10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

(Mark One)

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

For the quarterly period ended: December 31, 2021

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

For the transition period from ____________to _____________

Commission File Number: 001-37357

INNOVATION PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

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

301 Edgewater Place - Suite 100

Wakefield, MA 01880

(Address of principal executive offices, Zip Code)

(978) 921-4125

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

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

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☒

The number of shares outstanding of each of the issuer’s classes of common equity, as of February 9, 2022 is as follows:

Class of Securities	Shares Outstanding
Common Stock Class A, $0.0001 par value	456,580,514
Common Stock Class B, $0.0001 par value	15,641,463

INNOVATION PHARMACEUTICALS INC.

FORM 10-Q

For the Quarter Ended December 31, 2021

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of December 31, 2021 and June 30, 2021 (unaudited)	4
	Condensed Consolidated Statements of Operations for the three months and six months ended December 31, 2021 and 2020 (unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three months and six months ended December 31, 2021 and 2020 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2021 and 2020 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41
SIGNATURES		42

2

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Any statements contained in this report that are not statements of historical fact may be forward-looking statements. When we use the words “intends,” “estimates,” “predicts,” “potential,” “continues,” “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will” or the negative of these terms or other comparable terminology, we are identifying forward-looking statements. These forward-looking statements include, but are not limited to, any statements regarding our future financial performance, results of operations or sufficiency of capital resources to fund our operating requirements; statements relating to potential licensing, partnering or similar arrangements concerning our drug compounds; statements concerning our future drug development plans and projected timelines for the initiation and completion of preclinical and clinical trials; the potential for the results of ongoing preclinical or clinical trials; other statements regarding our future product development and regulatory strategies, including with respect to specific indications such as, among others, COVID-19; and any other statements which are other than statements of historical fact. Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. These factors include, but are not limited to, our ability to continue as a going concern and our capital needs; our ability to fund and successfully progress internal research and development efforts; our ability to create effective, commercially-viable drugs; our ability to effectively and timely conduct clinical trials; our ability to ultimately distribute our drug candidates; our ability to achieve certain future regulatory, development and commercialization milestones under our license agreement with Alfasigma S.p.A.; the development of treatments or vaccines relating to the COVID-19 pandemic by other entities; and compliance with regulatory requirements, as well as other factors described elsewhere in this report and our other reports filed with the Securities and Exchange Commission (the “SEC”). Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

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

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

3

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INNOVATION PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2021 AND JUNE 30, 2021

(Unaudited)

(Rounded to nearest thousand except for shares data) 

	December 31,			June 30,
	2021			2021
ASSETS
Current Assets:
Cash	$	9,922,000		$	10,194,000
Prepaid expenses and other current assets		42,000			495,000
Total Current Assets		9,964,000			10,689,000
Other Assets:
Patent costs - net		2,607,000			2,754,000
Deferred offering costs		419,000			778,000
Security deposit		78,000			78,000
Total Other Assets		3,104,000			3,610,000
Total Assets	$	13,068,000		$	14,299,000
Current Liabilities:
Accounts payable - (including related party payables of approx. $1,511,000 and $1,511,000, respectively)	$	2,298,000		$	2,563,000
Accrued expenses - (including related party accruals of approx. $29,000 and $8,000, respectively)		122,000			348,000
Accrued salaries and payroll taxes - (including related party accrued salaries of approx. $1,538,000 and $1,915,000, respectively)		1,612,000			1,992,000
Operating lease - current liability		180,000			165,000
Convertible note payable - related party		250,000			1,283,000
Accrued dividend - Series B 5% convertible preferred stock		29,000			15,000
Loan payable		-			172,000
Total Current Liabilities		4,491,000			6,538,000
Other Liabilities:
Series B 5% convertible preferred stock liability at $1,080 stated value; 1,500 and 0 shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively		1,474,000			-
Operating lease - long term liability		158,000			252,000
Total Liabilities		6,123,000			6,790,000
Commitments and contingencies (Note 9)
Stockholders’ Equity
Preferred stock, $0.001 par value, 10,000,000 designated shares, no shares issued and outstanding		-			-
Common Stock - Class A, $.0001 par value, 600,000,000 shares authorized, 453,633,489 shares and 426,673,198 shares issued as of December 31, 2021 and June 30, 2021, respectively, 445,117,433 shares and 418,157,142 shares outstanding as of December 31, 2021 and June 30, 2021, respectively.		45,000			42,000
Common Stock - Class B, (10 votes per share); $.0001 par value, 100,000,000 shares authorized, 18,000,000 share issued as of December 31, 2021 and June 30, 2021, and 15,641,463 shares outstanding as of December 31, 2021 and June 30, 2021		2,000			2,000
Additional paid-in capital		128,197,000			124,835,000
Accumulated deficit		(119,045,000	)		(115,116,000	)
Treasury Stock, at cost (10,874,593 shares as of December 31, 2021 and June 30, 2021)		(2,254,000	)		(2,254,000	)
Total Stockholders’ Equity		6,945,000			7,509,000
Total Liabilities and Stockholders’ Equity	$	13,068,000		$	14,299,000
The accompanying notes are an integral part of these condensed consolidated financial statements

4

INNOVATION PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020

(Unaudited)

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

	For the three Months Ended						For the Six Months Ended
	December 31,						December 31,
	2021			2020			2021			2020
Revenues	$	-		$	-		$	-		$	-
Operating expenses:
Research and development expenses		1,593,000			2,971,000			3,184,000			3,495,000
General and administrative expenses		266,000			231,000			451,000			495,000
Officers’ payroll and payroll tax expenses		63,000			125,000			182,000			252,000
Professional fees		92,000			112,000			220,000			326,000
Total operating expenses		2,014,000			3,439,000			4,037,000			4,568,000
Net loss from operations		(2,014,000	)		(3,439,000	)		(4,037,000	)		(4,568,000	)
Other income (expense)
Other income		172,000			-			172,000			-
Interest expense – debt		(17,000	)		(38,000	)		(50,000	)		(82,000	)
Interest expense – preferred stock liability		(14,000	)		(2,697,000	)		(14,000	)		(2,697,000	)
Other expense, net		141,000			(2,735,000	)		108,000			(2,779,000	)
Loss before provision for income taxes		(1,873,000	)		(6,174,000	)		(3,929,000	)		(7,347,000	)
Provision for income taxes		-			-			-			-
Net loss	$	(1,873,000	)	$	(6,174,000	)	$	(3,929,000	)	$	(7,347,000	)
Basic and diluted loss per share attributable to common stockholders	$	(0.00	)	$	(0.02	)	$	(0.01	)	$	(0.02	)
Basic and diluted weighted average number of common shares		457,008,040			359,967,023			451,890,474			349,853,676
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

INNOVATION PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED DECEMBER 31, 2021 AND 2020

(Unaudited)

(Rounded to nearest thousand, except for shares data)

For the Three and Six Months Ended December 31, 2020

	Common Stock A						Common Stock B
				Par Value						Par Value		Additional Paid-in			Accumulated			Treasury Stock
	Shares			$0.0001			Shares			$0.0001		Capital			Deficit			Shares		Amount			Total
Balance at June 30, 2020		329,170,544		$	33,000			1,818,180		$	-	$	102,819,000		$	(101,244,000	)		659,448	$	(146,000	)	$	1,462,000
Shares sold to Aspire Capital under 2020 Agreement at $0.20 - $0.22 range		13,500,000			1,000			-			-		2,850,000			-			-		-			2,851,000
Shares issued as commitment fee of $1,438,000 on 7/31/2020 at $0.23, net of amortization of offering costs of $120,000		6,250,000			1,000			-			-		1,317,000			-			-		-			1,318,000
Shares issued to employee for services at $0.132 to $0.398		-			-			-			-		5,000			-			-		-			5,000
Stock options issued to employee for services at $0.132 to $0.398		-			-			-			-		14,000			-			-		-			14,000
Stock options issued to consultant for services at $0.14 to $0.32		-			-			-			-		43,000			-			-		-			43,000
Purchase of 2,200,000 shares of Common Stock Class B to Officer & 412,238 shares were withheld for tax purposes as Treasury shares		-			-			2,200,000			-		242,000			-			-		-			242,000
Issuance of shares for tax purposes as Treasury Shares		-			-			(412,238	)		-		-			-			412,238		(90,000	)		(90,000	)
Issuance of 58,394 shares to employee & 21,606 shares were withheld for tax purposes as Treasury shares		58,394			-			-			-		-			-			-		-			-
Issuance one of shares for tax purposes as Treasury Shares		(21,606	)		-			-			-		-			-			21,606		(3,000	)		(3,000	)
Net loss for the three months ended 9/30/2020		-			-			-			-		-			(1,173,000	)		-		-			(1,173,000	)
Balance at September 30, 2020		348,957,332		$	35,000			3,605,942		$	-	$	107,290,000		$	(102,417,000	)		1,093,292	$	(239,000	)	$	4,669,000
Shares sold to Aspire under 2020 Agreement at $0.20 - $0.22 range		9,000,000			1,000			-			1,000		1,570,000			-			-		-			1,572,000
Shares issued to employee for services at $0.132 to $0.398		-			-			-			-		4,000			-			-		-			4,000
Stock options issued to employee for services at $0.132 to $0.398		-			-			-			-		10,000			-			-		-			10,000
Stock options issued to consultant for services at $0.14 to $0.43		-			-			-			-		17,000			-			-		-			17,000
Cancellation of debt for the purchase of 909,090 shares of Common Stock Class B & 181,096 shares were withheld for tax purposes as Treasury shares		-			-			909,090			-		100,000			-			-		-			100,000
Issuance of shares for tax purposes as Treasury Shares		-			-			(181,096	)		-		-			-			181,096		(37,000	)		(37,000	)
To record Series B Discount - Warrants		-			-			-			-		870,000			-			-		-			870,000
To record issuance costs Series 1 & 2 Warrants		-			-			-			-		(10,000	)		-			-		-			(10,000	)
To record beneficial conversion feature associated with the issuance of the 3,053 shares of Series B-2 preferred stock		-			-			-			-		1,793,000			-			-		-			1,793,000
Conversion of 1,183 preferred stocks into 9,346,303 common stocks		9,346,303			1,000			-			-		1,161,000			-			-		-			1,162,000
Cancellation of 6,980,583Class A shares to satisfy the purchase of 13,072,730 shares of Common Stock Class B		(6,980,583	)		(1,000	)		13,072,730			1,000		1,438,000			-			6,980,583		(1,438,000	)		-
Shares were withheld for tax purposes as Treasury Shares		(854,419	)		-			(1,765,203	)		-		-			-			2,619,622		(540,000	)		(540,000	)
Net loss for the three months ended 12/31/2020 - unaudited		-			-			-			-		-			(6,174,000	)		-		-			(6,174,000	)
Balance at December 31, 2020		359,468,633		$	36,000			15,641,463		$	2,000		114,243,000		$	(108,591,000	)		10,874,593	$	(2,254,000	)	$	3,436,000

6

For the Three and Six Months Ended December 31, 2021

	Common Stock A				Common Stock B
			Par Value				Par Value		Additional Paid-in			Accumulated			Treasury Stock
	Shares		$0.0001		Shares		$0.0001		Capital			Deficit			Shares		Amount			Total
Balance at June 30, 2021		418,157,142	$	42,000		15,641,463	$	2,000	$	124,835,000		$	(115,116,000	)		10,874,593	$	(2,254,000	)	$	7,509,000
Offering cost										(179,000	)										(179,000	)
Restricted stock awards of common stock issued to employee for services at $0.132 to $0.398		-		-		-		-		3,000			-			-		-			3,000
Stock options issued to employee for services at $0.132 to $0.398		-		-		-		-		8,000			-			-		-			8,000
Stock options issued to consultants for services at $0.14 to $0.384		-		-		-		-		29,000			-			-		-			29,000
Conversion of 3,036 shares of preferred stock into 18,939,080 shares of common stock		18,939,080		2,000		-		-		2,981,000			-								2,983,000
Net loss for the three months ended 9/30/2021 - unaudited		-		-		-		-		-			(2,056,000	)		-		-			(2,056,000	)
Balance at September 30, 2021		437,096,222	$	44,000		15,641,463	$	2,000	$	127,677,000		$	(117,172,000	)		10,874,593	$	(2,254,000	)	$	8,297,000
Offering cost										(180,000	)										(180,000	)
Restricted stock awards of common stock issued to employee for services at $0.132 to $0.398		-		-		-		-		2,000			-			-		-			2,000
Stock options issued to employee for services at $0.132 to $0.398		-		-		-		-		27,000			-			-		-			27,000
Stock options issued to consultants for services at $0.14 to $0.384		-		-		-		-		12,000			-			-		-			12,000
Stock options issued to director for services at $0.24		-		-		-		-		111,000			-			-		-			111,000
Conversion of 536 shares of preferred stock into 7,854,545 shares of common stock		7,854,545		1,000		-		-		525,000			-			-		-			526,000
Shares of common stock issued for exercise of options		166,666		-		-		-		23,000			-			-		-			23,000
Net loss for the three months ended 12/31/2021 - unaudited		-		-		-		-		-			(1,873,000	)		-		-			(1,873,000	)
Balance at December 31, 2021		445,117,433	$	45,000		15,641,463	$	2,000	$	128,197,000		$	(119,045,000	)		10,874,593	$	(2,254,000	)	$	6,945,000

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

7

INNOVATION PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020

(Unaudited)

(Rounded to nearest thousand, except for shares data)

	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,929,000	)	$	(7,347,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		192,000			93,000
Amortization of patent costs		191,000			188,000
Gain on forgiveness of loans payable		(172,000	)		-
Interest expense-preferred stock		-			2,672,000
Changes in operating assets and liabilities:
Prepaid expenses and security deposits		453,000			8,000
Accounts payable		(265,000	)		(61,000	)
Accrued expenses		(226,000	)		435,000
Accrued officers’ salaries and payroll taxes		(380,000	)		(604,000	)
Operating lease liability		(79,000	)		(66,000	)
Note payable to officer		-			(23,000	)
Accrued dividend		14,000			-
Net cash used in operating activities		(4,201,000	)		(4,705,000	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent costs		(44,000	)		(43,000	)
Net cash used in investing activities		(44,000	)		(43,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock, net of offering costs		-			4,603,000
Proceeds from issuance of preferred stocks and warrants, net of financing costs		-			2,990,000
Proceeds from exercise of preferred stock warrants		4,983,000			-
Proceeds from exercise of options		23,000			-
Purchase of treasury stock		-			(670,000	)
Repayment of note payable to officer		(1,033,000	)		-
Net cash provided by financing activities		3,973,000			6,923,000
NET INCREASE (DECREASE) IN CASH		(272,000	)		2,175,000
CASH, BEGINNING OF PERIOD		10,194,000			6,018,000
CASH, END OF PERIOD	$	9,922,000		$	8,193,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	29,000		$	29,000
Cash paid for tax	$	-		$	-
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INVESTING AND FINANCING ACTIVITIES
Shares issued as deferred offering costs	$	-		$	1,438,000
Cancellation of shareholder debt for the purchase of 3.1M shares of Common Stock Class B shares	$	-		$	342,000
Conversion of Series B Convertible Preferred stock to Common stock	$	3,509,000		$	-
The accompanying notes are an integral part of these condensed consolidated financial statements.

8

INNOVATION PHARMACEUTICALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

(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, 2021, included in our Annual Report on Form 10-K for the year ended June 30, 2021.

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 six-month periods have been made. Results for the interim periods 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,” “Innovation,” “we,” “us” or “our” mean Innovation Pharmaceuticals Inc.

Basis of Presentation

Innovation Pharmaceuticals Inc. 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 is intended to 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 condensed consolidated financial statements include the accounts of Innovation Pharmaceuticals Inc., 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. There was no translation gain and loss for the three and six months ended December 31, 2021 and 2020.

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. 

In December 2020, the U.S. Food and Drug Administrations (FDA) approved the Company’s Investigational New Drug (IND) application to proceed with initiation of a randomized, placebo-controlled Phase 2 clinical trial of Brilacidin in moderate-to-severe hospitalized patients with COVID-19. Similar regulatory approval was obtained from the Russian Ministry of Health. A Phase 2 clinical trial of intravenously-administered Brilacidin for COVID-19 conducted at sites in the United States and Russa has since completed. The Company reported topline results that Brilacidin did not show a difference compared to placebo in reducing Time to Sustained Recovery Through Day 29, the study’s primary endpoint.

9

We currently own all development and marketing rights to our products, other than the license rights granted to Alfasigma S.p.A. in July 2019 for the development, manufacturing and commercialization of locally-administered Brilacidin for ulcerative proctitis/ulcerative proctosigmoiditis (“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. Liquidity

As of December 31, 2021, the Company’s cash amounted to $9.9 million and current liabilities amounted to $4.5 million. The Company has expended substantial funds on its clinical trials and expects to continue our spending on research and development expenditures. Our net losses incurred for the six months ended December 31, 2021 and 2020, amounted to $3.9 million and $7.3 million, respectively, and we had working capital of approximately $5.5 million and $4.2 million at December 31, 2021 and June 30, 2021, respectively.

On July 31, 2020, the Company entered into a new common stock purchase agreement (the “2020 Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the 24-month term of the 2020 Agreement. In consideration for entering into the 2020 Agreement, the Company issued to Aspire Capital 6,250,000 shares of its Class A Common Stock as a commitment fee. The commitment fee of approximately $1.4 million was recorded as deferred financing costs and additional paid-in capital and this asset will be amortized over the life of the 2020 Agreement. As of December 31, 2021, the available balance was $25.4 million.

We anticipate that future budget expenditures will be approximately $8.3 million for the next 12 months, including approximately $6.3 million for clinical activities, supportive research, and drug product. Alternatively, if we decide to pursue a more aggressive plan with our clinical trials, we will require additional sources of capital during the fiscal year 2022 to meet our working capital requirements for our planned clinical trials. Potential sources for capital include grant funding for COVID-19 research and equity financings. There can be no assurances that we will be successful in receiving any grant funding for our programs.

Management believes that the amounts available from Aspire Capital and under the Company’s effective shelf registration statement will be sufficient to fund the Company’s operations for the next 12 months.

If we are unable to generate enough working capital from our current or future financing agreements with Aspire Capital (which expires in the first quarter of fiscal 2023) when needed or secure additional sources of funding, it may be necessary to significantly reduce our current rate of spending through reductions in staff and delaying, scaling back or stopping certain research and development programs, including more costly Phase 2 and Phase 3 clinical trials on our wholly-owned development programs as these programs progress into later stage development. Insufficient liquidity may also require us to relinquish greater rights to product candidates at an earlier stage of development or on less favorable terms to us and our stockholders than we would otherwise choose in order to obtain up-front license fees needed to fund operations. These events could prevent us from successfully executing our operating plan.

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.

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Basic Loss per Share

Basic and diluted loss per share are computed based on the weighted-average common shares and common share equivalents outstanding during the period. Except with respect to certain voting, conversion and transfer rights and as otherwise expressly provided in the Company’s Articles of Incorporation or required by applicable law, shares of the Company’s Class A common stock and Class B common stock have the same rights and privileges and rank equally, share ratably and are identical in all respects as to all matters. Accordingly, basic and diluted net income (loss) per share are the same for both classes. Common share equivalents consist of stock options, restricted stock, warrants and convertible related party notes payable. Common share equivalents were excluded from the computation of diluted earnings per share for the six months ended December 31, 2021 and 2020, because their effect was anti-dilutive.

