140,000		130,000
Accrued salaries		30,000		—
Withholding tax – payroll & other taxes		75,000		33,000

Total	$	3,434,000	$	3,162,000

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Subsequent Event	9 Months Ended
Subsequent Event	Mar. 31, 2020
Subsequent Event
Note 15. Subsequent Event	*Equity Transactions* From April 1, 2020 to date of the issuance of these financial statements, the Company issued 1,600 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of approximately $1.4 million, upon exercise of 1,600 warrants. In addition, there were 1,950 preferred stock shares converted to approximately 26.0 million shares of common stock. *COVID-19* Recently, due to the global COVID-19 pandemic, the Company has been approached by a number of organizations regarding a desire to conduct research on Brilacidin against the novel coronavirus, following release of information on its potential as a treatment. Material Transfer Agreements have been signed with a couple academic institutions and Brilacidin drug substance (Brilacidin tetrahydrochloride) provided for experimental research on the antiviral properties of Brilacidin. Available research data has been released, with subsequent testing imminent. Grant applications for funding of further development of Brilacidin in treatment of COVID-19 are either filed or in progress of being filed. Partnering opportunities, with industry and academic partners, are also ongoing. Given the safety and efficacy data already known about Brilacidin from multiple routes of administration, a Phase 2 study with Brilacidin (as intravenous solution) is in planning. The Company has evaluated events subsequent to March 31, 2020 through the issuance of these financial statements and determined that there were no additional events requiring disclosure.

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Fair Value Measurement (Tables)

9 Months Ended

Mar. 31, 2020

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) – for the year ended 6.30.2019		42,000
Settlement of accrued dividend by issuance of PS		(17,000	)
Balance, June 30, 2019	$	879,000

Change in fair value of preferred stock due to modification of terms		(102,000	)
Issuance of preferred stock through accrued dividend, valued at fair value		34,000
Issuance of preferred stock by exercise of warrants		1,688,000
Conversion of preferred stock to common stock		(2,287,000	)
5% accrued dividend (1) – for the 9 months ended 3.31.2020		52,000
Settlement of accrued dividend by issuance of PS		(64,000	)
Balance, March 31, 2020	$	200,000

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Equity Transactions

9 Months Ended

Mar. 31, 2020

Equity Transactions

Note 13. Equity Transactions

Class B Common Stock

On March 30, 2020, 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 (See Note 11. Convertible Note Payable to the condensed consolidated financial statements).

As of March 31, 2020 and June 30, 2019, the total outstanding number of Class B common stock were 1,818,180 shares and 909,090 shares, respectively.

Class A Common Stock

Series B 5% convertible preferred stock purchase agreement

Terms of the Preferred Stock

Redemption Rights

Warrants

Conversion of preferred stock to common stock

Warrant Amendment Agreement and Extension of Warrant Terms

Average risk-free interest rate	1.64	%
Average expected life-years	2
Expected volatility	99.03	%
Expected dividends	0	%

Warrant Restructuring and Additional Issuance Agreement

	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 ( modified on December 26, 2019 as above stated)	$	850.00		$	982.50

Treasury Stock

There were 659,448 shares and 228,218 shares held in treasury, purchased at a total cumulative cost of $146,000 and $91,000 as of March 31, 2020 and June 30, 2019, respectively.

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Commitments and Contingencies	9 Months Ended
Commitments and Contingencies	Mar. 31, 2020
Commitments and Contingencies
Note 9. Commitments and Contingencies	Litigation On January 22, 2020, the Company filed a complaint against Cummings Properties, LLC in the Superior Court of the Commonwealth of Massachusetts (C.A. No. 20-77CV00101), seeking, among other things, declaratory relief that the lease for the Company’s prior principal executive offices did not automatically extend for an additional five years from September 2018, return of the Company’s security deposit, and damages. This action is in the preliminary stages and the Company is currently unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any. Contractual Commitments The Company has total non-cancellable contractual minimum commitments of approximately $2.0 million to contract research organizations as of March 31, 2020. Expenses are recognized when services are performed by the contract research organizations. Contingent Liability - Disputed Invoices As described in Note 8, the Company has accrued payroll to Dr. Krishna Menon, ex-President of Research of approximately $1,443,000 for his past services with the Company, and this amount was included in accrued salaries and payroll taxes. As described in Note 10, the Company has a payable to KARD of approximately $1,486,000 for its research and development expenses and this amount was included in accounts payable. KARD is a company owned by Dr. Menon. 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. Dr. Menon, on behalf of himself and KARD, demanded payment of these amounts in October 2019; however, the Company disputes the underlying basis for these amounts and notified Dr. Menon in November 2019 of the Company’s intent not to pay them. All of the above disputed invoices were reflected as current liabilities as of March 31, 2020.

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Accrued Expenses - Related Parties and Other

9 Months Ended

Mar. 31, 2020

Accrued Expenses - Related Parties and Other

Note 5. Accrued Expenses - Related Parties and Other

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

	March 31, 2020		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		70,000		37,000

Total	$	118,000	$	85,000

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Significant Accounting Policies and Recent Accounting Pronouncements (Details Narrative) - USD ($)		3 Months Ended	9 Months Ended
	Jul. 02, 2019	Sep. 30, 2019	Mar. 31, 2020	Mar. 31, 2019	Jul. 01, 2019	Jun. 30, 2019
Treasury Stock Shares			659,448			228,218
Treasury Stock, at cost (659,448 shares and 228,218 shares as of December 31, 2019 and June 30, 2019, respectively			$ (146,000)			$ (91,000)
Computation of diluted shares			38,000,000	66,000,000
Operating lease right-of-use assets					$ 670,000
Operating lease liabilities			$ 586,000		$ 670,000
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
Series B Preferred Stock [Member]
Conversion Price			$ 0.07	$ 0.04

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Accrued Salaries and Payroll Taxes Related Parties and Other (Details) - USD ($)	Mar. 31, 2020	Jun. 30, 2019
Accrued Salaries and Payroll Taxes Related Parties and Other (Details)
Accrued salaries - related parties	$ 2,764,000	$ 2,647,000
Accrued Salaries- ex- President and Chief Medical Officer	425,000	352,000
Accrued payroll taxes - related parties	140,000	130,000
Accrued Salaries	30,000
Withholding tax - payroll & other taxes	75,000	33,000
Total	$ 3,434,000	$ 3,162,000

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Equity Transaction (Details Narrative) - USD ($)

1 Months Ended

3 Months Ended

9 Months Ended

12 Months Ended

Apr. 01, 2020

May 09, 2019

Nov. 12, 2018

Oct. 12, 2018

Oct. 05, 2018

Sep. 06, 2017

Dec. 26, 2019

Nov. 30, 2019

May 10, 2019

May 09, 2019

Oct. 09, 2018

Oct. 05, 2018

Jun. 28, 2018

Mar. 30, 2015

Mar. 31, 2020

Mar. 31, 2019

Mar. 31, 2020

Mar. 31, 2019

Jun. 30, 2019

Mar. 30, 2020

Jan. 29, 2019

Jun. 30, 2018

Jun. 30, 2017

$ 52,000

Common stock held in treasury

228,218

Conversion of Series B Convertible Preferred stock to Common stock, reversed

659,448

$ 3,068,000

Cumulative cost

$ 146,000

$ 91,000

Convertible preferred stock, shares outstanding

350

1,196

$ 535.12

$ 2,642,000

1,253,000

Beneficial conversion feature

$ (72,000)

$ 282,000

302,000

798,000

1,917,000

Preferred stock, shares outstanding (in shares)

Two Preferred Stockholders [Member]

Conversion of Series B Convertible Preferred stock to Common stock, reversed

$ 4,065

$ 3,891

Common stock shares issued upon conversion of preferred stock

39,200,000

On September 1, 2019 [Member] | Dr. Bertolino [Member]

617,839

Stock options to purchase shares, value

$ 52,000

188,000

$ 225,000

1,066,667

$ 53,545

1,066,667

$ 0.132

645,056

909,090

421,611

On September 1, 2019 [Member] | Ms. Harness [Member]

$ 0.132

Stock options reserved for future issuance

$ 5,000

172,987

Stock options to purchase shares, value

$ 20,000

58,394

$ 1,222

58,394

$ 0.132

48,775

909,090

On September 1, 2018 [Member] | Dr. Bertolino [Member]

9,619

533,334

$ 87,140

533,334

$ 0.40

314,387

909,090

On September 1, 2018 [Member] | Ms. Harness [Member]

218,946

38,930

$ 3,690

38,930

$ 0.40

29,658

909,090

On September 1, 2018 [Member] | Ms. Jane Harness [Member]

9,272

1,250,000

$ 982.50

$ 2,500,000

On September 1, 2018 [Member]