Weighted average shares of common stock outstanding used in the calculation of basic and diluted earnings per share were as follows:

	December 31,
	2021			2020
Net loss per share, basic and diluted		(0.01	)		(0.02	)
Weighted average shares outstanding:
Class A common stock		436,249,011			346,387,415
Class B common stock		15,641,463			3,466,261
Total weighted average shares outstanding		451,890,474			349,853,676
Antidilutive securities not included:
Stock options		9,878,269			6,894,265
Stock options arising from convertible note payable and accrued interest		542,212			3,039,988
Restricted stock grants		58,392			116,787
Convertible preferred stock		9,000,000			13,645,945
Total		19,478,873			23,696,984

Treasury Stock

The Company accounts for treasury stock using the cost method. There were 8,516,056 shares of Class A common stock and 2,358,537 shares of Class B common stock held in treasury, purchased at a total cumulative cost of approximately $2.3 million as of December 31, 2021 and June 30, 2021 (see Note 14. Equity Transactions).

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

The Company follows the guidance of accounting standard ASC 606 (Topic 606), Revenue from Contracts with Customers, and all the related amendments.

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 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).

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.

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

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

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

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

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

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

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

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

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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, non-employees and directors in connection with its stock option plan is based on 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.”

Awards with service-based vesting conditions only – Expense recognized on a straight-line basis over the requisite service period of the award.

Awards with performance-based vesting conditions – Expense is not recognized until it is determined that it is probable the performance-based conditions will be met. When achievement of a performance-based condition is probable, a catch-up of expense will be recorded as if the award had been vesting on a straight-line basis from the award date. The award will continue to be expensed on a straight-line basis over the requisite service period basis until a higher performance-based condition is met, if applicable.

Awards with market-based vesting conditions – Expense recognized on a straight-line basis over the requisite service period, which is the lesser of the derived service period or the explicit service period if one is present. However, if the market condition is satisfied prior to the end of the requisite service period, the Company will accelerate all remaining expense to be recognized.

Awards with both performance-based and market-based vesting conditions – if an award vesting or exercisability is conditional upon the achievement of either a market condition or performance or service conditions, the requisite service period is generally the shortest of the explicit, implicit, and derived service period.

We have elected to use the Black-Scholes-Merton pricing model to determine the fair value of stock options on the dates of grant. Restricted stock units are measured based on the fair market values of the underlying stock on the dates of grant. We recognize stock-based compensation using the straight-line method.

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4. Patents, net

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

	Useful life (years)		December 31, 2021			June 30, 2021
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		1,324,000			1,280,000
				5,550,000			5,506,000
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds				(2,525,000	)		(2,373,000	)
Accumulated amortization for Patents-Kevetrin and related compounds				(418,000	)		(379,000	)
Total			$	2,607,000		$	2,754,000

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 December 31, 2021 and 2020 was approximately $96,000 and $94,000, respectively and was approximately $191,000, and $188,000 for the six months ended December 31, 2021 and 2020, respectively.

At December 31, 2021, the future amortization period for all patents was approximately 3.68 years to 16.75 years. Future estimated amortization expenses are approximately $191,000  for the year ending June 30, 2022, $381,000 for each year from 2023 to 2025, $372,000 for the year ending June 30, 2026 and a total of $901,000 for the year ending June 30, 2027 and thereafter. 

5. Accrued Expenses – Related Parties and Other

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

	December 31, 2021		June 30, 2021
Accrued research and development consulting fees	$	93,000	$	340,000
Accrued rent (Note 10) - related parties		8,000		8,000
Accrued interest (Note 11) - related parties		21,000		-
Total	$	122,000	$	348,000

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

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

	December 31, 2021		June 30, 2021
Accrued salaries - related parties	$	1,467,000	$	1,785,000
Accrued payroll taxes - related parties		71,000		130,000
Withholding tax - payroll		74,000		77,000
Total	$	1,612,000	$	1,992,000

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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 UP/UPS.

Under the terms of the License Agreement, Alfasigma made an initial upfront non-refundable payment of $0.4 million to the Company in July, 2019 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 3 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 completed a Phase 1 clinical 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. Up to December 31, 2021, the Company received an initial upfront non-refundable payment of $0.4 million and reported as revenue in July, 2019.

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 was fully impaired on December 31, 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 December 31, 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. Commitments and Contingencies).

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

	Six Months Ended December 31, 2021
Lease Cost
Operating lease cost (included in general and administrative in the Company’s condensed consolidated statement of operations)	$	33,000
Variable lease cost		6,000
	$	39,000
Other Information
Cash paid for amounts included in the measurement of lease liabilities for the six months ended December 31, 2021	$	79,000
Weighted average remaining lease term – operating leases (in years)		3.00
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 December 31, 2021
Operating leases
Short-term operating lease liabilities	$	180,000
Long-term operating lease liabilities		158,000
Total operating lease liabilities	$	338,000

The following table provides maturities of the Company’s lease liabilities at December 31, 2021 as follows:

	Operating Leases
Fiscal Year Ending June 30,
2022		112,000
2023		223,000
2024 (remaining 3 months)		56,000
Total lease payments		391,000
Less: Imputed interest/present value discount		(53,000	)
Present value of lease liabilities	$	338,000

Operating lease cost for the three months and the six months ended December 31, 2021 was approximately $16,000 and $33,000. Operating lease cost for the three months and the six months ended December 31, 2020 was approximately $22,000 and $46,000, respectively.

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. 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 $2.8 million to contract research organizations as of December 31, 2021. Expenses are recognized when services are performed by the contract research organizations.

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Contingent Liability - Disputed Invoices

As described in Note 6. Accrued Salaries and Payroll Taxes, the Company 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. Related Party Transactions, the Company has a payable to Kard Scientific, Inc. (“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 December 31, 2021.

10. Related Party Transactions

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 December 31, 2021 and June 30, 2021, 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. Convertible Note Payable - Related Party 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 180,000,000 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 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 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).

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On September 8, 2020, the Company issued 1,787,762 shares of Class B common shares (net of 412,238 shares of Class B common shares withheld to satisfy taxes) at the option exercise price of $0.11 per share to Mr. Ehrlich for his partial exercise of his option, paid by the cancellation of debt to Mr. Ehrlich of $242,000 to satisfy the exercise price (as permitted pursuant to the terms of the option agreement).

During the six months ended December 31, 2021, the Company repaid the principal of $1,033,000 to Mr. Ehrlich, the Company’s Chairman and CEO. As of December 31, 2021 and June 30, 2021, the principal balance of this convertible note payable to Mr. Ehrlich, the Company’s Chairman and CEO was approximately $250,000 and $1,283,000, respectively.

As of December 31, 2021 and June 30, 2021, the balance of accrued interest payable was $21,000 and $0, respectively (see Note 5. Accrued Expenses – Related Parties and Other).

As of December 31, 2021 and June 30, 2021, the total outstanding balances of principal and interest were approximately $271,000 and $1,283,000, respectively.

12. Loan payable

On May 10, 2020 and April 19, 2021, the Company received loan proceeds in the amount of approximately $93,000 and $79,000, respectively, under the Paycheck Protection Program (“PPP”) and it was recorded under loan payable. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

During the six months ended December 31, 2021, the Company obtained the approval of the forgiveness of the above mentioned two loans, and recorded total loan forgiveness of $172,000 under other income.

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

Stock-based Compensation – Stock Options

2016 Equity Incentive Plan (the “2016 Plan”)

On June 30, 2016, the Board of Directors adopted the Company’s 2016 Plan. The 2016 Plan became effective upon adoption by the Board of Directors on June 30, 2016. 

On February 23, 2020, the Board of Directors approved an amendment to Section 4.1 of the 2016 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 October 10, 2021, the Board of Directors approved amendments to the 2016 Plan to increase the number of shares of common stock available for issuance thereunder to 225,000,000 shares and to increase the annual limit on the number of awards under such Plan to outside directors from 1,500,000 to 5,000,000, among other changes. 

Up to 225,000,000 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).

Amendments to the 2016 Equity Incentive Plan

The Compensation Committee approved, and the Board of Directors ratified on October 10, 2021, amendments to the Plan to increase the number of shares of common stock available for issuance thereunder to 225 million shares, among other amendments.

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Stock Options

The fair value of options granted for the six months ended December 31, 2021 and 2020 was estimated on the date of grant using the Black-Scholes-Merton Model that uses assumptions noted in the following table.

	Six months ended December 31,
	2021			2020
Expected term (in years)		5-10			10
Expected stock price volatility		80.84 to 89.51	%		93.95 to 95.47	%
Risk-free interest rate		0.69% to 1.61	%		0.59 to 0.68	%
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 six months ended December 31, 2021 and 2020 are as follows (rounded to nearest thousand):

	Three months ended December 31				Six months ended December 31
	2021		2020		2021		2020
Research and development expenses	$	111,000	$	-	$	111,000	$	-
General and administrative expenses		41,000		31,000		81,000		93,000
Total stock-based compensation expense	$	152,000	$	31,000	$	192,000	$	93,000

During the six months ended December 31, 2021 and 2020

On October 10, 2021, the Compensation Committee approved to issue 2 million stock options to purchase shares of the Company’s common stock to the Company’s two independent directors in total and 500,000 stock options to purchase shares of Company’s common stock to Mr. Ehrlich, which are exercisable for 10 years at $0.24 per share of common stock. These stock options with 1 year vesting period were valued at approximately $488,000, based on the closing bid price as quoted on the OTC on October 10, 2021 at $0.24 per share. During the six months ended December 31, 2021, the Company recorded approximately $111,000 of stock-based compensation costs and charged to additional paid-in capital as of December 31, 2021. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

On October 10, 2021, the Company also issued to Ms. Jane Harness, the Senior Vice President, Clinical Sciences and Portfolio Management of the Company, 500,000 options to purchase common stock, which are exercisable for 10 years at $0.24 per share of common stock. These stock options with 1 year vesting period were valued at approximately $98,000, based on the closing bid price as quoted on the OTC on October 10, 2021 at $0.24 per share. During the six months ended December 31, 2021, the Company recorded approximately $22,000 of related stock-based compensation. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

On July 30, 2020, the Company agreed to issue 100,000 stock options to purchase shares of the Company’s common stock to one consultant for his one-year contract. These options were issued with an exercise price of $0.27 per share and vest 33 1/3% on July 30, 2021, 33 1/3% on January 30, 2022, and 33 1/3% on July 30, 2022. The value of these options was approximately $19,000. During the six months ended December 31, 2021, the Company recorded approximately $11,000 of related stock-based compensation. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

On July 1, 2021, the Company agreed to issue 225,000 stock options to purchase shares of the Company’s common stock to one consultant for his one-year contract. These options were issued with an exercise price of $0.21 per share and vest 33 1/3% on July 1, 2021, 33 1/3% on January 1, 2022, and 33 1/3% on July 1, 2022. The value of these options was approximately $33,000. During the six months ended December 31, 2021, the Company recorded approximately $22,000 of related stock-based compensation. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

On February 10, 2021, the Company agreed to issue 75,000 stock options to purchase shares of the Company’s common stock to one consultant for his one-year contract. These options were issued with an exercise price of $0.38 per share and vest 33 1/3% on February 10, 2021, 33 1/3% on July 1, 2021, and 33 1/3% on January 1, 2022. The value of these options was approximately $20,000. During the six months ended December 31, 2021 and 2020, the Company recorded approximately $7,000 and $0 of related stock-based compensation, respectively. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

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On September 11, 2020, 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 with 3 years vesting period were valued at approximately $33,000 and these 58,394 shares of the Company’s common stock were valued at approximately $13,000, based on the closing bid price as quoted on the OTC on September 11, 2020 at $0.22 per share. During the six months ended December 31, 2021, the Company recorded approximately $8,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $6,000 of stock option expense and $2,000 of stock awards. During the six months ended December 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 July 23, 2020, the Company agreed to issue 100,000 stock options to purchase shares of the Company’s common stock to one consultant for his one-year contract. These options were issued with an exercise price of $0.32 per share and vest 33 1/3% on July 23, 2020, 33 1/3% on January 23, 2021, and 33 1/3% on July 23, 2021. The value of these options was approximately $28,000. During the six months ended December 31, 2021 and 2020, the Company recorded approximately $1,000 and $17,000 of related stock-based compensation, respectively. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

On May 18, 2020, the Company agreed to issue 500,000 stock options to purchase shares of the Company’s common stock each to two consultants for their one-year contracts. These options were issued with an exercise price of $0.14 per share and vest 33 1/3% on July 1, 2020, 33 1/3% on January 1, 2021, and 33 1/3% on July 1, 2021. The value of these options was approximately $78,000. During the six months ended December 31, 2021 and 2020, the Company recorded approximately $0 and $26,000 of related stock-based compensation, respectively. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

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 with 3 years vesting period were 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 six months ended December 31, 2021, 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. During the six months ended December 31, 2020, the Company recorded approximately $3,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $2,000 of stock option expense and $1,000 of stock awards.

On September 1, 2018, the Company also issued to Ms. Jane 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 six months ended December 31, 2021, 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. During the six months ended December 31, 2020, the Company recorded approximately $14,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $10,000 of stock option expense and $4,000 of stock awards.

Exercise of options

During the quarter ended December 31, 2021, the Company received approximately $23,000 of net proceeds from the exercise of 166,666 stock options at $0.14 per share. The details of exercises of options to purchase Class B common stock during the six months ended December 31, 2020 are disclosed in Note 14. Equity Transactions.

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Forfeiture of options

There was forfeiture of 60,000 options and 294,330 options to purchase Class A common stock during the six months ended December 31, 2021 and the year ended June 30, 2021 relating to the expiry of options of 12 consultants.

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, 2020		22,803,098		$	0.18		1.83	$	5,857,312
Granted		452,987		$	0.27		6.96		-
Exercised		(16,181,820	)	$	0.11		-		-
Forfeited/expired		(294,330	)	$	0.55		-		-
Outstanding at June 30, 2021		6,779,935		$	0.35		4.45	$	345,923
Granted		3,325,000		$	0.24		9.26		-
Exercised		(166,666	)	$	0.14		-		-
Forfeited/expired		(60,000	)	$	0.51		-		-
Outstanding at December 31, 2021		9,878,269		$	0.32		5.74	$	-
Exercisable at December 31, 2021		6,463,616		$	0.36		3.84	$	-
Unvested stock options at December 31, 2021		3,414,653		$	0.24		9.33	$	-

Restricted Stock Awards Outstanding

The following summarizes our restricted stock activity:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Total unvested shares outstanding at June 30, 2020		116,787		$	0.32
Total shares granted		58,394		$	0.22
Total shares vested		(58,395	)	$	0.41
Total shares forfeited		-		$	-
Total unvested shares outstanding at June 30, 2021		116,786		$	0.22
Total shares granted		-		$	-
Total shares vested		(58,394	)	$	0.25
Total shares forfeited		-		$	-
Total unvested shares outstanding at December 31, 2021		58,392		$	0.19

Scheduled vesting for outstanding restricted stock awards at December 31, 2021 is as follows:

	Year Ending June 30,
	2023		2024		Total
Scheduled vesting		38,928		19,464		58,392

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As of December 31, 2021, there was approximately $9,000 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 $6,000 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 1.50 years.

14. Equity Transactions

$30 million Class A Common Stock Purchase Agreement with Aspire Capital

On July 31, 2020, the Company entered into the 2020 Agreement with Aspire Capital which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the 24-month term of the Agreement. In consideration for entering into the 2020 Agreement, the Company issued to Aspire Capital 6,250,000 shares of its Class A Common Stock as a commitment fee. The commitment fee of approximately $1.4 million was recorded as deferred financing costs and additional paid-in capital and this asset will be amortized over the life of the 2020 Agreement. The amortized amount of approximately $0.4 million was recorded to additional paid-in capital for the six months ended September, 2021 and 2020. The unamortized portion is carried on the balance sheet as deferred offering costs and was approximately $0.4 million and $0.8 million at December 31, 2021 and June 30, 2021.

During the six months ended December 31, 2021, the Company did not raise any money under the 2020 Agreement with Aspire Capital. As of December 31, 2021, the available balance under the 2020 Agreement was approximately $25.4 million.

Class B Common Stock

On September 8, 2020, Mr. Ehrlich exercised 2.2 million options to purchase 2.2 million shares of Class B common stock at the option exercise price of $0.11 per share. Mr. Ehrlich paid for this exercise of his option by the cancellation of debt to Mr. Ehrlich of $242,000 to satisfy the exercise price (See Note 11. Convertible Note Payable). The Company issued 1,787,762 shares of Class B common stock (net share issuance amount), to Mr. Ehrlich. The remaining 412,238 shares of Class B common stock were withheld from Mr. Ehrlich for the payment of payroll taxes.

On October 2, 2020, Mr. Ehrlich exercised 909,090 options to purchase 909,090 shares of Class B common stock at the option exercise price of $0.11 per share. Mr. Ehrlich paid for this exercise of his option 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). The Company issued 727,994 shares of Class B common stock (net share issuance amount), to Mr. Ehrlich. The remaining 181,096 shares of Class B common stock were withheld from Mr. Ehrlich for the payment of payroll taxes.

On December 28, 2020, Mr. Ehrlich exercised his option to purchase 13,072,730 shares of Class B common stock, at the option exercise price at $0.11 per shares for the shares, paid by the cancellation of 6,980,583 shares of Class A common stock held by Mr. Ehrlich of $1,438,000 to satisfy the exercise price. The total taxable compensation to Mr. Ehrlich for the 13,072,730 shares was approximately $540,000, based upon the closing stock price on December 29, 2020 of $0.21 a share. The Company withheld 1,765,203 shares of Class B common stock and cancelled additional 854,419 shares of Class A common stock held by Mr. Ehrlich. As a result, the Company issued 11,307,527 shares of Class B common shares (net of 1,765,203 shares of Class B common shares withheld to satisfy taxes), and cancelled 7,835,002 shares of Class A common stock held by Mr. Ehrlich. These shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

As of December 31, 2021 and June 30, 2021, the total issued number of Class B common stock were 18 million shares and the total outstanding number of Class B common stock were 15,641,463.

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Series B-2 5% convertible preferred stock (“2020 Series B-2 5% convertible preferred stock”)

On December 4, 2020, the Company entered into a securities purchase agreement (the “Series B-2 Securities Purchase Agreement”) with KIPS Bay Select LP for the sale of an aggregate of 5,089 shares of the Company’s Series B-2 5% convertible preferred stock (the “Series B-2 preferred stock”), for aggregate gross proceeds of approximately $5.0 million. An initial closing for the sale of 3,053 shares of the Series B-2 preferred stock closed on December 9, 2020 for aggregate gross proceeds of approximately $3.0 million, and a second closing for the sale of 2,036 shares of the Series B-2 preferred stock closed on February 8, 2021 for aggregate gross proceeds of approximately $2.0 million. Under the Series B-2 Securities Purchase Agreement, the Company also issued to the investors warrants to purchase up to an additional 10,178 shares of preferred stock.

The Series B-2 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-2 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 (See ASC 480-10-35-5).

The warrants issued in connection with the Series B-2 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-2 preferred stock fair value (without the warrants)) with an offsetting discount to the Series B-2 preferred stock. Given that the Series B-2 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-2 preferred stock liability after the issuance).

The Company recorded the December 9, 2020 issuance of 3,053 shares Series B-2 Preferred Stock at approximately $2.1 million and the underlying Series 1 and Series 2 warrants at approximately $0.9 million in total by allocating the gross proceeds to Series B-2 preferred stock (without the warrants) and warrants based on their relative fair values or direct valuation as appropriate. The Company recorded BCF of approximately $1.8 million associated with the issuance of the 3,053 shares of Series B-2 preferred stock to additional paid-in capital. The Company then recorded interest of approximately $2.7 million for the BCF and warrant discounts as a first day interest given that the Series B-2 preferred shares can be converted at any time to common stock and given no set term.

The Company recorded the February 8, 2021 issuance of 2,036 shares Series B-2 Preferred Stock at approximately $1.5 million and the underlying Series 1 and Series 2 warrants at approximately $0.5 million in total by allocating the gross proceeds to Series B-2 preferred stock (without the warrants) and warrants based on their relative fair values or direct valuation as appropriate. The Company recorded BCF of approximately $1.5 million associated with the issuance of the 2,036 shares of Series B-2 preferred stock to additional paid-in capital. The Company then recorded interest of approximately $2.0 million for the BCF and warrant discounts as a first day interest given that the Series B-2 preferred shares can be converted at any time to common stock and given no set term.

The issuance costs associated with the Series B-2 preferred stock transaction were attributed to the Series B-2 preferred stock (without the warrants) and to the Series 1 and Series 2 warrants based on their relative fair values. The issuance costs attributed to the warrants of approximately $10,000 were reflected as a reduction to additional paid-in capital. The issuances costs associated with the Series B-2 preferred stock liability of $25,000 was recorded immediately as an element of interest cost, which are reflected in interest expense - preferred stock. The change in fair value of the total Series B-2 preferred stock was $0 during the year ended June 30, 2021.

Underlying Series B-2 preferred stock dividends, paid quarterly, was accrued as interest (given the liability classification of the Series B-2 preferred stock) on a daily basis given fixed dividend terms under the Series B-2 preferred stock. The Company recorded 5% dividend accretion on total outstanding Series B-2 preferred stock and the total dividends accrued of approximately $15,000 are treated as interest during the year ended June 30, 2021, respectively.

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Terms of the 2020 Series B-2 5% convertible 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-2 5% Convertible Preferred Stock filed with the Nevada Secretary of State on December 4, 2020 (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) $0.35 until August 15, 2021 and $0.50 thereafter, and (ii) 85% of the lowest volume weighted average price of the Company’s common stock on a trading day during the ten trading days prior to and ending on, and including, the conversion date. The conversion price may be adjusted following certain triggering events and subsequent equity sales and is subject to appropriate adjustment in the event of stock splits, stock dividends, recapitalization or similar events affecting the Company’s common stock.

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

Redemption Rights

Following 90 days after the scheduled date for the second closing date, 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.

2020 Series B-2 5% convertible preferred stock warrants

Each share of preferred stock was sold together with two warrants: (i) a Series 1 warrant, which entitles the holder thereof to purchase one share of preferred stock at $982.50 per share, or 5,089 shares of preferred stock in the aggregate for approximately $5.0 million in aggregate exercise price, for a period of up to 18 months following issuance, and (ii) a Series 2 warrant, which entitles the holder thereof to purchase one shares of preferred stock at $982.50 per share, or 5,089 shares of preferred stock in the aggregate for approximately $5.0 million in aggregate exercise price, for a period of up to 24 months following issuance.

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 10 days following the Company’s payment of the call fee, provided that the warrant holders have not exercised the warrants prior to cancellation.

Exercise of 2020 Series B-2 5% convertible preferred stock warrants

During the six months ended December 31, 2021, the Company issued 5,072 shares of its Series B-2 5% convertible preferred stock, for aggregate gross proceeds of $4,984,000, upon exercise of 3,036 Series 1 warrants and exercise of 2,036 Series 2 warrants issued by the Company. With regard to the exercise of these 5,072 warrants, the Company recorded gross proceeds of approximately $4,984,000 to the preferred stock liability. As of December 31, 2021, there were no Series 1 and 2 warrants outstanding since all warrants were exercised, and there were 2,000 shares of Series B-2 5% convertible preferred stock outstanding.

During the period from December 4, 2020 (date of securities purchase agreement) to June 30, 2021, the Company issued 3,053 shares of its Series B-2 5% convertible preferred stock, for aggregate gross proceeds of $2,999,573, upon exercise of 3,053 Series 1 warrants issued by the Company. In addition, the Company issued 2,053 shares of its Series B-2 5% convertible preferred stock, for aggregate gross proceeds of $2,017,073, upon exercise of 2,053 Series 2 warrants issued by the Company. With regard to the exercise of these 5,106 warrants, the Company recorded gross proceeds of approximately $5,017,000 to the preferred stock liability. As of June 30, 2021, there was 5,072 Series 1 and 2 warrants to purchase 5,072 shares of Series B-2 5% convertible preferred stock outstanding and there was 0 share of Series B-2 5% convertible preferred stock

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Conversion of 2020 Series B-2 5% convertible preferred stock to common stock

During the six months ended December 31, 2021, the 2020 Series B-2 5% convertible preferred stockholder converted a total of 3,572 shares of Series B-2 preferred stock into a total of approximately 26.8 million shares of common stock. With regard to conversions, the Company reversed Series B-2 5% convertible preferred stock liability relating to the conversion and recorded as Additional paid-in capital at par value. The Company reversed the amount of approximately $3,510,000 based on the proportion of Series B-2 5% convertible preferred stock converted relative to the original total issued. Series B-2 5% convertible preferred stock liability as of December 31, 2021 is approximately $1.5 million.

During the period from December 4, 2020 (date of securities purchase agreement) to June 30, 2021, the 2020 Series B-2 5% convertible preferred stockholder converted a total of 10,207 shares of Series B-2 preferred stock into a total of 68,034,812 shares of common stock. With regard to conversions, the Company reversed Series B-2 5% convertible preferred stock liability relating to the conversion and recorded as Additional paid-in capital at par value. The Company reversed the amount of approximately $10,017,000 based on the proportion of Series B-2 5% convertible preferred stock converted relative to the original total issued. Series B-2 5% convertible preferred stock liability as of June 30, 2021 is $0.

Treasury Stock

Regarding the exercise of options to purchase 2.2 million shares of Class B common stock on September 8, 2020 by Mr. Ehrlich, the Company issued 1,787,762 shares of Class B common stock (net share issuance amount), to Mr. Ehrlich. The remaining 412,238 shares of Class B common stock were withheld from Mr. Ehrlich for the payment of payroll taxes and were reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

Regarding the exercise of options to purchase 909,090 shares of Class B common stock on October 2, 2020, the Company issued 727,994 shares of Class B common stock (net share issuance amount), to Mr. Ehrlich. The remaining 181,096 shares of Class B common stock were withheld were withheld from Mr. Ehrlich for the payment of payroll taxes and were reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

Regarding the exercise of options to purchase 13,072,730 shares of Class B common stock on December 28, 2020, the Company cancelled 6,980,583 shares of Class A common stock held by Mr. Ehrlich of $1,438,000 to satisfy the exercise price. The Company withheld 1,765,203 shares of Class B common stock and cancelled additional 854,419 shares of Class A common stock held by Mr. Ehrlich. As a result, the Company issued 11,307,527 shares of Class B common shares (net of 1,765,203 shares of Class B common shares withheld to satisfy taxes), and cancelled 7,835,002 shares of Class A common stock held by Mr Ehrlich. Both the 1,765,203 shares of Class B common stock and the 7,835,002 shares of Class A common stock were reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

There were 8,516,056 shares of Class A common stock and 2,358,537 shares of Class B common stock held in treasury, purchased at a total cumulative cost of approximately $2.3 million as of December 31, 2021 and June 30, 2021.

15. 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:

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A financial asset or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

The three levels of valuation hierarchy are defined as follows:

● Level 1: Observable inputs such as quoted prices in active markets;

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

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

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-2 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 Series B-2 preferred stock liability balance for the six months ended December 31, 2021 and for the year ended June 30, 2021:

	FY 2021
Balance, July 1, 2020	$	-
Issuance of Series B-2 preferred stock at fair value		5,000,000
Exercise of Series 1 and 2 warrants		5,017,000
Conversion of Series B-2 preferred stock to common stock		(10,017,000	)
Change in fair value of Series B-2 preferred stock (1)	(-)
Balance, June 30, 2021	$	-
Exercise of Series 2 warrants		4,983,000
Conversion of Series B-2 preferred stock to common stock		(3,509,000	)
Change in fair value of Series B-2 preferred stock (1)	(-)
Balance, December 31, 2021	$	1,474,000

(1)	Change in fair value of preferred stock is reported in interest expense—preferred stock.
(2)	The 5% accrued dividend is reported in interest expense—preferred stock in the statement of operation and the remaining accrued dividends of $29,000 was included under current liability as of December 31, 2021.

16. Subsequent Events

The Company has evaluated events occurring subsequent to December 31, 2021 through the date these financial statements were issued and determined the following items requiring disclosure: 

Equity Transactions

From January 1, 2022 to date of the issuance of these financial statements, there were 270 preferred stock shares converted to approximately 9.3 million shares of common stock.

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

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

Overview

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

Recent Developments

Brilacidin is being studied by the Company, as well as other independent researchers, as a potential broad-spectrum antiviral therapeutic for the treatment of viruses including the novel coronavirus (SARS-CoV-2), which is responsible for COVID-19.

On November 11, 2021, the Company released topline results for its Phase 2 COVID-19 trial. Brilacidin did not show a difference compared to placebo in reducing Time to Sustained Recovery Through Day 29, the study’s primary endpoint. Safety data showed Brilacidin was generally well-tolerated, with frequency of treatment-emergent adverse events similar between study arms.

In November 2021, it was announced that further data analysis and review of the COVID-19 trial was underway, with the aim potentially to identify positive trends in the data that might support Brilacidin for inclusion in government-sponsored COVID-19 platform trials. Additionally, new in vitro research into Brilacidin’s antiviral properties against human coronaviruses, published as a preprint, was highlighted.

The Phase 2 COVID-19 clinical trial data as of the date of this Form 10-Q has yet to have undergone full data analysis and review as biostatistics data is still forthcoming from its vendor. The Company expects this process to be completed during February and plans to subsequently report findings.

Business Development and Licensing

The Company is actively engaged in business development and licensing initiatives with multiple specialty and global pharmaceutical companies. The Company may also seek to enter into agreements with other third-party entities for research, development and commercialization of other types of technologies or products. 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 S.p.A. (“Alfasigma”), granting Alfasigma the worldwide right to develop, manufacture and commercialize rectally administered Brilacidin for ulcerative proctitis/ulcerative proctosigmoiditis (“UP/UPS”). The license agreement 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, as well as a right of first negotiation for Brilacidin in other gastrointestinal indications. In January 2021, Alfasigma notified the Company that the Phase 1 study for the treatment of UP/UPS using Brilacidin in a proprietary Alfasigma formulation successfully completed dosing per protocol; an extra treatment cohort was subsequently added by amendment and commenced in May 2021. In latest updates on UP/UPS development planning, Alfasigma notified the Company that regulatory submissions for a Phase 2 multinational clinical trial will commence from early 2022; Alfasigma has ordered Brilacidin drug substance from the Company for use in this study. The Company is eligible to receive $24 million in upfront and milestone payments, and a 6 percent royalty (net sales) upon the successful marketing of Brilacidin for UP/UPS.

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On July 22, 2020, the Company and Fox Chase Chemical Diversity Center, Inc. (“FCCDC”) amended an earlier collaborative research agreement related to antifungal drug discovery work to which the Company had rights. In exchange for a six (6) percent fee tied to all potential future proceeds, the Company granted FCCDC all discovery, intellectual property and commercialization rights related to its share of their joint antifungal drug program.

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 Study
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 pharmaceutical products for several years, if ever.

The Company devotes most of its efforts and resources on Brilacidin, which is 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:

Brilacidin

COVID-19 — Due to the global COVID-19 pandemic, the Company was approached by a number of organizations to research Brilacidin against the novel coronavirus (COVID-19). Material Transfer Agreements were signed with two academic institutions that operate Biosafety Level 3 Laboratories (BSL-3). Brilacidin drug substance (Brilacidin tetrahydrochloride) was provided for antiviral research.

The research data demonstrated that Brilacidin exerts potent inhibition of SARS-CoV-2 and thus supported Brilacidin as a promising COVID-19 drug candidate for clinical studies. Also of note, Brilacidin in these research studies demonstrated excellent synergistic antiviral activity when combined with Remdesivir, a broad-spectrum antiviral medication.

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Research Highlights: 

● Brilacidin potently inhibits SARS-CoV-2 in an ACE2 positive human lung cell line.

● Brilacidin achieved a high Selectivity Index of 426 (CC50=241μM/IC50=0.565μM).

● Brilacidin’s main mechanism appears to disrupt viral integrity and impact viral entry.

● Brilacidin and Remdesivir exhibit excellent synergistic activity against SARS-CoV-2.

In a broader context, demonstration of Brilacidin’s direct antiviral activity against the SARS-CoV-2 virus supports the drug’s unique 3-in-1 therapeutic potential—antiviral, anti-inflammatory, antimicrobial—to treat COVID-19 and its associated complications.

A Phase 2 clinical trial of intravenously-administered Brilacidin for COVID-19 conducted at sites in the United States and Russa has since completed (n=120). The Company reported topline results that Brilacidin did not show a difference compared to placebo in reducing Time to Sustained Recovery Through Day 29, the study’s primary endpoint. All planned data outputs, and additional post-hoc data analyses, are expected to be completed by the end of February 2022. The study is a randomized, double-blind, placebo-controlled, multi-center study to evaluate the efficacy and safety of Brilacidin in COVID-19 hospitalized patients. Investigational treatment (Brilacidin or placebo) was provided in addition to standard of care treatments. The trial’s primary endpoint is time to sustained recovery through Day 29, using a clinical status ordinal scale based on that used in the series of National Institute of Allergy and Infectious Diseases (NIAID) Adaptive COVID-19 Treatment Trials (ACTTs). Additional endpoints include: in-hospital outcomes (e.g., duration of hospitalization, time to discharge), all-cause mortality, measurement of disease biomarkers (e.g., CRP, ferritin) and inflammation-related biomarkers (e.g., IL-1β, IL-6, IL-10, total IL-18, TNF-α), changes to SARS-CoV-2 viral load, as well as other key measures.

Safety data showed Brilacidin was generally well-tolerated, with frequency of treatment-emergent adverse events similar between study arms.

Achieving clinical trial success in hospitalized COVID-19 patients for the primary endpoint of “Time to Sustained Recovery Through Day 29” – showing a separation between the new treatment study arm and standard of care arm– has become more challenging due to the emergence of SARS-CoV-2 variants. The proliferation of the Delta variant, for example, which became prevalent during the enrollment of our Brilacidin COVID-19 trial likely caused physicians to follow aggressive treatment regimens for their hospitalized patients, i.e., with high doses of steroid, anti-inflammatory and other supportive medications not previously used, as the in-hospital mortality in the Delta wave was significantly higher than previous variants. We believe a lot is still not known as regards how this cocktail of drugs may affect new treatments.

In February 2022, Pfizer discontinued the global clinical development program for PF-07304814, an intravenously administered SARS-CoV-2 main protease inhibitor being evaluated in adults hospitalized with severe COVID-19. The NIH initiated a COVID-19 Clinical Trial program (ACTIV-3) to test anti-SARS-CoV-2 monoclonal antibodies and other therapies, including PF-07304814, in patients hospitalized with COVID-19. Brii Biosciences, Eli Lilly, GlaxoSmithKline and Novartis were among drug developers to contribute candidates to the NIH ACTIV-3 study. All those candidates failed to show significant clinical improvement in hospitalized patients with severe COVID-19, which has resulted in a persistent unmet need.

Given this unmet need, concerning potential future Brilacidin trials in hospitalized COVID-19 patients, the Company is planning to apply to government-sponsored COVID-19 trial platforms. Pursing a biomarker-driven approach, increasing Brilacidin dosing, targeting different patient populations, testing Brilacidin in combination with other drugs (e.g., remdesivir, given strong synergistic in vitro data)—all are areas under consideration. Compassionate use of Brilacidin may also continue.

The Company is collaborating with a Regional Biocontainment Laboratory (RBL) researcher, and other scientists, including NIH scientific staff, to further investigate Brilacidin as a treatment for the SARS-CoV-2 virus, endemic Human Coronaviruses (H-CoVs), as well as other types of acutely infectious viruses. Brilacidin in vitro testing results in H-CoVs has been accepted for peer review publication. Research conducted at the RBL in bunyaviruses and alphaviruses is being prepared for peer review submission. Attendance at antiviral conferences is planned, along with grant applications for federally-funded antiviral research.

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IBD, Ulcerative Proctitis/Proctosigmoiditis (UP/UPS) study —A Phase 2a trial has previously been completed by the Company, comprised of 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. 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. In January 2021, Alfasigma notified the Company that the Phase 1 study for the treatment of UP/UPS using Brilacidin in a proprietary Alfasigma formulation successfully completed dosing per protocol; an extra treatment cohort was subsequently added by amendment and commenced in May 2021. In latest updates on UP/UPS development planning, Alfasigma notified the Company that regulatory submissions for a Phase 2 multinational clinical trial will commence from early 2022; Alfasigma has ordered Brilacidin drug substance from the Company for use in this study. See Note 7. Exclusive License Agreement of the notes to condensed consolidated financial statements.

IBD, Ulcerative Colitis (UC) — Brilacidin is also being developed as a treatment in more extensive forms of IBD.

Development of a delayed release oral formulation has been in progress, with development work expanding into immediate release formulations due to unexpected findings encountered. Such findings appear due to the inherent physiochemical properties of the compound, and those of polymers used to achieve delayed release. An immediate release, multi-particulate, capsule formulation has been developed, and work remains ongoing regarding suitability of a final formulation for clinical trial supplies.

The development plan for ulcerative colitis includes Phase 1 testing of the immediate release oral formulation. Progression into clinical trials is pending completion of drug formulation work and securing sufficient drug supply and working capital.

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), 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 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 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.

Development of an optimized oral rinse formulation is in progress, with potential to progress to Phase 3 clinical trials in 2022, pending completion of drug formulation work and securing sufficient drug supply and working capital.

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 the FDA due to the low price per share of our common stock and the many multiple million dollar costs associated with a Phase 3 program. 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.

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Expenditures on Brilacidin were approximately $1.1 million and $2.6 million during the three months ended December 31, 2021 and 2020, respectively, and approximately $2.4 million and $2.8 million during the six months ended December 31, 2021 and 2020, respectively.

Kevetrin

The Company has completed a Phase 2a trial of Kevetrin in treating late-stage ovarian cancer. The main objective of the trial focused on confirming the modulation by Kevetrin of p53 pathways in tumors, as well as monitoring the response of tumors to the treatment. The study was successful in demonstrating modulation of p53 directly in ovarian cancer tumor tissue in patients. Pharmacokinetic data collected on Kevetrin during the Phase 1 clinical trial demonstrated that the compound has a short half-life of approximately two hours. This short half-life makes it a compelling candidate for an oral drug delivery treatment for the main purpose of allowing simple daily, or multiple-times daily administrations within or outside the hospital setting. Compared to injectable or intravenous treatments, oral therapy is the preferred drug delivery method of patients. Preliminary laboratory studies are encouraging and support the potential of developing an oral formulation, but there are no assurances made or implied that the Company will be successful in completing development of an oral formulation. Toxicology studies for the oral formulation of Kevetrin are approximately half completed, with the remainder of this work to be completed when the Company secures additional financial resources. Presently we are focusing our resources on Brilacidin, our other lead candidate.

Expenditures on Kevetrin were insignificant during the quarters ended December 31, 2021 and 2020, respectively.

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.

Management’s Plan of Operation

The Company devotes most of its efforts and resources on drug development, regulatory matters, and clinical trials. The Company may also pursue opportunities in areas outside of biopharmaceuticals. Presently, our efforts are primarily focused on evaluating our drug candidate Brilacidin; as a therapeutic for coronaviruses, particularly SARS-CoV-2, the novel coronavirus responsible for COVID-19; for decreasing the incidence of severe oral mucositis as a complication of chemoradiation; for treatment of IBD; and for treatment of skin infections. Our other drug candidate, Kevetrin, is for the treatment of cancer. 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.