2,500

Proceeds from issuance of shares

$ 25,000

1,116,000

On September 1, 2018 [Member] | Ms. Anne Ponugoti [Member]

On September 1, 2018 [Member] | Ms. Jane Harness [Member]

$ 540,000

Stock options reserved for future issuance

$ 22,000

17,000

172,987

Rights and preferences of the preferred stock description

58,394

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)

Warrant [Member]

Warrant [Member] | On October 5, 2018 [Member]

Stock issuance cost

$ 32,000

Proceeds from issuance of shares

2,000

$ 2,000,000

Sale of preferred stock

1,250

Warrants to purchase additional shares

^[1]

8,000

Rights and preferences of the preferred stock description

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.

Warrant [Member] | On June 28, 2018 [Member]

8,000,000

2,000

8,000,000

Common Class A [Member]

Common stock, share outstanding

267,408,840

202,860,141

266,749,392

202,631,923

Common Class A [Member] | On February 23, 2020 [Member] | Subsequent Event [Member]

187,575,318

163,103,927

Stock-based compensation remaining balance

$ 95,000

Series B [Member]

$ 2,700,000

Series B [Member] | Series 1-2 warrants [Member]

1,500,000

$ 982.50

$ 2,900,000

3,000

Common Class B [Member]

Common stock, share outstanding

1,818,180

909,090

1,818,180

909,090

Common Class B [Member] | Mr. Ehrlich [Member]

Common stock shares issued upon extinguishment of debt

$ 0.11

909,090

Amount of debt extinguished

$ 100,000

Common stock, share outstanding

1,818,180

909,090

Series B Convertible Preferred Stock [Member] | Subsequent Event [Member]

Conversion of Series B Convertible Preferred stock to Common stock, reversed

$ 17,000

294,000

$ 1,400,000

$ 245,625

$ 300,000

$ 2,730,000

$ 500,000

1,000,000

Number of warrants exercised

$ 21,000

2,780

1,045

Purchase shares of Series B preferred stock

1,045

6,675

Stock issued during period, value

750

2,780

1,250

$ 400,000

$ 700,000

Beneficial conversion feature

700,000

1,200,000

Stock issuance cost

$ 41,000

Preferred stock, shares outstanding (in shares)

1,027

Change in fair value of preferred stock liabilities

$ 102,000

50,000

Loss due to change in fair value of preferred stock

$ 63,000

Two other Board Members [Member] | Common Class A [Member] | On February 23, 2020 [Member] | Chairman and CEO [Member]

1,500,000

Stock options reserved for future issuance

$ 40,000

500,000

Stock options to purchase shares, value

$ 135,000

Securities Purchase Agreement [Member] | Aspire Capital Fund LLC [Member] | Stock And Warrant [Member]

Beneficial conversion feature

8,000,000

$ 700,000

Securities Purchase Agreement [Member] | Series B [Member]

Securities Purchase Agreement [Member] | Series B [Member] | Series 4 warrant [Member]

7,720

Issuance of additional eries B preferred stock

100

Warrants amedment description

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

2,500

Warrant exercised

$ 2,000,000

$ 982.50

Rights and preferences of the preferred stock description

$ 2,500,000

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.

Securities Purchase Agreement [Member] | Series B [Member] | Series 2 warrant [Member]

Issuance of additional eries B preferred stock

100

2,500,000

Warrants amedment description

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

2,500

1,250,000

$ 982.50

Rights and preferences of the preferred stock description

$ 2,500,000

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.

Securities Purchase Agreement [Member] | Series 1-4 [Member] | Series 3 warrant [Member]

1,500,000

$ 982.50

Rights and preferences of the preferred stock description

$ 2,900,000

$ 2,642,000

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

Preferred stock, shares outstanding (in shares)

1,196

Warrant Amendment Agreement [Member]

3,000

Warrant Amendment Agreement [Member] | Minimum [Member]

$ 0.05

Modification expense

$ 1,212,000

Warrant Amendment Agreement [Member] | Maximum [Member]

$ 850.00

Securities Purchase Agreement [Member] | Common Class A [Member] | On June 28, 2018 [Member] | Aspire Capital Fund LLC [Member]

982.50

1,250,000

$ 982.50

$ 2,500,000

8,000,000

30 Million Common Stock Purchase Agreement [Member] | Common Class A [Member] | Aspire Capital Fund LLC [Member]

2,500