In the ordinary course of business, we engage in a continual review of opportunities to license our drug compounds and enter into partnering, joint development or similar arrangements with other companies. We currently, and generally at any time, have such opportunities in various stages of active review, including, for example, entry into indications of interest and term sheets and participation in preliminary discussions and negotiations. Any such transaction could be material to us.

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As a result of the advent of the COVID-19 pandemic, we were approached by several organizations, including two academic institutions having Biosafety Level 3 Laboratories (BSL-3), interested in evaluating Brilacidin as an experimental new drug for COVID-19 and its underlying coronavirus (SARS-CoV-2). Early research indicated that Brilacidin was a promising therapeutic candidate and subsequent extensive pre-clinical research in multiple human cell lines have lent further evidence and support for continued research into Brilacidin’s antiviral properties. Brilacidin has shown consistent in vitro inhibition in a cell-type independent manner in different strains of coronaviruses, alphaviruses and bunyaviruses. In light of the ongoing pandemic and drug development environment, we have prioritized development of Brilacidin for COVID-19, including the conduct of a Phase 2 randomized, blinded, placebo-controlled clinical trial of Brilacidin in patients hospitalized with moderate-to-severe COVID-19. The trial has since completed (n=120), and on November 11, 2021, the Company reported that the trial did not meet its primary endpoint. The Phase 2 COVID-19 clinical trial data as of the date of this Form 10-Q has yet to have undergone full data analysis and review. The Company expects this process to be completed during February 2022 and plans to subsequently report findings.

Brilacidin formulation development work is in progress: For treating ulcerative colitis, we are engaged in the development of an oral formulation (i.e. capsule or tablet). For treating oral mucositis we are engaged in optimizing an oral rinse formulation for the treatment of severe oral mucositis. 

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon our accompanying financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles, or 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. Note 3. Significant Accounting Policies and Recent Accounting Pronouncements, to the financial statements, describes the significant accounting policies and methods used in the preparation of the Company’s financial statements. 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.

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. We currently anticipate that future budget expenditures will be approximately $8.3 million for the next 12 months, including approximately $6.3 million for clinical activities, supportive research, and drug product. 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 December 31, 2021 and 2020

Revenue

We generated no revenue and incurred operating expenses of approximately $2.0 million and $3.4 million for the three months ended December 31, 2021 and 2020, 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 (rounded to nearest thousand):

	For the three months ended				Change
	December 31,				2021 vs. 2020
	2021		2020		$			%
Clinical studies and development research	$	1,170,000	$	2,683,000		(1,513,000	)		(56	)%
Employees payroll and payroll tax expenses related to R&D Department		263,000		163,000		100,000			1	%
Stock-based compensation – employee		29,000		13,000		16,000			123	%
Stock-based compensation – consultants		12,000		18,000		(6,000	)		(33	)%
Depreciation and amortization expenses		119,000		94,000		25,000			27	%
Total	$	1,593,000	$	2,971,000		(1,378,000	)		(46	)%

Research and development expenses for proprietary programs decreased during the three months ended December 31, 2021 compared with the three months ended December 31, 2020, primarily due to less spending on our Brilacidin program for the three months ended December 31, 2021.

Employees payroll and payroll tax expenses increased during the three months ended December 31, 2021 compared with the three months ended December 31, 2020, due to a new hire of an employee during the first quarter of 2022.

Stock-based compensation for employee increased during the three months ended December 31, 2021 due to one new issuance of 500,000 stock options to purchase shares of Company’s common stock to the Company’s Senior Vice President, Clinical Sciences and Portfolio Management during the three months ended December 31, 2021.

Stock-based compensation - consultants decreased during the three months ended December 31, 2021 due to less options being issued to consultants during the three months ended December 31, 2021 compared with the three months ended December 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. Clinical studies and development expenses may decrease in future reporting periods depending on the Company’s current and future financial liquidity. We manage our proprietary programs based on scientific data and achievement of research plan goals. Accordingly, the accurate assignment of time and costs to a specific project is difficult and may not give a true indication of the actual costs of a particular project. As a result, we do not report costs on an individual program basis.

General and Administrative Expenses

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

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

	For the three months ended				Change
	December 31,				2021 vs. 2020
	2021		2020		$			%
Insurance and health expense	$	71,000	$	110,000		(39,000	)		(35	)%
Rent and utility expense		20,000		25,000		(5,000	)		(20	)%
Stock-based compensation-Officers		111,000		—		111,000			—	%
Other G&A		64,000		96,000		(32,000	)		(32	)%
Total	$	266,000	$	231,000		35,000			15	%

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General and administrative expenses increased during the three months ended December 31, 2021, primarily due to the decrease in insurance and health expense of $39,000 and decrease in other G&A expense of $32,000 due to less business development consultants’ fees and business events during the three months ended December 31, 2021. Stock-based compensation for officers increased during the three months ended December 31, 2021 due to one new issuance of 2,500,000 stock options to purchase shares of Company’s common stock to the Company’s two Independent directors and CEO during the three months ended December 31, 2021.

Officers’ Payroll and Payroll Tax Expenses

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

	Three months ended				Change
	December 31,				2021 vs. 2020
	2021		2020		$			%
Officers’ payroll and payroll tax expenses	$	63,000	$	125,000		(62,000	)		(50	)%

Officers’ payroll and payroll tax expenses decreased during the three months ended December 31, 2021, primarily related to the decrease in payroll taxes.

Professional Fees

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

	Three months ended				Change
	December 31,				2021 vs. 2020
	2021		2020		$			%
Audit, legal and professional fees	$	92,000	$	112,000		(20,000	)		(18	)%

Professional fees decreased during the three months ended December 31, 2021 primarily related to decrease in legal fees and other professional fees in 2021.

Other Income (Expense)

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

	For the Three months ended						Change
	December 31,						2021 vs. 2020
	2021			2020			$			%
Other income	$	172,000			—		$	172,000		—		%
Interest expense – debt		(17,000	)		(38,000	)		(21,000	)		(55	)%
Interest expense – preferred stock liability		(14,000	)		(2,697,000	)		(2,683,000	)		(100	)%
Other Income (Expense), net	$	141,000		$	(2,735,000	)	$	(2,876,000	)		(105	)%

There was an increase in other income which represents the forgiveness of the PPP Loan. There was a decrease in interest expenses paid on the note payable – related party, because of the decrease in the note payable balance due to the Company’s Chairman and CEO since he exercised his options to purchase 3.1 million shares of Class B common stock by the cancellation of debt during the year ended June 30, 2021 (see Note 11. Convertible Note Payable – Related Party of the Notes to Condensed Consolidated Financial Statements).

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Net Losses

We incurred net losses of $1.9 million and $6.2 million for the three months ended December 31, 2021 and 2020, respectively, because of the above-mentioned factors.

For the six months ended December 31, 2021 and 2020

Revenue

We generated no revenue and incurred operating expenses of approximately $4.0 million and $4.6 million for the six months ended December 31, 2021 and 2020, respectively. 

Research and Development Expenses for Proprietary Programs

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

	For the six months ended				Change
	December 31,				2021 vs. 2020
	2021		2020		$			%
Clinical studies and development research	$	2,507,000	$	2,981,000		(474,000	)		(16	)%
Employees payroll and payroll tax expenses related to R&D Department		405,000		233,000		172,000			74	%
Stock-based compensation – employee		40,000		32,000		8,000			25	%
Stock-based compensation – consultants		41,000		61,000		(20,000	)		(33	)%
Depreciation and amortization expenses		191,000		188,000		3,000			2	%
Total	$	3,184,000	$	3,495,000		(311,000	)		(9	)%

Research and development expenses for proprietary programs decreased during the six months ended December 31, 2021 compared with the six months ended December 31, 2020, primarily due to less spending on our Brilacidin program for the six months ended December 31, 2021.

Employees payroll and payroll tax expenses increased during the six months ended December 31, 2021 compared with the six months ended December 31, 2020, due to a new hire of an employee during the first quarter of 2022.

Stock-based compensation for employee increased during the six months ended December 31, 2021 due to one new issuance of 500,000 stock options to purchase shares of Company’s common stock to the Company’s Senior Vice President, Clinical Sciences and Portfolio Management during the six months ended December 31, 2021.

Stock-based compensation - consultants decreased during the six months ended December 31, 2021 due to less options being issued to consultants during the six months ended December 31, 2021 compared with the six months ended December 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. Clinical studies and development expenses may decrease in future reporting periods depending on the Company’s current and future financial liquidity. We manage our proprietary programs based on scientific data and achievement of research plan goals. 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 the cost of research and development expenses for proprietary programs and include other management, business development, accounting, information technology and administration costs, including patent filing and prosecution, recruiting, consulting and professional services, travel and meals, sales commissions, facilities, depreciation and other office expenses.

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

	For the six months ended				Change
	December 31,				2021 vs. 2020
	2021		2020		$			%
Insurance expense	$	140,000	$	228,000		(88,000	)		(39	)%
Rent and utility expense		41,000		52,000		(11,000	)		(21	)%
Stock-based compensation-Officers		111,000		—		111,000		—		%
Other G&A		159,000		215,000		(56,000	)		(26	)%
Total	$	451,000	$	495,000		(44,000	)		(9	)%

General and administrative expenses increased during the six months ended December 31, 2021, primarily due to the increase in stock-based compensation-Officers of $111,000, offset by a decrease in insurance expense of $88,000 and a decrease in other G&A expense of $56,000 due to less business development consultants’ fees and business events during the six months ended December 31, 2021. Stock-based compensation for officers increased during the three months ended December 31, 2021 due to one new issuance of 2,500,000 stock options to purchase shares of Company’s common stock to the Company’s two Independent directors and CEO during the three months ended December 31, 2021.

Officers’ Payroll and Payroll Tax Expenses

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

	Six months ended				Change
	December 31,				2021 vs. 2020
	2021		2020		$			%
Officers’ payroll and payroll tax expenses	$	182,000	$	252,000		(70,000	)		(28	)%

There was a slight decrease in officers’ payroll and payroll tax expenses for the Company during the six months ended December 31, 2021, due to the decrease in payroll taxes.

Professional Fees

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

	Six months ended				Change
	December 31,				2021 vs. 2020
	2021		2020		$			%
Audit, legal and professional fees	$	220,000	$	326,000		(106,000	)		(33	)%

Professional fees decreased during the six months ended December 31, 2021 primarily related to decrease in legal fees and other professional fees in 2021.

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Other Income (Expense)

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

	For the Six months ended						Change
	December 31,						2021 vs. 2020
	2021			2020			$			%
Other income	$	172,000			—		$	172,000		—		%
Interest expense – debt		(50,000	)		(82,000	)		(32,000	)		(39	)%
Interest expense – preferred stock liability		(14,000	)		(2,697,000	)		(2,683,000	)		(99	)%
Other Income (Expense), net	$	108,000		$	(2,779,000	)	$	(2,887,000	)		(104	)%

There was an increase in other income which represents the forgiveness of the PPP Loan. There was a decrease in interest expenses paid on the note payable – related party, because of the decrease in the note payable balance due to the Company’s Chairman and CEO since he exercised his options to purchase 3.1 million shares of Class B common stock by the cancellation of debt during the year ended June 30, 2021 (see Note 11. Convertible Note Payable – Related Party of the Notes to Condensed Consolidated Financial Statements).

Net Losses

We incurred net losses of $3.9 million and $7.3 million for the six months ended December 31, 2021 and 2020, respectively, because of the above-mentioned factors.

Liquidity and Capital Resources

Projected Future Working Capital Requirements - Next 12 Months

As of December 31, 2021, we had approximately $9.9 million in cash compared to $10.2 million of cash as of June 30, 2021, and as of the date of this filing, we have approximately $9.4 million in cash. We currently anticipate that future budget expenditures will be approximately $8.3 million for the next 12 months, including approximately $6.3 million for clinical activities, supportive research, and drug product. Alternatively, if we decide to pursue a more aggressive plan with our clinical trials, we will require additional sources of capital during the fiscal year 2022 to meet our working capital requirements for our planned clinical trials. Potential sources for capital include grant funding for COVID-19 research and equity financings (see below). There can be no assurances that we will be successful in receiving any grant funding for our programs.

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 above working capital projection.

On July 31, 2020, the Company entered into a new common stock purchase agreement (the “2020 Agreement”) with Aspire Capital which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the 24-month term of the 2020 Agreement.

Our ability to successfully raise sufficient funds through the sale of equity securities, when needed, is subject to many risks and uncertainties and even if we are successful, future equity issuances would result in dilution to our existing stockholders. Our risk factors are described under the heading “Risk Factors” in Part I, Item 1A and elsewhere in the Annual Report on Form 10-K.

If we are unable to generate enough working capital from our current or future financing agreements with Aspire Capital (which expires in the first quarter of fiscal 2023) when needed or secure additional sources of funding, it may be necessary to significantly reduce our current rate of spending through reductions in staff and delaying, scaling back or stopping certain research and development programs, including more costly Phase 2 and Phase 3 clinical trials on our wholly-owned development programs as these programs progress into later stage development. Insufficient liquidity may also require us to relinquish greater rights to product candidates at an earlier stage of development or on less favorable terms to us and our stockholders than we would otherwise choose in order to obtain up-front license fees needed to fund operations. These events could prevent us from successfully executing our operating plan.

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Shelf Registration Statement - Current Status

The Company has an effective shelf registration statement on Form S-3, registering the sale of up to $60 million of the Company’s securities. However, in the future, the Company may not satisfy the conditions for use of Form S-3 for primary offerings of securities, in which case the Company may 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 for the six months ended December 31, 2021 and 2020 (rounded to nearest thousand):

	Six Months Ended						Change
	December 31,						Increase/
	2021			2020			(Decrease)
							%
Net cash used in operating activities	$	(4,201,000	)	$	(4,705,000	)		(11	)%
Net cash used in investing activities		(44,000	)		(43,000	)		2	%
Net cash provided by financing activities		3,973,000			6,923,000			(43	)%
Net increase in cash	$	(272,000	)	$	2,175,000			(113	)%

The Company experienced a decrease in net cash used in operating activities of $0.5 million versus the prior-year. The use of cash principally resulted from our losses from operations for the six months ended December 31, 2021, as adjusted for non-cash charges for stock-based compensation of $0.2 million, patent amortization of $0.2 million, and changes in our working capital accounts.

The use of cash principally resulted from our losses from operations for the six months ended December 31, 2020, as adjusted for non-cash charges for stock-based compensation of $0.1 million, patent amortization of $0.2 million, interest expense or preferred stock of $2.7 million and changes in our working capital accounts.

Investing activities

There was an insignificant change in net cash used in investing activities versus the prior-year was due to stable spending in patent costs during both periods.

Financing activities

During the six months ended December 31, 2021, we raised approximately $5.0 million in net cash proceeds, from exercise of warrants to purchase preferred stock.

During the six months ended December 31, 2020, we raised approximately $3.0 million in net cash proceeds, from sale of common stock to Aspire and sale of common stock of approximately $4.6 million, offset by purchase of treasury stock of $0.1 million.

Requirement for Additional Working Capital

The Company, contingent on future sales of its securities, currently expects to incur total operating expenses of approximately $8.3 million for the next 12 months, including approximately $6.3 million for clinical activities, supportive research, and drug product development. The Company has limited experience with pharmaceutical drug development. As such, this budget estimate may change in the future. 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.

38

The Company will be unable to proceed with its planned drug development programs, meet its administrative expense requirements, capital costs, or staffing costs without accessing its financing available with Aspire Capital of approximately $30 million, of which approximately $25.4 million remains as of the date of this filing and which expires in the first quarter of fiscal 2023. Management believes, as of the date of this filing that the funding amount from Aspire Capital will be available as needed by the Company and that adverse market conditions in the Company’s common stock price and trading volume, will not prevent the Company from funding its working capital requirements for the next 12 months from the date of this filing.

In the event that we are unable to generate sufficient cash from our 2020 Agreement with Aspire Capital or raise additional funds from others, 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 (for example 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 to us.

Commitments and Contingencies

Please see Note 9. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q, 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 December 31, 2021, 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 December 31, 2021, the principal executive officer and principal financial officer of the Company have 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 December 31, 2021, 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.

39

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 9 in the accompanying condensed consolidated financial statements.

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, 2021, 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, 2021.

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

40

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
10.1	Amendments to the Innovation Pharmaceuticals Inc. 2016 Equity Incentive Plan, as amended.	Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on October 14, 2021
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 six months ended December 31, 2021 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
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)	Filed herewith

41

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: February 14, 2022	By:	/s/ Leo Ehrlich
	Name:	Leo Ehrlich
	Title:	Chief Executive Officer and Chief Financial Officer (Principal Executive, Accounting and Financial Officer)

42

EX-31.1

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: February 14, 2022	By:	/s/ Leo Ehrlich
		Leo Ehrlich
		Chief Executive Officer and Chief Financial Officer (Principal Executive, Accounting and Financial Officer)

EX-32.1

EXHIBIT 32.1

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

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

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

The Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 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: February 14, 2022	By:	/s/ Leo Ehrlich
		Leo Ehrlich
		Chief Executive Officer and Chief Financial Officer and Chairman of the Board of Directors (Principal Executive, Accounting and Financial Officer)

XML

Cover - shares	3 Months Ended
	Dec. 31, 2021	Feb. 09, 2022
Cover [Abstract]
Entity Registrant Name	INNOVATION PHARMACEUTICALS INC.
Entity Central Index Key	0001355250
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Dec. 31, 2021
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2022
Entity Common Stock Shares Outstanding		456,580,514
Document Quarterly Report	true
Document Transition Report	false
Entity Interactive Data Current	Yes
Entity File Number	001-37357
Entity Tax Identification Number	30-0565645
Entity Incorporation State Country Code	NV
Entity Address Address Line 1	301 Edgewater Place
Entity Address Address Line 2	Suite 100
Entity Address City Or Town	Wakefield
Entity Address State Or Province	MA
Entity Address Postal Zip Code	01880
City Area Code	978
Local Phone Number	921-4125

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Dec. 31, 2021	Jun. 30, 2021
Current Assets:
Cash	$ 9,922,000	$ 10,194,000
Prepaid expenses and other current assets	42,000	495,000
Total Current Assets	9,964,000	10,689,000
Other Assets:
Patent costs - net	2,607,000	2,754,000
Deferred offering costs	419,000	778,000
Security deposit	78,000	78,000
Total Other Assets	3,104,000	3,610,000
Total Assets	13,068,000	14,299,000
Current Liabilities:
Accounts payable - (including related party payables of approx. $1,511,000 and $1,511,000, respectively)	2,298,000	2,563,000
Accrued expenses - (including related party accruals of approx. $29,000 and $8,000, respectively)	122,000	348,000
Accrued salaries and payroll taxes - (including related party accrued salaries of approx. $1,538,000 and $1,915,000, respectively)	1,612,000	1,992,000
Operating lease - current liability	180,000	165,000
Convertible note payable - related party	250,000	1,283,000
Accrued dividend - Series B 5% convertible preferred stock	29,000	15,000
Loan payable	0	172,000
Total Current Liabilities	4,491,000	6,538,000
Other Liabilities:
Series B 5% convertible preferred stock liability at $1,080 stated value; 1,500 and 0 shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively	1,474,000	0
Operating lease - long term liability	158,000	252,000
Total Liabilities	6,123,000	6,790,000
Stockholders' Equity
Preferred stock, $0.001 par value, 10,000,000 designated shares, no shares issued and outstanding	0	0
Additional paid-in capital	128,197,000	124,835,000
Accumulated deficit	(119,045,000)	(115,116,000)
Treasury Stock, at cost (10,874,593 shares as of December 31, 2021 and June 30, 2021)	(2,254,000)	(2,254,000)
Total Stockholders' Equity	6,945,000	7,509,000
Total Liabilities and Stockholders' Equity	13,068,000	14,299,000
Common Class A [Member]
Stockholders' Equity
Common Stock	45,000	42,000
Common Class B [Member]
Stockholders' Equity
Common Stock	$ 2,000	$ 2,000

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Dec. 31, 2021	Jun. 30, 2021
Related party payables	$ 1,511,000	$ 1,511,000
Related party expenses	29,000	8,000
Related party accrued salaries	$ 1,538,000	$ 1,915,000
Preferred stock, par value	$ 0.001	$ 0.001
Convertible preferred stock liability stated value	$ 1,080	$ 1,080
Convertible preferred stock liability shares issued	1,500	0
Convertible preferred stock liability shares outstanding	1,500	0
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	10,874,593	10,874,593
Common Class A [Member]
Common stock, par value	$ 0.0001	$ 0.0001
Common Stock, shares authorized	600,000,000	600,000,000
Common Stock, shares issued	453,633,489	426,673,198
Common Stock, shares outstanding	445,117,433	418,157,142
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	18,000,000	18,000,000
Common Stock, shares outstanding	15,641,463	15,641,463

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Revenues	$ 0	$ 0	$ 0	$ 0
Operating expenses:
Research and development expenses	1,593,000	2,971,000	3,184,000	3,495,000
General and administrative expenses	266,000	231,000	451,000	495,000
Officers' payroll and payroll tax expenses	63,000	125,000	182,000	252,000
Professional fees	92,000	112,000	220,000	326,000
Total operating expenses	2,014,000	3,439,000	4,037,000	4,568,000
Net loss from operations	(2,014,000)	(3,439,000)	(4,037,000)	(4,568,000)
Other income (expense)
Other income	172,000	0	172,000	0
Interest expense - debt	(17,000)	(38,000)	(50,000)	(82,000)
Interest expense - preferred stock liability	(14,000)	(2,697,000)	(14,000)	(2,697,000)
Other expense, net	141,000	(2,735,000)	108,000	(2,779,000)
Loss before provision for income taxes	(1,873,000)	(6,174,000)	(3,929,000)	(7,347,000)
Provision for income taxes	0	0	0	0
Net loss	$ (1,873,000)	$ (6,174,000)	$ (3,929,000)	$ (7,347,000)
Basic and diluted loss per share attributable to common stockholders	$ (0.00)	$ (0.02)	$ (0.01)	$ (0.02)
Basic and diluted weighted average number of common shares	457,008,040	359,967,023	451,890,474	349,853,676

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited) - USD ($)	Total	Common Stock A	Common Stock B	Treasury Stock	Additional PaidIn Capital	Accumulated Deficit
Balance shares at Jun. 30, 2020		329,170,544	1,818,180	659,448
Balance amount at Jun. 30, 2020	$ 1,462,000	$ 33,000	$ 0	$ (146,000)	$ 102,819,000	$ (101,244,000)
Shares sold to Aspire Capital under 2020 Agreement at $0.20 - $0.22 range shares		13,500,000
Shares sold to Aspire Capital under 2020 Agreement at $0.20 - $0.22 range amount	2,851,000	$ 1,000	0	0	2,850,000	0
Shares issued as commitment fee of $1,438,000 on 7/31/2020 at $0.23, net of amortization of offering costs of $120,000 shares		6,250,000
Shares issued as commitment fee of $1,438,000 on 7/31/2020 at $0.23, net of amortization of offering costs of $120,000 amount	1,318,000	$ 1,000	0	0	1,317,000	0
Shares issued to employee for services at $0.132 to $0.398	5,000	0	0	0	5,000	0
Stock options issued to employee for services at $0.132 to $0.398	14,000	0	0	0	14,000	0
Stock options issued to consultant for services	43,000	0	$ 0	0	43,000	0
Purchase of 2,200,000 shares of Common Stock Class B to Officer & 412,238 shares were withheld for tax purposes as Treasury shares shares			2,200,000
Purchase of 2,200,000 shares of Common Stock Class B to Officer & 412,238 shares were withheld for tax purposes as Treasury shares amount	242,000	0	$ 0	$ 0	242,000	0
Issuance of shares for tax purposes as Treasury Shares shares			(412,238)	412,238
Issuance of shares for tax purposes as Treasury Shares amount	(90,000)	$ 0	$ 0	$ (90,000)	0	0
Issuance of 58,394 shares to employee & 21,606 shares were withheld for tax purposes as Treasury shares shares		58,394
Issuance of 58,394 shares to employee & 21,606 shares were withheld for tax purposes as Treasury shares amount	0	$ 0	0	$ 0	0	0
Issuance one of shares for tax purposes as Treasury Shares shares		(21,606)		21,606
Issuance one of shares for tax purposes as Treasury Shares amount	(3,000)	$ 0	0	$ (3,000)	0	0
Net loss	(1,173,000)	$ 0	$ 0	$ 0	0	(1,173,000)
Balance shares at Sep. 30, 2020		348,957,332	3,605,942	1,093,292
Balance amount at Sep. 30, 2020	4,669,000	$ 35,000	$ 0	$ (239,000)	107,290,000	(102,417,000)
Balance shares at Jun. 30, 2020		329,170,544	1,818,180	659,448
Balance amount at Jun. 30, 2020	1,462,000	$ 33,000	$ 0	$ (146,000)	102,819,000	(101,244,000)
Net loss	(7,347,000)
Balance shares at Dec. 31, 2020		359,468,633	15,641,463	10,874,593
Balance amount at Dec. 31, 2020	3,436,000	$ 36,000	$ 2,000	$ (2,254,000)	114,243,000	(108,591,000)
Balance shares at Sep. 30, 2020		348,957,332	3,605,942	1,093,292
Balance amount at Sep. 30, 2020	4,669,000	$ 35,000	$ 0	$ (239,000)	107,290,000	(102,417,000)
Shares issued to employee for services at $0.132 to $0.398	4,000	0	0	0	4,000	0
Stock options issued to employee for services at $0.132 to $0.398	10,000	0	0	0	10,000	0
Stock options issued to consultant for services	17,000	0	$ 0	$ 0	17,000	0
Issuance of shares for tax purposes as Treasury Shares shares			(181,096)	181,096
Issuance of shares for tax purposes as Treasury Shares amount	(37,000)	0	$ 0	$ (37,000)	0	0
Net loss	(6,174,000)	$ 0	0	0	0	(6,174,000)
Shares sold to Aspire under 2020 Agreement at $0.20 - $0.22 range shares		9,000,000
Shares sold to Aspire under 2020 Agreement at $0.20 - $0.22 range amount	1,572,000	$ 1,000	$ 1,000	0	1,570,000	0
Cancellation of debt for the purchase of 909,090 shares of Common Stock Class B & 181,096 shares were withheld for tax purposes as Treasury shares shares			909,090
Cancellation of debt for the purchase of 909,090 shares of Common Stock Class B & 181,096 shares were withheld for tax purposes as Treasury shares amount	100,000	0	$ 0	0	100,000	0
To record Series B Discount Warrants	870,000	0	0	0	870,000	0
To record issuance costs Series 1 & 2 Warrants	(10,000)	0	0	0	(10,000)	0
To record beneficial conversion feature associated with the issuance of the 3,053 shares of Series B-2 preferred stock	1,793,000	$ 0	0	0	1,793,000	0
Conversion of 1,183 preferred stocks into 9,346,303 common stocks shares		9,346,303
Conversion of 1,183 preferred stocks into 9,346,303 common stocks amount	1,162,000	$ 1,000	$ 0	$ 0	1,161,000	0
Cancellation of 6,980,583 Class A shares to satisfy the purchase of 13,072,730 shares of Common Stock Class B shares		(6,980,583)	13,072,730	6,980,583
Cancellation of 6,980,583 Class A shares to satisfy the purchase of 13,072,730 shares of Common Stock Class B amount	0	$ (1,000)	$ 1,000	$ (1,438,000)	1,438,000	0
Shares were withheld for tax purposes as Treasury Shares shares		(854,419)	(1,765,203)	2,619,622
Shares were withheld for tax purposes as Treasury Shares amount	(540,000)	$ 0	$ 0	$ (540,000)	0	0
Balance shares at Dec. 31, 2020		359,468,633	15,641,463	10,874,593
Balance amount at Dec. 31, 2020	3,436,000	$ 36,000	$ 2,000	$ (2,254,000)	114,243,000	(108,591,000)
Balance shares at Jun. 30, 2021		418,157,142	15,641,463	10,874,593
Balance amount at Jun. 30, 2021	7,509,000	$ 42,000	$ 2,000	$ (2,254,000)	124,835,000	(115,116,000)
Stock options issued to employee for services at $0.132 to $0.398	8,000	0	0	0	8,000	0
Net loss	(2,056,000)	0	0	0		(2,056,000)
Offering cost	(179,000)				(179,000)
Restricted stock awards of common stock issued to employee for services at $0.132 to $0.398	3,000	0	0	0	3,000	0
Stock options issued to consultants for services	29,000	$ 0	0	$ 0	29,000	0
Conversion of shares of preferred stock into shares of common stock shares		18,939,080
Conversion of shares of preferred stock into shares of common stock amount	2,983,000	$ 2,000	$ 0		2,981,000	0
Balance shares at Sep. 30, 2021		437,096,222	15,641,463	10,874,593
Balance amount at Sep. 30, 2021	8,297,000	$ 44,000	$ 2,000	$ (2,254,000)	127,677,000	(117,172,000)
Balance shares at Jun. 30, 2021		418,157,142	15,641,463	10,874,593
Balance amount at Jun. 30, 2021	7,509,000	$ 42,000	$ 2,000	$ (2,254,000)	124,835,000	(115,116,000)
Net loss	(3,929,000)
Balance shares at Dec. 31, 2021		445,117,433	15,641,463	10,874,593
Balance amount at Dec. 31, 2021	6,945,000	$ 45,000	$ 2,000	$ (2,254,000)	128,197,000	(119,045,000)
Balance shares at Sep. 30, 2021		437,096,222	15,641,463	10,874,593
Balance amount at Sep. 30, 2021	8,297,000	$ 44,000	$ 2,000	$ (2,254,000)	127,677,000	(117,172,000)
Stock options issued to employee for services at $0.132 to $0.398	27,000	0	0	0	27,000	0
Net loss	(1,873,000)					(1,873,000)
Offering cost	(180,000)				(180,000)
Restricted stock awards of common stock issued to employee for services at $0.132 to $0.398	2,000	0	0	0	2,000	0
Stock options issued to consultants for services	12,000	$ 0	0	0	12,000	0
Conversion of shares of preferred stock into shares of common stock shares		7,854,545
Conversion of shares of preferred stock into shares of common stock amount	526,000	$ 1,000	0		525,000
Stock options issued to director for services at $0.24	111,000	$ 0	$ 0	$ 0	111,000	0
Shares of common stock issued for exercise of options shares		166,666
Shares of common stock issued for exercise of options amount	23,000				23,000
Balance shares at Dec. 31, 2021		445,117,433	15,641,463	10,874,593
Balance amount at Dec. 31, 2021	$ 6,945,000	$ 45,000	$ 2,000	$ (2,254,000)	$ 128,197,000	$ (119,045,000)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (3,929,000)	$ (7,347,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation	192,000	93,000
Amortization of patent costs	191,000	188,000
Gain on forgiveness of loans payable	(172,000)	0
Interest expense-preferred stock	0	2,672,000
Changes in operating assets and liabilities:
Prepaid expenses and security deposits	453,000	8,000
Accounts payable	(265,000)	(61,000)
Accrued expenses	(226,000)	435,000
Accrued officers' salaries and payroll taxes	(380,000)	(604,000)
Operating lease liability	(79,000)	(66,000)
Note payable to officer	0	(23,000)
Accrued dividend	14,000	0
Net cash used in operating activities	(4,201,000)	(4,705,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent costs	(44,000)	(43,000)
Net cash used in investing activities	(44,000)	(43,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock, net of offering costs	0	4,603,000
Proceeds from issuance of preferred stocks and warrants, net of financing costs	0	2,990,000
Proceeds from exercise of preferred stock warrants	4,983,000	0
Proceeds from exercise of options	23,000	0
Purchase of treasury stock	0	(670,000)
Repayment of note payable to officer	(1,033,000)	0
Net cash provided by financing activities	3,973,000	6,923,000
NET INCREASE (DECREASE) IN CASH	(272,000)	2,175,000
CASH, BEGINNING OF PERIOD	10,194,000	6,018,000
CASH, END OF PERIOD	9,922,000	8,193,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	29,000	29,000
Cash paid for tax	0	0
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INVESTING AND FINANCING ACTIVITIES
Shares issued as deferred offering costs	0	1,438,000
Cancellation of shareholder debt for the purchase of 3.1M shares of Common Stock Class B shares	0	342,000
Conversion of Series B Convertible Preferred stock to Common stock	$ 3,509,000	$ 0

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Basis of Presentation and Nature of Operations

6 Months Ended

Dec. 31, 2021

Basis of Presentation and Nature of Operations

1. Basis of Presentation and Nature of Operations

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, 2021, included in our Annual Report on Form 10-K for the year ended June 30, 2021.

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 six-month periods have been made. Results for the interim periods 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,” “Innovation,” “we,” “us” or “our” mean Innovation Pharmaceuticals Inc.

Basis of Presentation

Innovation Pharmaceuticals Inc. 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 is intended to 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 condensed consolidated financial statements include the accounts of Innovation Pharmaceuticals Inc., 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. There was no translation gain and loss for the three and six months ended December 31, 2021 and 2020.

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. 

In December 2020, the U.S. Food and Drug Administrations (FDA) approved the Company’s Investigational New Drug (IND) application to proceed with initiation of a randomized, placebo-controlled Phase 2 clinical trial of Brilacidin in moderate-to-severe hospitalized patients with COVID-19. Similar regulatory approval was obtained from the Russian Ministry of Health. A Phase 2 clinical trial of intravenously-administered Brilacidin for COVID-19 conducted at sites in the United States and Russa has since completed. The Company reported topline results that Brilacidin did not show a difference compared to placebo in reducing Time to Sustained Recovery Through Day 29, the study’s primary endpoint.

We currently own all development and marketing rights to our products, other than the license rights granted to Alfasigma S.p.A. in July 2019 for the development, manufacturing and commercialization of locally-administered Brilacidin for ulcerative proctitis/ulcerative proctosigmoiditis (“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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Liquidity

6 Months Ended

Dec. 31, 2021

Liquidity

2. Liquidity

2. Liquidity

As of December 31, 2021, the Company’s cash amounted to $9.9 million and current liabilities amounted to $4.5 million. The Company has expended substantial funds on its clinical trials and expects to continue our spending on research and development expenditures. Our net losses incurred for the six months ended December 31, 2021 and 2020, amounted to $3.9 million and $7.3 million, respectively, and we had working capital of approximately $5.5 million and $4.2 million at December 31, 2021 and June 30, 2021, respectively.

On July 31, 2020, the Company entered into a new common stock purchase agreement (the “2020 Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the 24-month term of the 2020 Agreement. In consideration for entering into the 2020 Agreement, the Company issued to Aspire Capital 6,250,000 shares of its Class A Common Stock as a commitment fee. The commitment fee of approximately $1.4 million was recorded as deferred financing costs and additional paid-in capital and this asset will be amortized over the life of the 2020 Agreement. As of December 31, 2021, the available balance was $25.4 million.

We anticipate that future budget expenditures will be approximately $8.3 million for the next 12 months, including approximately $6.3 million for clinical activities, supportive research, and drug product. Alternatively, if we decide to pursue a more aggressive plan with our clinical trials, we will require additional sources of capital during the fiscal year 2022 to meet our working capital requirements for our planned clinical trials. Potential sources for capital include grant funding for COVID-19 research and equity financings. There can be no assurances that we will be successful in receiving any grant funding for our programs.

Management believes that the amounts available from Aspire Capital and under the Company’s effective shelf registration statement will be sufficient to fund the Company’s operations for the next 12 months.

If we are unable to generate enough working capital from our current or future financing agreements with Aspire Capital (which expires in the first quarter of fiscal 2023) when needed or secure additional sources of funding, it may be necessary to significantly reduce our current rate of spending through reductions in staff and delaying, scaling back or stopping certain research and development programs, including more costly Phase 2 and Phase 3 clinical trials on our wholly-owned development programs as these programs progress into later stage development. Insufficient liquidity may also require us to relinquish greater rights to product candidates at an earlier stage of development or on less favorable terms to us and our stockholders than we would otherwise choose in order to obtain up-front license fees needed to fund operations. These events could prevent us from successfully executing our operating plan.

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Significant Accounting Policies and Recent Accounting Pronouncements

6 Months Ended

Dec. 31, 2021

Significant Accounting Policies and Recent Accounting Pronouncements

3. Significant Accounting Policies and Recent Accounting Pronouncements

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 are computed based on the weighted-average common shares and common share equivalents outstanding during the period. Except with respect to certain voting, conversion and transfer rights and as otherwise expressly provided in the Company’s Articles of Incorporation or required by applicable law, shares of the Company’s Class A common stock and Class B common stock have the same rights and privileges and rank equally, share ratably and are identical in all respects as to all matters. Accordingly, basic and diluted net income (loss) per share are the same for both classes. Common share equivalents consist of stock options, restricted stock, warrants and convertible related party notes payable. Common share equivalents were excluded from the computation of diluted earnings per share for the six months ended December 31, 2021 and 2020, because their effect was anti-dilutive.

Weighted average shares of common stock outstanding used in the calculation of basic and diluted earnings per share were as follows:

	December 31,
	2021			2020
Net loss per share, basic and diluted		(0.01	)		(0.02	)
Weighted average shares outstanding:
Class A common stock		436,249,011			346,387,415
Class B common stock		15,641,463			3,466,261
Total weighted average shares outstanding		451,890,474			349,853,676
Antidilutive securities not included:
Stock options		9,878,269			6,894,265
Stock options arising from convertible note payable and accrued interest		542,212			3,039,988
Restricted stock grants		58,392			116,787
Convertible preferred stock		9,000,000			13,645,945
Total		19,478,873			23,696,984

Treasury Stock

The Company accounts for treasury stock using the cost method. There were 8,516,056 shares of Class A common stock and 2,358,537 shares of Class B common stock held in treasury, purchased at a total cumulative cost of approximately $2.3 million as of December 31, 2021 and June 30, 2021 (see Note 14. Equity Transactions).

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

The Company follows the guidance of accounting standard ASC 606 (Topic 606), Revenue from Contracts with Customers, and all the related amendments.

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 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).

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

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

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

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

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

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

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

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

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

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

Accounting for Stock Based Compensation

The stock-based compensation expense incurred by the Company for employees, non-employees and directors in connection with its stock option plan is based on 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.”

Awards with service-based vesting conditions only – Expense recognized on a straight-line basis over the requisite service period of the award.

Awards with performance-based vesting conditions – Expense is not recognized until it is determined that it is probable the performance-based conditions will be met. When achievement of a performance-based condition is probable, a catch-up of expense will be recorded as if the award had been vesting on a straight-line basis from the award date. The award will continue to be expensed on a straight-line basis over the requisite service period basis until a higher performance-based condition is met, if applicable.

Awards with market-based vesting conditions – Expense recognized on a straight-line basis over the requisite service period, which is the lesser of the derived service period or the explicit service period if one is present. However, if the market condition is satisfied prior to the end of the requisite service period, the Company will accelerate all remaining expense to be recognized.

Awards with both performance-based and market-based vesting conditions – if an award vesting or exercisability is conditional upon the achievement of either a market condition or performance or service conditions, the requisite service period is generally the shortest of the explicit, implicit, and derived service period.

We have elected to use the Black-Scholes-Merton pricing model to determine the fair value of stock options on the dates of grant. Restricted stock units are measured based on the fair market values of the underlying stock on the dates of grant. We recognize stock-based compensation using the straight-line method.

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Patents net

6 Months Ended

Dec. 31, 2021

Patents net

4. Patents, net

4. Patents, net

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

	Useful life (years)		December 31, 2021			June 30, 2021
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		1,324,000			1,280,000
				5,550,000			5,506,000
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds				(2,525,000	)		(2,373,000	)
Accumulated amortization for Patents-Kevetrin and related compounds				(418,000	)		(379,000	)
Total			$	2,607,000		$	2,754,000

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 December 31, 2021 and 2020 was approximately $96,000 and $94,000, respectively and was approximately $191,000, and $188,000 for the six months ended December 31, 2021 and 2020, respectively.

At December 31, 2021, the future amortization period for all patents was approximately 3.68 years to 16.75 years. Future estimated amortization expenses are approximately $191,000  for the year ending June 30, 2022, $381,000 for each year from 2023 to 2025, $372,000 for the year ending June 30, 2026 and a total of $901,000 for the year ending June 30, 2027 and thereafter. 

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Accrued Expenses Related Parties and Other

6 Months Ended

Dec. 31, 2021

Accrued Expenses Related Parties and Other

5. Accrued Expenses - Related Parties and Other

5. Accrued Expenses – Related Parties and Other

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

	December 31, 2021		June 30, 2021
Accrued research and development consulting fees	$	93,000	$	340,000
Accrued rent (Note 10) - related parties		8,000		8,000
Accrued interest (Note 11) - related parties		21,000		-
Total	$	122,000	$	348,000

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Accrued Salaries and Payroll Taxes Related Parties and Other

6 Months Ended

Dec. 31, 2021

Accrued Salaries and Payroll Taxes Related Parties and Other

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

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

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

	December 31, 2021		June 30, 2021
Accrued salaries - related parties	$	1,467,000	$	1,785,000
Accrued payroll taxes - related parties		71,000		130,000
Withholding tax - payroll		74,000		77,000
Total	$	1,612,000	$	1,992,000

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Exclusive License Agreement

6 Months Ended

Dec. 31, 2021

Exclusive License Agreement

7. Exclusive License Agreement

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 UP/UPS.

Under the terms of the License Agreement, Alfasigma made an initial upfront non-refundable payment of $0.4 million to the Company in July, 2019 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 3 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 completed a Phase 1 clinical 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. Up to December 31, 2021, the Company received an initial upfront non-refundable payment of $0.4 million and reported as revenue in July, 2019.

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Operating Leases

6 Months Ended

Dec. 31, 2021

Operating Leases

8. Operating Leases

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 was fully impaired on December 31, 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 December 31, 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. Commitments and Contingencies).

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

	Six Months Ended December 31, 2021
Lease Cost
Operating lease cost (included in general and administrative in the Company’s condensed consolidated statement of operations)	$	33,000
Variable lease cost		6,000
	$	39,000
Other Information
Cash paid for amounts included in the measurement of lease liabilities for the six months ended December 31, 2021	$	79,000
Weighted average remaining lease term – operating leases (in years)		3.00
Average discount rate – operating leases		18	%

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

	At December 31, 2021
Operating leases
Short-term operating lease liabilities	$	180,000
Long-term operating lease liabilities		158,000
Total operating lease liabilities	$	338,000

The following table provides maturities of the Company’s lease liabilities at December 31, 2021 as follows:

	Operating Leases
Fiscal Year Ending June 30,
2022		112,000
2023		223,000
2024 (remaining 3 months)		56,000
Total lease payments		391,000
Less: Imputed interest/present value discount		(53,000	)
Present value of lease liabilities	$	338,000

Operating lease cost for the three months and the six months ended December 31, 2021 was approximately $16,000 and $33,000. Operating lease cost for the three months and the six months ended December 31, 2020 was approximately $22,000 and $46,000, respectively.

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Commitments and Contingencies

6 Months Ended

Dec. 31, 2021

Commitments and Contingencies

9. Commitments and Contingencies

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. 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 $2.8 million to contract research organizations as of December 31, 2021. Expenses are recognized when services are performed by the contract research organizations.

Contingent Liability - Disputed Invoices

As described in Note 6. Accrued Salaries and Payroll Taxes, the Company 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. Related Party Transactions, the Company has a payable to Kard Scientific, Inc. (“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 December 31, 2021.

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Related Party Transactions

6 Months Ended

Dec. 31, 2021

Related Party Transactions

10. Related Party Transactions

10. Related Party Transactions

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 December 31, 2021 and June 30, 2021, 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. Convertible Note Payable - Related Party below.

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Convertible Note Payable Related Party

6 Months Ended

Dec. 31, 2021

Convertible Note Payable Related Party

11. Convertible Note Payable - Related Party

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 180,000,000 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 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 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 September 8, 2020, the Company issued 1,787,762 shares of Class B common shares (net of 412,238 shares of Class B common shares withheld to satisfy taxes) at the option exercise price of $0.11 per share to Mr. Ehrlich for his partial exercise of his option, paid by the cancellation of debt to Mr. Ehrlich of $242,000 to satisfy the exercise price (as permitted pursuant to the terms of the option agreement).

During the six months ended December 31, 2021, the Company repaid the principal of $1,033,000 to Mr. Ehrlich, the Company’s Chairman and CEO. As of December 31, 2021 and June 30, 2021, the principal balance of this convertible note payable to Mr. Ehrlich, the Company’s Chairman and CEO was approximately $250,000 and $1,283,000, respectively.

As of December 31, 2021 and June 30, 2021, the balance of accrued interest payable was $21,000 and $0, respectively (see Note 5. Accrued Expenses – Related Parties and Other).

As of December 31, 2021 and June 30, 2021, the total outstanding balances of principal and interest were approximately $271,000 and $1,283,000, respectively.

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Loan payable

6 Months Ended

Dec. 31, 2021

Loan payable

12. Loan payable

12. Loan payable

On May 10, 2020 and April 19, 2021, the Company received loan proceeds in the amount of approximately $93,000 and $79,000, respectively, under the Paycheck Protection Program (“PPP”) and it was recorded under loan payable. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

During the six months ended December 31, 2021, the Company obtained the approval of the forgiveness of the above mentioned two loans, and recorded total loan forgiveness of $172,000 under other income.

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding

6 Months Ended

Dec. 31, 2021

Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding

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

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

Stock-based Compensation – Stock Options

2016 Equity Incentive Plan (the “2016 Plan”)

On June 30, 2016, the Board of Directors adopted the Company’s 2016 Plan. The 2016 Plan became effective upon adoption by the Board of Directors on June 30, 2016. 

On February 23, 2020, the Board of Directors approved an amendment to Section 4.1 of the 2016 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 October 10, 2021, the Board of Directors approved amendments to the 2016 Plan to increase the number of shares of common stock available for issuance thereunder to 225,000,000 shares and to increase the annual limit on the number of awards under such Plan to outside directors from 1,500,000 to 5,000,000, among other changes. 

Up to 225,000,000 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).

Amendments to the 2016 Equity Incentive Plan

The Compensation Committee approved, and the Board of Directors ratified on October 10, 2021, amendments to the Plan to increase the number of shares of common stock available for issuance thereunder to 225 million shares, among other amendments.

Stock Options

The fair value of options granted for the six months ended December 31, 2021 and 2020 was estimated on the date of grant using the Black-Scholes-Merton Model that uses assumptions noted in the following table.

	Six months ended December 31,
	2021			2020
Expected term (in years)		5-10			10
Expected stock price volatility		80.84 to 89.51	%		93.95 to 95.47	%
Risk-free interest rate		0.69% to 1.61	%		0.59 to 0.68	%
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 six months ended December 31, 2021 and 2020 are as follows (rounded to nearest thousand):

	Three months ended December 31				Six months ended December 31
	2021		2020		2021		2020
Research and development expenses	$	111,000	$	-	$	111,000	$	-
General and administrative expenses		41,000		31,000		81,000		93,000
Total stock-based compensation expense	$	152,000	$	31,000	$	192,000	$	93,000

During the six months ended December 31, 2021 and 2020

On October 10, 2021, the Compensation Committee approved to issue 2 million stock options to purchase shares of the Company’s common stock to the Company’s two independent directors in total and 500,000 stock options to purchase shares of Company’s common stock to Mr. Ehrlich, which are exercisable for 10 years at $0.24 per share of common stock. These stock options with 1 year vesting period were valued at approximately $488,000, based on the closing bid price as quoted on the OTC on October 10, 2021 at $0.24 per share. During the six months ended December 31, 2021, the Company recorded approximately $111,000 of stock-based compensation costs and charged to additional paid-in capital as of December 31, 2021. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

On October 10, 2021, the Company also issued to Ms. Jane Harness, the Senior Vice President, Clinical Sciences and Portfolio Management of the Company, 500,000 options to purchase common stock, which are exercisable for 10 years at $0.24 per share of common stock. These stock options with 1 year vesting period were valued at approximately $98,000, based on the closing bid price as quoted on the OTC on October 10, 2021 at $0.24 per share. During the six months ended December 31, 2021, the Company recorded approximately $22,000 of related stock-based compensation. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

On July 30, 2020, the Company agreed to issue 100,000 stock options to purchase shares of the Company’s common stock to one consultant for his one-year contract. These options were issued with an exercise price of $0.27 per share and vest 33 1/3% on July 30, 2021, 33 1/3% on January 30, 2022, and 33 1/3% on July 30, 2022. The value of these options was approximately $19,000. During the six months ended December 31, 2021, the Company recorded approximately $11,000 of related stock-based compensation. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

On July 1, 2021, the Company agreed to issue 225,000 stock options to purchase shares of the Company’s common stock to one consultant for his one-year contract. These options were issued with an exercise price of $0.21 per share and vest 33 1/3% on July 1, 2021, 33 1/3% on January 1, 2022, and 33 1/3% on July 1, 2022. The value of these options was approximately $33,000. During the six months ended December 31, 2021, the Company recorded approximately $22,000 of related stock-based compensation. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

On February 10, 2021, the Company agreed to issue 75,000 stock options to purchase shares of the Company’s common stock to one consultant for his one-year contract. These options were issued with an exercise price of $0.38 per share and vest 33 1/3% on February 10, 2021, 33 1/3% on July 1, 2021, and 33 1/3% on January 1, 2022. The value of these options was approximately $20,000. During the six months ended December 31, 2021 and 2020, the Company recorded approximately $7,000 and $0 of related stock-based compensation, respectively. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

On September 11, 2020, 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 with 3 years vesting period were valued at approximately $33,000 and these 58,394 shares of the Company’s common stock were valued at approximately $13,000, based on the closing bid price as quoted on the OTC on September 11, 2020 at $0.22 per share. During the six months ended December 31, 2021, the Company recorded approximately $8,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $6,000 of stock option expense and $2,000 of stock awards. During the six months ended December 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 July 23, 2020, the Company agreed to issue 100,000 stock options to purchase shares of the Company’s common stock to one consultant for his one-year contract. These options were issued with an exercise price of $0.32 per share and vest 33 1/3% on July 23, 2020, 33 1/3% on January 23, 2021, and 33 1/3% on July 23, 2021. The value of these options was approximately $28,000. During the six months ended December 31, 2021 and 2020, the Company recorded approximately $1,000 and $17,000 of related stock-based compensation, respectively. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

On May 18, 2020, the Company agreed to issue 500,000 stock options to purchase shares of the Company’s common stock each to two consultants for their one-year contracts. These options were issued with an exercise price of $0.14 per share and vest 33 1/3% on July 1, 2020, 33 1/3% on January 1, 2021, and 33 1/3% on July 1, 2021. The value of these options was approximately $78,000. During the six months ended December 31, 2021 and 2020, the Company recorded approximately $0 and $26,000 of related stock-based compensation, respectively. The assumptions we used in the Black Scholes option-pricing model were disclosed above.

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 with 3 years vesting period were 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 six months ended December 31, 2021, 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. During the six months ended December 31, 2020, the Company recorded approximately $3,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $2,000 of stock option expense and $1,000 of stock awards.

On September 1, 2018, the Company also issued to Ms. Jane 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 six months ended December 31, 2021, 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. During the six months ended December 31, 2020, the Company recorded approximately $14,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $10,000 of stock option expense and $4,000 of stock awards.

Exercise of options

During the quarter ended December 31, 2021, the Company received approximately $23,000 of net proceeds from the exercise of 166,666 stock options at $0.14 per share. The details of exercises of options to purchase Class B common stock during the six months ended December 31, 2020 are disclosed in Note 14. Equity Transactions.

Forfeiture of options

There was forfeiture of 60,000 options and 294,330 options to purchase Class A common stock during the six months ended December 31, 2021 and the year ended June 30, 2021 relating to the expiry of options of 12 consultants.

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, 2020		22,803,098		$	0.18		1.83	$	5,857,312
Granted		452,987		$	0.27		6.96		-
Exercised		(16,181,820	)	$	0.11		-		-
Forfeited/expired		(294,330	)	$	0.55		-		-
Outstanding at June 30, 2021		6,779,935		$	0.35		4.45	$	345,923
Granted		3,325,000		$	0.24		9.26		-
Exercised		(166,666	)	$	0.14		-		-
Forfeited/expired		(60,000	)	$	0.51		-		-
Outstanding at December 31, 2021		9,878,269		$	0.32		5.74	$	-
Exercisable at December 31, 2021		6,463,616		$	0.36		3.84	$	-
Unvested stock options at December 31, 2021		3,414,653		$	0.24		9.33	$	-

Restricted Stock Awards Outstanding

The following summarizes our restricted stock activity:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Total unvested shares outstanding at June 30, 2020		116,787		$	0.32
Total shares granted		58,394		$	0.22
Total shares vested		(58,395	)	$	0.41
Total shares forfeited		-		$	-
Total unvested shares outstanding at June 30, 2021		116,786		$	0.22
Total shares granted		-		$	-
Total shares vested		(58,394	)	$	0.25
Total shares forfeited		-		$	-
Total unvested shares outstanding at December 31, 2021		58,392		$	0.19

Scheduled vesting for outstanding restricted stock awards at December 31, 2021 is as follows:

	Year Ending June 30,
	2023		2024		Total
Scheduled vesting		38,928		19,464		58,392

As of December 31, 2021, there was approximately $9,000 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 $6,000 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 1.50 years.

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Equity Transactions

6 Months Ended

Dec. 31, 2021

Equity Transactions

14. Equity Transactions

14. Equity Transactions

$30 million Class A Common Stock Purchase Agreement with Aspire Capital

On July 31, 2020, the Company entered into the 2020 Agreement with Aspire Capital which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the 24-month term of the Agreement. In consideration for entering into the 2020 Agreement, the Company issued to Aspire Capital 6,250,000 shares of its Class A Common Stock as a commitment fee. The commitment fee of approximately $1.4 million was recorded as deferred financing costs and additional paid-in capital and this asset will be amortized over the life of the 2020 Agreement. The amortized amount of approximately $0.4 million was recorded to additional paid-in capital for the six months ended September, 2021 and 2020. The unamortized portion is carried on the balance sheet as deferred offering costs and was approximately $0.4 million and $0.8 million at December 31, 2021 and June 30, 2021.

During the six months ended December 31, 2021, the Company did not raise any money under the 2020 Agreement with Aspire Capital. As of December 31, 2021, the available balance under the 2020 Agreement was approximately $25.4 million.

Class B Common Stock

On September 8, 2020, Mr. Ehrlich exercised 2.2 million options to purchase 2.2 million shares of Class B common stock at the option exercise price of $0.11 per share. Mr. Ehrlich paid for this exercise of his option by the cancellation of debt to Mr. Ehrlich of $242,000 to satisfy the exercise price (See Note 11. Convertible Note Payable). The Company issued 1,787,762 shares of Class B common stock (net share issuance amount), to Mr. Ehrlich. The remaining 412,238 shares of Class B common stock were withheld from Mr. Ehrlich for the payment of payroll taxes.

On October 2, 2020, Mr. Ehrlich exercised 909,090 options to purchase 909,090 shares of Class B common stock at the option exercise price of $0.11 per share. Mr. Ehrlich paid for this exercise of his option 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). The Company issued 727,994 shares of Class B common stock (net share issuance amount), to Mr. Ehrlich. The remaining 181,096 shares of Class B common stock were withheld from Mr. Ehrlich for the payment of payroll taxes.

On December 28, 2020, Mr. Ehrlich exercised his option to purchase 13,072,730 shares of Class B common stock, at the option exercise price at $0.11 per shares for the shares, paid by the cancellation of 6,980,583 shares of Class A common stock held by Mr. Ehrlich of $1,438,000 to satisfy the exercise price. The total taxable compensation to Mr. Ehrlich for the 13,072,730 shares was approximately $540,000, based upon the closing stock price on December 29, 2020 of $0.21 a share. The Company withheld 1,765,203 shares of Class B common stock and cancelled additional 854,419 shares of Class A common stock held by Mr. Ehrlich. As a result, the Company issued 11,307,527 shares of Class B common shares (net of 1,765,203 shares of Class B common shares withheld to satisfy taxes), and cancelled 7,835,002 shares of Class A common stock held by Mr. Ehrlich. These shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

As of December 31, 2021 and June 30, 2021, the total issued number of Class B common stock were 18 million shares and the total outstanding number of Class B common stock were 15,641,463.

Series B-2 5% convertible preferred stock (“2020 Series B-2 5% convertible preferred stock”)

On December 4, 2020, the Company entered into a securities purchase agreement (the “Series B-2 Securities Purchase Agreement”) with KIPS Bay Select LP for the sale of an aggregate of 5,089 shares of the Company’s Series B-2 5% convertible preferred stock (the “Series B-2 preferred stock”), for aggregate gross proceeds of approximately $5.0 million. An initial closing for the sale of 3,053 shares of the Series B-2 preferred stock closed on December 9, 2020 for aggregate gross proceeds of approximately $3.0 million, and a second closing for the sale of 2,036 shares of the Series B-2 preferred stock closed on February 8, 2021 for aggregate gross proceeds of approximately $2.0 million. Under the Series B-2 Securities Purchase Agreement, the Company also issued to the investors warrants to purchase up to an additional 10,178 shares of preferred stock.

The Series B-2 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-2 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 (See ASC 480-10-35-5).

The warrants issued in connection with the Series B-2 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-2 preferred stock fair value (without the warrants)) with an offsetting discount to the Series B-2 preferred stock. Given that the Series B-2 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-2 preferred stock liability after the issuance).

The Company recorded the December 9, 2020 issuance of 3,053 shares Series B-2 Preferred Stock at approximately $2.1 million and the underlying Series 1 and Series 2 warrants at approximately $0.9 million in total by allocating the gross proceeds to Series B-2 preferred stock (without the warrants) and warrants based on their relative fair values or direct valuation as appropriate. The Company recorded BCF of approximately $1.8 million associated with the issuance of the 3,053 shares of Series B-2 preferred stock to additional paid-in capital. The Company then recorded interest of approximately $2.7 million for the BCF and warrant discounts as a first day interest given that the Series B-2 preferred shares can be converted at any time to common stock and given no set term.

The Company recorded the February 8, 2021 issuance of 2,036 shares Series B-2 Preferred Stock at approximately $1.5 million and the underlying Series 1 and Series 2 warrants at approximately $0.5 million in total by allocating the gross proceeds to Series B-2 preferred stock (without the warrants) and warrants based on their relative fair values or direct valuation as appropriate. The Company recorded BCF of approximately $1.5 million associated with the issuance of the 2,036 shares of Series B-2 preferred stock to additional paid-in capital. The Company then recorded interest of approximately $2.0 million for the BCF and warrant discounts as a first day interest given that the Series B-2 preferred shares can be converted at any time to common stock and given no set term.

The issuance costs associated with the Series B-2 preferred stock transaction were attributed to the Series B-2 preferred stock (without the warrants) and to the Series 1 and Series 2 warrants based on their relative fair values. The issuance costs attributed to the warrants of approximately $10,000 were reflected as a reduction to additional paid-in capital. The issuances costs associated with the Series B-2 preferred stock liability of $25,000 was recorded immediately as an element of interest cost, which are reflected in interest expense - preferred stock. The change in fair value of the total Series B-2 preferred stock was $0 during the year ended June 30, 2021.

Underlying Series B-2 preferred stock dividends, paid quarterly, was accrued as interest (given the liability classification of the Series B-2 preferred stock) on a daily basis given fixed dividend terms under the Series B-2 preferred stock. The Company recorded 5% dividend accretion on total outstanding Series B-2 preferred stock and the total dividends accrued of approximately $15,000 are treated as interest during the year ended June 30, 2021, respectively.

Terms of the 2020 Series B-2 5% convertible 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-2 5% Convertible Preferred Stock filed with the Nevada Secretary of State on December 4, 2020 (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) $0.35 until August 15, 2021 and $0.50 thereafter, and (ii) 85% of the lowest volume weighted average price of the Company’s common stock on a trading day during the ten trading days prior to and ending on, and including, the conversion date. The conversion price may be adjusted following certain triggering events and subsequent equity sales and is subject to appropriate adjustment in the event of stock splits, stock dividends, recapitalization or similar events affecting the Company’s common stock.

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

Redemption Rights

Following 90 days after the scheduled date for the second closing date, 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.

2020 Series B-2 5% convertible preferred stock warrants

Each share of preferred stock was sold together with two warrants: (i) a Series 1 warrant, which entitles the holder thereof to purchase one share of preferred stock at $982.50 per share, or 5,089 shares of preferred stock in the aggregate for approximately $5.0 million in aggregate exercise price, for a period of up to 18 months following issuance, and (ii) a Series 2 warrant, which entitles the holder thereof to purchase one shares of preferred stock at $982.50 per share, or 5,089 shares of preferred stock in the aggregate for approximately $5.0 million in aggregate exercise price, for a period of up to 24 months following issuance.

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 10 days following the Company’s payment of the call fee, provided that the warrant holders have not exercised the warrants prior to cancellation.

Exercise of 2020 Series B-2 5% convertible preferred stock warrants

During the six months ended December 31, 2021, the Company issued 5,072 shares of its Series B-2 5% convertible preferred stock, for aggregate gross proceeds of $4,984,000, upon exercise of 3,036 Series 1 warrants and exercise of 2,036 Series 2 warrants issued by the Company. With regard to the exercise of these 5,072 warrants, the Company recorded gross proceeds of approximately $4,984,000 to the preferred stock liability. As of December 31, 2021, there were no Series 1 and 2 warrants outstanding since all warrants were exercised, and there were 2,000 shares of Series B-2 5% convertible preferred stock outstanding.

During the period from December 4, 2020 (date of securities purchase agreement) to June 30, 2021, the Company issued 3,053 shares of its Series B-2 5% convertible preferred stock, for aggregate gross proceeds of $2,999,573, upon exercise of 3,053 Series 1 warrants issued by the Company. In addition, the Company issued 2,053 shares of its Series B-2 5% convertible preferred stock, for aggregate gross proceeds of $2,017,073, upon exercise of 2,053 Series 2 warrants issued by the Company. With regard to the exercise of these 5,106 warrants, the Company recorded gross proceeds of approximately $5,017,000 to the preferred stock liability. As of June 30, 2021, there was 5,072 Series 1 and 2 warrants to purchase 5,072 shares of Series B-2 5% convertible preferred stock outstanding and there was 0 share of Series B-2 5% convertible preferred stock

Conversion of 2020 Series B-2 5% convertible preferred stock to common stock

During the six months ended December 31, 2021, the 2020 Series B-2 5% convertible preferred stockholder converted a total of 3,572 shares of Series B-2 preferred stock into a total of approximately 26.8 million shares of common stock. With regard to conversions, the Company reversed Series B-2 5% convertible preferred stock liability relating to the conversion and recorded as Additional paid-in capital at par value. The Company reversed the amount of approximately $3,510,000 based on the proportion of Series B-2 5% convertible preferred stock converted relative to the original total issued. Series B-2 5% convertible preferred stock liability as of December 31, 2021 is approximately $1.5 million.

During the period from December 4, 2020 (date of securities purchase agreement) to June 30, 2021, the 2020 Series B-2 5% convertible preferred stockholder converted a total of 10,207 shares of Series B-2 preferred stock into a total of 68,034,812 shares of common stock. With regard to conversions, the Company reversed Series B-2 5% convertible preferred stock liability relating to the conversion and recorded as Additional paid-in capital at par value. The Company reversed the amount of approximately $10,017,000 based on the proportion of Series B-2 5% convertible preferred stock converted relative to the original total issued. Series B-2 5% convertible preferred stock liability as of June 30, 2021 is $0.

Treasury Stock

Regarding the exercise of options to purchase 2.2 million shares of Class B common stock on September 8, 2020 by Mr. Ehrlich, the Company issued 1,787,762 shares of Class B common stock (net share issuance amount), to Mr. Ehrlich. The remaining 412,238 shares of Class B common stock were withheld from Mr. Ehrlich for the payment of payroll taxes and were reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

Regarding the exercise of options to purchase 909,090 shares of Class B common stock on October 2, 2020, the Company issued 727,994 shares of Class B common stock (net share issuance amount), to Mr. Ehrlich. The remaining 181,096 shares of Class B common stock were withheld were withheld from Mr. Ehrlich for the payment of payroll taxes and were reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

Regarding the exercise of options to purchase 13,072,730 shares of Class B common stock on December 28, 2020, the Company cancelled 6,980,583 shares of Class A common stock held by Mr. Ehrlich of $1,438,000 to satisfy the exercise price. The Company withheld 1,765,203 shares of Class B common stock and cancelled additional 854,419 shares of Class A common stock held by Mr. Ehrlich. As a result, the Company issued 11,307,527 shares of Class B common shares (net of 1,765,203 shares of Class B common shares withheld to satisfy taxes), and cancelled 7,835,002 shares of Class A common stock held by Mr Ehrlich. Both the 1,765,203 shares of Class B common stock and the 7,835,002 shares of Class A common stock were reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

There were 8,516,056 shares of Class A common stock and 2,358,537 shares of Class B common stock held in treasury, purchased at a total cumulative cost of approximately $2.3 million as of December 31, 2021 and June 30, 2021.

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Fair Value Measurement

6 Months Ended

Dec. 31, 2021

Fair Value Measurement

15. Fair value measurement

15. 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:

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

The three levels of valuation hierarchy are defined as follows:

● Level 1: Observable inputs such as quoted prices in active markets;

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

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

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-2 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 Series B-2 preferred stock liability balance for the six months ended December 31, 2021 and for the year ended June 30, 2021:

	FY 2021
Balance, July 1, 2020	$	-
Issuance of Series B-2 preferred stock at fair value		5,000,000
Exercise of Series 1 and 2 warrants		5,017,000
Conversion of Series B-2 preferred stock to common stock		(10,017,000	)
Change in fair value of Series B-2 preferred stock (1)	(-)
Balance, June 30, 2021	$	-
Exercise of Series 2 warrants		4,983,000
Conversion of Series B-2 preferred stock to common stock		(3,509,000	)
Change in fair value of Series B-2 preferred stock (1)	(-)
Balance, December 31, 2021	$	1,474,000

(1)	Change in fair value of preferred stock is reported in interest expense—preferred stock.
(2)	The 5% accrued dividend is reported in interest expense—preferred stock in the statement of operation and the remaining accrued dividends of $29,000 was included under current liability as of December 31, 2021.

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Subsequent Events

6 Months Ended

Dec. 31, 2021

Subsequent Events

16. Subsequent Events

16. Subsequent Events

The Company has evaluated events occurring subsequent to December 31, 2021 through the date these financial statements were issued and determined the following items requiring disclosure: 

Equity Transactions

From January 1, 2022 to date of the issuance of these financial statements, there were 270 preferred stock shares converted to approximately 9.3 million shares of common stock.

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Significant Accounting Policies and Recent Accounting Pronouncements (Policies)

6 Months Ended

Dec. 31, 2021

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 are computed based on the weighted-average common shares and common share equivalents outstanding during the period. Except with respect to certain voting, conversion and transfer rights and as otherwise expressly provided in the Company’s Articles of Incorporation or required by applicable law, shares of the Company’s Class A common stock and Class B common stock have the same rights and privileges and rank equally, share ratably and are identical in all respects as to all matters. Accordingly, basic and diluted net income (loss) per share are the same for both classes. Common share equivalents consist of stock options, restricted stock, warrants and convertible related party notes payable. Common share equivalents were excluded from the computation of diluted earnings per share for the six months ended December 31, 2021 and 2020, because their effect was anti-dilutive.

Weighted average shares of common stock outstanding used in the calculation of basic and diluted earnings per share were as follows:

	December 31,
	2021			2020
Net loss per share, basic and diluted		(0.01	)		(0.02	)
Weighted average shares outstanding:
Class A common stock		436,249,011			346,387,415
Class B common stock		15,641,463			3,466,261
Total weighted average shares outstanding		451,890,474			349,853,676
Antidilutive securities not included:
Stock options		9,878,269			6,894,265
Stock options arising from convertible note payable and accrued interest		542,212			3,039,988
Restricted stock grants		58,392			116,787
Convertible preferred stock		9,000,000			13,645,945
Total		19,478,873			23,696,984

Treasury Stock

The Company accounts for treasury stock using the cost method. There were 8,516,056 shares of Class A common stock and 2,358,537 shares of Class B common stock held in treasury, purchased at a total cumulative cost of approximately $2.3 million as of December 31, 2021 and June 30, 2021 (see Note 14. Equity Transactions).

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

The Company follows the guidance of accounting standard ASC 606 (Topic 606), Revenue from Contracts with Customers, and all the related amendments.

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 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).

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

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

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

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

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

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

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

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

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

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

Accounting for Stock Based Compensation

We have elected to use the Black-Scholes-Merton pricing model to determine the fair value of stock options on the dates of grant. Restricted stock units are measured based on the fair market values of the underlying stock on the dates of grant. We recognize stock-based compensation using the straight-line method.

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Significant Accounting Policies and Recent Accounting Pronouncements (Tables)

6 Months Ended

Dec. 31, 2021

Significant Accounting Policies and Recent Accounting Pronouncements

Schedule of basic and diluted earning per share

	December 31,
	2021			2020
Net loss per share, basic and diluted		(0.01	)		(0.02	)
Weighted average shares outstanding:
Class A common stock		436,249,011			346,387,415
Class B common stock		15,641,463			3,466,261
Total weighted average shares outstanding		451,890,474			349,853,676
Antidilutive securities not included:
Stock options		9,878,269			6,894,265
Stock options arising from convertible note payable and accrued interest		542,212			3,039,988
Restricted stock grants		58,392			116,787
Convertible preferred stock		9,000,000			13,645,945
Total		19,478,873			23,696,984

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Patents net (Tables)

6 Months Ended

Dec. 31, 2021

Patents net (Tables)

Schedule of patents

	Useful life (years)		December 31, 2021			June 30, 2021
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		1,324,000			1,280,000
				5,550,000			5,506,000
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds				(2,525,000	)		(2,373,000	)
Accumulated amortization for Patents-Kevetrin and related compounds				(418,000	)		(379,000	)
Total			$	2,607,000		$	2,754,000

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Accrued Expenses Related Parties and Other (Tables)

6 Months Ended

Dec. 31, 2021

Accrued Expenses Related Parties and Other

Schedule of accrued expenses

	December 31, 2021		June 30, 2021
Accrued research and development consulting fees	$	93,000	$	340,000
Accrued rent (Note 10) - related parties		8,000		8,000
Accrued interest (Note 11) - related parties		21,000		-
Total	$	122,000	$	348,000

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

6 Months Ended

Dec. 31, 2021

Accrued Salaries and Payroll Taxes Related Parties and Other

Schedule of accrued salaries and payroll taxes

	December 31, 2021		June 30, 2021
Accrued salaries - related parties	$	1,467,000	$	1,785,000
Accrued payroll taxes - related parties		71,000		130,000
Withholding tax - payroll		74,000		77,000
Total	$	1,612,000	$	1,992,000

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Operating Leases (Tables)

6 Months Ended

Dec. 31, 2021

Operating Leases

Schedule of components of lease expense

	Six Months Ended December 31, 2021
Lease Cost
Operating lease cost (included in general and administrative in the Company’s condensed consolidated statement of operations)	$	33,000
Variable lease cost		6,000
	$	39,000
Other Information
Cash paid for amounts included in the measurement of lease liabilities for the six months ended December 31, 2021	$	79,000
Weighted average remaining lease term – operating leases (in years)		3.00
Average discount rate – operating leases		18	%

Schedule of operating lease liabilities

	At December 31, 2021
Operating leases
Short-term operating lease liabilities	$	180,000
Long-term operating lease liabilities		158,000
Total operating lease liabilities	$	338,000

Schedule of maturities of the lease liabilities

	Operating Leases
Fiscal Year Ending June 30,
2022		112,000
2023		223,000
2024 (remaining 3 months)		56,000
Total lease payments		391,000
Less: Imputed interest/present value discount		(53,000	)
Present value of lease liabilities	$	338,000

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

6 Months Ended

Dec. 31, 2021

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

Schedule of fair value of the warrants assumptions

	Six months ended December 31,
	2021			2020
Expected term (in years)		5-10			10
Expected stock price volatility		80.84 to 89.51	%		93.95 to 95.47	%
Risk-free interest rate		0.69% to 1.61	%		0.59 to 0.68	%
Expected dividend yield		0			0

Components of stock-based compensation expense

	Three months ended December 31				Six months ended December 31
	2021		2020		2021		2020
Research and development expenses	$	111,000	$	-	$	111,000	$	-
General and administrative expenses		41,000		31,000		81,000		93,000
Total stock-based compensation expense	$	152,000	$	31,000	$	192,000	$	93,000

Schedule of stock option activity

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2020		22,803,098		$	0.18		1.83	$	5,857,312
Granted		452,987		$	0.27		6.96		-
Exercised		(16,181,820	)	$	0.11		-		-
Forfeited/expired		(294,330	)	$	0.55		-		-
Outstanding at June 30, 2021		6,779,935		$	0.35		4.45	$	345,923
Granted		3,325,000		$	0.24		9.26		-
Exercised		(166,666	)	$	0.14		-		-
Forfeited/expired		(60,000	)	$	0.51		-		-
Outstanding at December 31, 2021		9,878,269		$	0.32		5.74	$	-
Exercisable at December 31, 2021		6,463,616		$	0.36		3.84	$	-
Unvested stock options at December 31, 2021		3,414,653		$	0.24		9.33	$	-

Schedule of Restricted Stock Award Activity

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Total unvested shares outstanding at June 30, 2020		116,787		$	0.32
Total shares granted		58,394		$	0.22
Total shares vested		(58,395	)	$	0.41
Total shares forfeited		-		$	-
Total unvested shares outstanding at June 30, 2021		116,786		$	0.22
Total shares granted		-		$	-
Total shares vested		(58,394	)	$	0.25
Total shares forfeited		-		$	-
Total unvested shares outstanding at December 31, 2021		58,392		$	0.19

Schedule of vesting outstanding restricted stock

	Year Ending June 30,
	2023		2024		Total
Scheduled vesting		38,928		19,464		58,392

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Fair Value Measurement (Tables)

6 Months Ended

Dec. 31, 2021

Fair Value Measurement

Schedule of Change in fair value of preferred stock

	FY 2021
Balance, July 1, 2020	$	-
Issuance of Series B-2 preferred stock at fair value		5,000,000
Exercise of Series 1 and 2 warrants		5,017,000
Conversion of Series B-2 preferred stock to common stock		(10,017,000	)
Change in fair value of Series B-2 preferred stock (1)	(-)
Balance, June 30, 2021	$	-
Exercise of Series 2 warrants		4,983,000
Conversion of Series B-2 preferred stock to common stock		(3,509,000	)
Change in fair value of Series B-2 preferred stock (1)	(-)
Balance, December 31, 2021	$	1,474,000

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Liquidity (Details Narrative) - USD ($)	1 Months Ended	6 Months Ended
	Jul. 31, 2020	Dec. 31, 2021	Dec. 31, 2020	Jun. 30, 2021
Cash		$ 9,900,000
Total Current Liabilities		4,500,000
Net loss		(3,900,000.0)	$ (7,300,000)
Working capital		5,500,000		$ 4,200,000
Future budget expenditures		8,300,000
Clinical activities		6,300,000
2020 Agreement [Member] | Aspire Capital [Member] | Class A Common Stock [Member]
Aggregate purchase	$ 30,000,000.0
Common stock, shares issued	6,250,000
Commitment fee	$ 1,400,000
Available balance		$ 25,400,000

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Significant Accounting Policies and Recent Accounting Pronouncements (Details) - $ / shares	3 Months Ended		6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Net loss per share, basic and diluted	$ (0.00)	$ (0.02)	$ (0.01)	$ (0.02)
Total weighted average shares outstanding	457,008,040	359,967,023	451,890,474	349,853,676
Stock options	166,666		9,878,269	6,894,265
Stock options arising from convertible note payable and accrued interest			542,212	3,039,988
Restricted stock grants			58,392	116,787
Convertible preferred stock			9,000,000	13,645,945
Total			19,478,873	23,696,984
Common Class A [Member]
Total weighted average shares outstanding			436,249,011	346,387,415
Common Class B [Member]
Total weighted average shares outstanding			15,641,463	3,466,261

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Significant Accounting Policies and Recent Accounting Pronouncements (Details Narrative) - USD ($) $ in Millions	Dec. 31, 2021	Jun. 30, 2021
Treasury Stock, value	$ 2.3
Treasury Stock, shares	10,874,593	10,874,593
Class A Common Stock [Member]
Treasury Stock, shares	8,516,056
Class B Common Stock [Member]
Treasury Stock, shares	2,358,537

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Patents net (Details) - USD ($)	6 Months Ended
	Dec. 31, 2021	Jun. 30, 2021
Patent costs - gross	$ 5,550,000	$ 5,506,000
Patent costs - net	2,607,000	2,754,000
Patents [Member]
Patent costs - gross	$ 4,082,000	4,082,000
Useful life	14 years
Accumulated amortization	$ (2,525,000)	(2,373,000)
Patents Two [Member]
Patent costs - gross	$ 144,000	144,000
Useful life	12 years
Patents Three [Member]
Patent costs - gross	$ 1,324,000	1,280,000
Useful life	17 years
Accumulated amortization	$ (418,000)	$ (379,000)

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Patents net (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Amortization of patent costs	$ 96,000	$ 94,000	$ 191,000	$ 188,000
Patents [Member]
June 30, 2022	191,000		191,000
June 30, 2023	381,000		381,000
June 30, 2024	381,000		381,000
June 30, 2025	381,000		381,000
June 30, 2026	372,000		372,000
June 30, 2027 and Thereafter	$ 901,000		$ 901,000
Future amortization period			14 years
Patents [Member] | Minimum [Member] | IntangibleAssets [Member]
Estimated remaining useful lives of the assets			12 years
Future amortization period			3 years 8 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

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Accrued Expenses Related Parties and Other (Details) - USD ($)	Dec. 31, 2021	Jun. 30, 2021
Accrued Expenses Related Parties and Other
Accrued research and development consulting fees	$ 93,000	$ 340,000
Accrued rent (Note 10) - related parties	8,000	8,000
Accrued interest (Note 11) - related parties	21,000	0
Total	$ 122,000	$ 348,000

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Accrued Salaries and Payroll Taxes Related Parties And Other (Details) - USD ($)	Dec. 31, 2021	Jun. 30, 2021
Accrued Salaries and Payroll Taxes Related Parties and Other
Accrued salaries - related parties	$ 1,467,000	$ 1,785,000
Accrued payroll taxes - related parties	71,000	130,000
Withholding tax - payroll	74,000	77,000
Total	$ 1,612,000	$ 1,992,000

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Exclusive License Agreement (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended
	Jul. 31, 2019	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020	Jul. 18, 2019
Revenues	$ 400,000.0	$ 0	$ 0	$ 0	$ 0
License Agreement [Member]
Non-refundable payment		$ 400,000		$ 400,000		$ 400,000
Additional payments payable upon achievement of certain milestones under agreement by related party						24,000,000.0
Payment due following commencement of first phase III clinical trial of Brilacidin						1,000,000.0
Payment due upon filing of a marketing approval application						$ 1,000,000.0

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Operating Leases (Details) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Lease Cost
Operating lease cost (included in general and administrative in the Company's consolidated statement of operations)	$ 16,000	$ 22,000	$ 33,000	$ 46,000
Variable lease cost			6,000
Total operating cost			39,000
Cash paid for amounts included in the measurement of lease liabilities for the six months ended December 31, 2021			$ 79,000
Weighted average remaining lease term - operating leases (in years)			3 years
Average discount rate - operating leases	18.00%		18.00%

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Operating Leases (Details 1) - USD ($)	Dec. 31, 2021	Jun. 30, 2021
Operating leases
Short-term operating lease liabilities	$ 180,000	$ 165,000
Long-term operating lease liabilities	158,000	$ 252,000
Total operating lease liabilities	$ 338,000

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Operating Leases (Details 2)	Dec. 31, 2021 USD ($)
Fiscal Year Ending June 30,
2022	$ 112,000
2023	223,000
2024 (remaining 3 months)	56,000
Total lease payments	391,000
Less: Imputed interest/present value discount	(53,000)
Present value of lease liabilities	$ 338,000

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Operating Leases (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended			6 Months Ended
	Dec. 31, 2019	Dec. 31, 2021	Dec. 31, 2020	Sep. 30, 2019	Dec. 31, 2021	Dec. 31, 2020
Operating Leases (Details Narrative)
Impairment expense of operating lease	$ 643,000
Amortization of the right-of-use asset				$ 27,000
Operatng lease, right-of-use assets	$ 0
Operating lease cost		$ 16,000	$ 22,000		$ 33,000	$ 46,000

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Commitments and Contingencies (Details Narrative)	Dec. 31, 2021 USD ($)
Contractual commitments	$ 2,800,000
Dr Krishna Menon [Member]
Accrued salaries and payroll taxes	1,443,000
Accounts payable	$ 1,486,000

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Related Party Transactions (Details Narrative) - USD ($)	1 Months Ended
	Feb. 23, 2020	Dec. 31, 2021	Jun. 30, 2021
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	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
Zorik Spektor [Member] | Common Class A [Member]
Common stock, Shares issued	500,000

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Convertible Note Payable Related Party (Details Narrative) - USD ($)	1 Months Ended	6 Months Ended
	May 07, 2012	Dec. 31, 2021	Jun. 30, 2021	Dec. 28, 2020	Sep. 08, 2020	Mar. 30, 2020	Jan. 29, 2019	May 08, 2012
Total outstanding balance of principal and interest		$ 271,000	$ 1,283,000
Accrued interest - related parties		$ 21,000	$ 0
Treasury Stock Shares		10,874,593	10,874,593
Common Class B [Member]
Common stock shares issued upon extinguishment of debt				13,072,730	1,787,762
Ehrlich Promissory Note C [Member]
Exercise price	$ 0.51
Principal balance of demand notes								$ 2,022,000
Equity incentive shares	2,000,000
Interest rate								10.00%
Closing bid price per share	$ 0.46
Percentage of closing bid price	110.00%
Originated In 2010 [Member] | Ehrlich Promissory Note C [Member]
Interest rate		9.00%
Common stock price per share		$ 0.50
Mr. Ehrlich [Member]
Principal balance of demand notes		$ 250,000	$ 1,283,000
Debt repayment		$ 1,033,000
Mr. Ehrlich [Member] | Common Class B [Member]
Exercise price					$ 0.11	$ 0.11	$ 0.11
Amount of debt extinguished					$ 242,000	$ 100,000	$ 100,000
Common stock shares issued upon extinguishment of debt				13,072,730	1,787,762	909,090	909,090
Treasury Stock Shares					412,238
Mr. Ehrlich [Member] | December 29, 2010 [Member]
Exercise price		$ 0.11
Option issued		180,000,000

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Loan payable (Details Narrative) - Paycheck Protection Program [Member] - USD ($)		1 Months Ended	6 Months Ended	12 Months Ended
	May 10, 2020	Apr. 19, 2021	Dec. 31, 2021	Jun. 30, 2021
Loan forgivness			$ 172,000	$ 172,000
Loan proceeds	$ 93,000	$ 79,000

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details) - Stock Option [Member]	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Expected term (in years)		10 years
Expected stock price volatility	89.51%
Expected dividend yield	0.00%	0.00%
Minimum [Member]
Expected term (in years)	5 years
Expected stock price volatility	80.84%	93.95%
Risk-free interest rate	0.69%	0.59%
Maximum [Member]
Expected term (in years)	10 years
Expected stock price volatility	89.51%	95.47%
Risk-free interest rate	1.61%	0.68%

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 1) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Total stock-based compensation expense	$ 152,000	$ 31,000	$ 192,000	$ 93,000
Research and Development Expense [Member]
Total stock-based compensation expense	111,000	0	111,000	0
General and Administrative Expense [Member]
Total stock-based compensation expense	$ 41,000	$ 31,000	$ 81,000	$ 93,000

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 2) - Stock Option [Member] - USD ($)	6 Months Ended	12 Months Ended
	Dec. 31, 2021	Jun. 30, 2021
Beginning balance, outstanding	6,779,935	22,803,098
Granted	3,325,000	452,987
Exercised	(166,666)	(16,181,820)
Forfeited/expired	(60,000)	(294,330)
Ending balance, outstanding	9,878,269	6,779,935
Exercisable	6,463,616
Unvested stock options	3,414,653
Weighted average exercise price, beginning balance	$ 0.35	$ 0.18
Weighted average exercise price, granted	0.24	0.27
Weighted average exercise price, exercised	0.14	0.11
Weighted average exercise price, forfeited/expired	0.51	0.55
Weighted average exercise price, ending balance	0.32	$ 0.35
Weighted average exercise price, exercisable	0.36
Weighted average exercise price, unvested stock options	$ 0.24
Weighted average remaining contractual life, beginning balance	4 years 5 months 12 days	1 year 9 months 29 days
Weighted average remaining contractual life, granted	9 years 3 months 3 days	6 years 11 months 15 days
Weighted average remaining contractual life, ending balance	5 years 8 months 26 days	4 years 5 months 12 days
Weighted average remaining contractual life, Exercisable	3 years 10 months 2 days
Weighted average remaining contractual life, Unvested stock options	9 years 3 months 29 days
Aggregate intrinsic value beginning	$ 345,923	$ 5,857,312
Aggregate intrinsic value ending		$ 345,923
Aggregate intrinsic value Exercisable	0
Aggregate intrinsic value unvested stock options	$ 0

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 3) - Restricted Stock [Member] - $ / shares	6 Months Ended	12 Months Ended
	Dec. 31, 2021	Jun. 30, 2021
Awards outstanding, Beginning balance	116,786	116,787
Total shares granted	0	58,394
Total shares vested	(58,394)	(58,395)
Total shares forfeited		0
Awards outstanding, Ending balance	58,392	116,787
Weighted average, Beginning balance	$ 0.22	$ 0.32
Weighted average, total shares granted	0	0.22
Weighted average, total shares vested	0.25	0.41
Weighted average, total shares forfeited	0	0
Weighted average, ending balance	$ 0.19	$ 0.22

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details 4)	6 Months Ended
	Dec. 31, 2021 shares
Scheduled vesting	58,392
Year Ending June 30, 2023 [Member]
Scheduled vesting	38,928
Year Ending June 30, 2024 [Member]
Scheduled vesting	19,464

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Equity Incentive Plans StockBased Compensation Exercise of Options and Warrants Outstanding (Details Narrative) - USD ($)	3 Months Ended	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2021	Sep. 30, 2021	Dec. 31, 2020	Aug. 30, 2019
Common stock available for issuance	225,000,000	225,000,000
Proceeds from stock option exercised	$ 23,000	$ 23,000		$ 0
Stock option exercise price	$ 0.14	$ 0.14
Stock option exercise, shares	166,666	9,878,269		6,894,265
Stock based compensation		$ 192,000		$ 93,000
Stock issued, shares			3,036
February 10, 2021 [Member]
Stock option exercise price	$ 0.38	$ 0.38
Stock based compensation		$ 7,000		0
Stock options to purchase shares		75,000
Stock issued, value		$ 20,000
Stock options, vested percentage description		vest 33 1/3% on February 10, 2021, 33 1/3% on July 1, 2021, and 33 1/3% on January 1, 2022
On September 1, 2019 [Member]
Closing stock price, per shares					$ 0.132
February 23, 2020 [Member] | 2016 Equity Incentive Plan [Member]
Annual limit description		the Board of Directors approved an amendment to Section 4.1 of the 2016 Plan to increase the annual limit on the number of awards under such Plan to outside directors from 250,000 to 1,500,000
June 30, 2016 [Member] | 2016 Equity Incentive Plan [Member]
Stock option vested or to be vested, description		Up to 225,000,000 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).
Ms Jane Harness [Member] | On October Ten Two Thousand Twenty One [Member]
Stock option exercise price	0.24	$ 0.24
Stock based compensation		$ 22,000
Stock options to purchase shares		500,000
Exercisable period		10 years
Ms Jane Harness [Member] | On September 11, 2020 [Member]
Stock option exercise price	$ 0.22	$ 0.22
Stock based compensation		$ 8,000		5,000
Stock options to purchase shares		172,987
Stock issued, value		$ 33,000
Stock awards		2,000		1,000
Stock option expenses		$ 6,000		4,000
Stock issued, shares		58,394
Vested shares		58,394
Common stock value	$ 13,000	$ 13,000
Amortization period of restricted stock		3 years
Ms Jane Harness [Member] | On September 1, 2019 [Member]
Stock option exercise price	$ 0.132	$ 0.132
Stock based compensation		$ 5,000		3,000
Stock options to purchase shares		172,987
Exercisable period		3 years
Stock awards		$ 1,000		1,000
Stock option expenses		$ 4,000		2,000
Stock issued, shares		58,394
Closing bid price		$ 20,000
Ms Jane Harness [Member] | On September 1, 2018 [Member]
Stock option exercise price	0.40	$ 0.40
Stock based compensation		$ 5,000		14,000
Stock issued, value		63,000
Stock awards		1,000		4,000
Stock option expenses		$ 4,000		10,000
Vested shares		58,394
Stock options reserved for future issuance		172,987
One Consultant [Member] | July 30, 2020 [Member]
Stock option exercise price	0.27	$ 0.27
Stock based compensation		$ 11,000
Stock options to purchase shares		100,000
Stock issued, value		$ 19,000
Stock options, vested percentage description		vest 33 1/3% on July 30, 2021, 33 1/3% on January 30, 2022, and 33 1/3% on July 30, 2022
One Consultant [Member] | July 1, 2021 [Member]
Stock option exercise price	0.21	$ 0.21
Stock based compensation		$ 22,000
Stock options to purchase shares		225,000
Stock issued, value		$ 33,000
Stock options, vested percentage description		vest 33 1/3% on July 1, 2021, 33 1/3% on January 1, 2022, and 33 1/3% on July 1, 2022
One Consultant [Member] | July 23, 2020 [Member]
Stock option exercise price	0.32	$ 0.32
Stock based compensation		$ 1,000		17,000
Stock options to purchase shares		100,000
Stock issued, value		$ 28,000
Stock options, vested percentage description		vest 33 1/3% on July 23, 2020, 33 1/3% on January 23, 2021, and 33 1/3% on July 23, 2021
Two Consultant [Member] | May 18, 2020 [Member]
Stock option exercise price	0.14	$ 0.14
Stock based compensation		$ 0		$ 26,000
Stock options to purchase shares		500,000
Stock issued, value		$ 78,000
Stock options, vested percentage description		vest 33 1/3% on July 1, 2020, 33 1/3% on January 1, 2021, and 33 1/3% on July 1, 2021
Mr Ehrlich [Member] | On October Ten Two Thousand Twenty One [Member]
Stock option exercise price	$ 0.24	$ 0.24
Stock based compensation		$ 111,000
Stock options to purchase shares		500,000
Exercisable period		10 years

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Equity Transaction (Details Narrative) - USD ($)					1 Months Ended				6 Months Ended				7 Months Ended	12 Months Ended
	Feb. 08, 2021	Dec. 09, 2020	Dec. 04, 2020	Sep. 08, 2020	Dec. 29, 2020	Dec. 28, 2020	Oct. 02, 2020	Jul. 31, 2020	Dec. 31, 2021	Sep. 30, 2021	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2021	Jun. 30, 2021	Mar. 30, 2020	Jan. 29, 2019
Warrants amount	$ 1,500,000	$ 180,000
Common shares issued										3,036
Proceeds from exercise price									$ 4,983,000		$ 0
Two Preferred Stockholders [Member]
Conversion of Series B Convertible Preferred stock to Common stock, reversed										0
Common stock shares issued upon conversion of preferred stock										0
Common Class A [Member]
Treasury Stock Shares						7,835,002			8,516,056
Cumulative cost										$ 2,100,000
Common Stock, shares outstanding									437,096,222				418,157,142	418,157,142
Cancellation shares						854,419
Common Class A [Member] | Mr Ehrlich [Member]
Cancellation shares						7,835,002				7,835,002
Additional cancelled shares						854,419
Common Class B [Member]
Warrants amount	1,500,000.0	2,100,000.0
Common stock, shares issued						11,307,527,000,000			18,000,000
Treasury Stock Shares									2,358,537
Option exercised				$ 220,000
Common stock shares issued upon extinguishment of debt				1,787,762		13,072,730
Withheld shares						1,765,203				1,765,203
Preferred stock liability									$ 0
Treasury shares									412,238
Cumulative cost										$ 2,300,000				$ 230,000.0
Common Stock, shares outstanding									15,641,463				15,641,463	15,641,463
Gross proceeds	$ 500,000.0
Common Class B [Member] | October 2, 2020 [Member] | Mr. Ehrlich [Member]
Common stock, shares issued							727,994,000,000
Option exercised										$ 909,090
Common stock shares issued upon extinguishment of debt									727,994
Treasury shares									181,096				0	0
Sale of aggregate shares	2,036
Cancellation shares						6,980,583
Warrant purchase						13,072,730	909,090			909,090
Per share										$ 0.11
Cancellation of debt										$ 100,000
Common Class B [Member] | Mr Ehrlich [Member]
Common shares issued						13,072,730
Treasury Stock Shares				412,238		1,765,203			1,765,203
Option exercised				$ 220,000
Common stock shares issued upon extinguishment of debt				1,787,762		13,072,730									909,090	909,090
Withheld shares										1,765,203
Treasury shares									181,096				0	0
Proceeds from exercise price						$ 1,438,000
Cancellation shares						6,980,583
Closing stock price					$ 540,000
Exercise price				$ 0.11	$ 0.21	$ 0.11
Amount of debt extinguished				$ 242,000											$ 100,000	$ 100,000
Common stock held satisfy exercise price						$ 1,438,000
Class A Common Stock [Member]
Treasury Stock Shares									8,516,056
Class A Common Stock [Member] | 2020 Agreement [Member] | Aspire Capital [Member]
Common stock, shares issued								6,250,000
Proceeds From sale of common stock												$ 290,000.0
Commitment fee								$ 1,400,000
Aggregate Purchase								$ 30,000,000.0
Amortized expenses										$ 400,000.0		$ 400,000
Deferred offering costs									$ 400,000				$ 800,000	$ 800,000
Available balance, Amount									25,400,000
Series B Convertible Preferred Stock [Member] | 2020 Series B 5% Convertible Preferred Stock 1 [Member]
Warrants amount	$ 1,500,000	2,100,000
Preferred stock liability									$ 25,000
Gross proceeds	$ 2,000,000.0	$ 90,000.0	$ 50,000.0
Common stock price per share									$ 0.50
Sale of aggregate shares	2,036	3,053	5,089
Warrant discounts	$ 200,000,000	$ 270,000.0
Reduction in warrant additional paid-in capital	10,000
Change in fair value										0
Accrued dividends									$ 15,000
Conversion amount limits			$ 75,000
Conversion percentage			30.00%
Beneficially own in excess coversion			9.99%
Series B Convertible Preferred Stock [Member] | 2020 Series B 5% Convertible Preferred Stock [Member]
Gross proceeds	$ 200,000,000	$ 3,000,000.0	$ 500,000,000
Sale of aggregate shares		3,053	5,089
Additional warrant purchase	10,178
Series B Convertible Preferred Stock warrants [Member] | Exercise of 2020 Series B 5% Convertible Preferred Stock Warrants 1 [Member]
Gross proceeds										$ 4,984,000			$ 2,017,073
Convertible preferred stock, shares										2,036			2,053
Convertible preferred stock, exercise										22,000			2,053
Series B Convertible Preferred Stock warrants [Member] | Exercise of 2020 Series B 2.5% Convertible Preferred Stock Warrant [Member]
Preferred stock liability													$ 5,017,000	$ 5,017,000
Gross proceeds										$ 4,984,000			$ 2,999,573
Warrant purchase													5,072
Convertible preferred stock, shares		2,036								5,072			3,053
Convertible preferred stock, exercise		3,053								5,072			3,053
Warrant shares													5,106
Series B Convertible Preferred Stock warrants [Member] | 2020 Series B 5% Convertible Preferred Stock Warrant 1 [Member]
Per share										$ 982.50
Preferred stock shares										5,089
Preferred stock amount										$ 500,000,000
Cash payment percentage										8.00%
Series B Convertible Preferred Stock warrants [Member] | 2020 Series B 5% Convertible Preferred Stock Warrant [Member]
Per share										$ 982.50
Preferred stock shares										5,089
Preferred stock amount										$ 500,000
Series B Convertible Preferred Stock warrants [Member] | Conversion of 2020 Series B-2 5% convertible preferred stock to common stock [Member]
Preferred stock liability									$ 0
Convertible preferred stock, shares										3,572			10,207
Convertible preferred stock into common stock										26,800,000			68,034,812
Reversed amount										$ 3,510,000			$ 10,017,000

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Fair Value Measurement (Details) - Series B-2 Preferred Stock [Member] - USD ($)	6 Months Ended	12 Months Ended
	Dec. 31, 2021	Jun. 30, 2021
Beginning Balance		$ 0
Issuance of Series B-2 preferred stock at fair value		5,000,000
Exercise of Series 1 and 2 warrants	$ 4,983,000	5,017,000
Conversion of Series B-2 preferred stock to common stock	(3,509,000)	(10,017,000)
Change in fair value of Series B-2 preferred stock	0	0
Ending Balance	$ 1,474,000	$ 0

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Subsequent Events (Details Narrative) - Subsequent Event [Member]	2 Months Ended
	Feb. 14, 2022 shares
Common Stock [Member]
Stock conversion, number of shares issued	9,300,000
Convertible Preferred Stock [Member]
Stock conversion, number of shares converted	270