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

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

INNOVATION PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

~~(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report)~~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 ~~past~~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 x ☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes x ☒ No o☐

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”,~~filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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. o¨

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

The number of shares outstanding of each of the issuer’s classes of common equity, as of ~~January 31, 2018~~May 11, 2020 is as follows:

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; any statements regarding our future financial performance, results of operations or sufficiency of capital resources to fund our operating requirements; any statements relating to potential out-licensing, partnership or joint venture agreements with third parties;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 and to create effective, commercially-viable drugs; our ability to effectively and timely conduct clinical trials; our ability to ultimately distribute our drug candidates; our ability to achieve certain future regulatory, development and commercialization milestones under our license agreement with Alfasigma S.p.A.; the development of treatments or vaccines relating to the COVID-19 pandemic by other entities; and compliance with regulatory ~~requirements; and our capital needs,~~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.”

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

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

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

FOR THE ~~THREE MONTHS AND SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31,~~, 201~~72020 AND 20169

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

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

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, ~~2017,~~2019, included in our Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2019.

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

Innovation Pharmaceuticals Inc. ~~(the “Company”~~(“Innovation”) was incorporated on August 1, 2005 in the State of Nevada. Effective June 5, 2017, the Company amended its Articles of Incorporation and changed its name from Cellceutix Corporation to Innovation Pharmaceuticals Inc. ~~In accordance~~On February 15, 2019, the Company formed IPIX Pharma Limited (“IPIX Pharma”), a wholly-owned subsidiary incorporated under the Companies Act 2014 of Ireland. IPIX Pharma is a Private Company Limited by Shares. The subsidiary will serve as a key hub for strategic collaboration with ~~Section 92A.180 of the Nevada Revised Statutes, stockholder approval of the name change was not required.~~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 and has no customers, products or revenues to date.~~company. The Company’s common stock is quoted on OTCQB, symbol ~~“IPIX”.~~“IPIX.”

These consolidated financial statements include the accounts of Innovation, a Nevada corporation, and our wholly-owned subsidiary, IPIX Pharma, an Ireland limited company. All significant intercompany transactions and balances have been eliminated in consolidation. Translation gains and losses for the three and nine months ended March 31, 2020 and 2019 were not significant.

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 ~~Kevetrin~~ and ~~Prurisol~~Kevetrin, and advancing them as quickly as possible along the regulatory pathway. We ~~will~~aim to develop the highest quality data and broadest intellectual property to support our compounds.

We currently own all development and marketing rights to our ~~products.~~products, other than the rights granted to Alfasigma S.p.A. in July 2019 for the development, manufacturing and commercialization of locally-administered Brilacidin for UP/UPS. In order to successfully develop and market our products, we may have to partner with ~~other~~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.

~~As of June 30, 2017,~~These condensed consolidated financial statements have been prepared on the assumption that the Company ~~adopted Accounting Standards Codification 205-40. This guidance amended the existing requirements for disclosing information about an entity’s ability to continue as~~is a going concern, which contemplates the realization of its assets and ~~explicitly requires management to assess an entity’s ability to continue as a going concern and to provide related disclosure~~the settlement of its liabilities in certain circumstances. This guidance was effective for annual reporting periods ending after December 15, 2016, and for annual and interim reporting periods thereafter. The following information reflects the ~~results~~normal course of ~~management’s assessment, plans and conclusion of the Company’s ability to continue as a going concern.~~

We have incurred recurring losses since inception and expect to continue to incur losses as a result of costs and expenses related to our research and ~~continued~~ development of our compounds and our corporate general and administrative expenses. As of ~~December~~March 31, ~~2017,~~2020, the Company has an accumulated deficit of ~~$79~~approximately $99.8 million, representative of recurring losses since inception. The Company ~~is a development stage pharmaceutical company that has no sales~~earned $0.4 million as itan initial upfront payment under the terms of the License Agreement with Alfasigma (see Note 7. Exclusive License Agreement to the condensed consolidated financial statements). The Company does not currently have any products inon the market and will continue to not have ~~any~~significant revenues until it begins to market its products after it has obtained the necessary Federal Drug Administration (the “FDA”) ~~approval.~~and/ or other health authorities’ approval, or generates income from the licensing of its drugs. As a result, the Company expects to continue to incur ~~losses.~~losses over the next 12 months from the date of this filing. Accordingly, the Company’s planned operations, including total budgeted expenditures of approximately $11.5 million for the next twelve months, raise substantial doubt about its ability to continue as a going concern.

~~At December~~As of March 31, ~~2017,~~2020, the Company’s cash amounted to ~~$3.2~~$0.8 million and current liabilities amounted to $10.6 million, of which $6.5 million were payables to related parties with no immediate payment terms (See Note 8- Related Party Transactions in the Notes to Condensed Financial Statements section below).$7.8 million. The Company had expended substantial funds on its clinical trials and expects to continue our spending on research and development expenditures. The Company’s net cash used in operating activities for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 was approximately ~~$7.2~~$2.3 million, and current projections indicate that the Company will continue to have ~~continued~~ negative cash flows from operating activities for the foreseeable future. Our net losses incurred for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, amounted to ~~$9.1~~$5.2 million and ~~$6.4~~$7.2 million, respectively, and we had a working capital ~~deficits was~~deficit of approximately ~~$7.3~~$7.0 million and ~~$6.1~~$6.7 million, respectively, at ~~December~~March 31, ~~2017~~2020 and June 30, ~~2017, respectively.~~2019.

~~Accordingly,~~The Company’s primary sources of liquidity are cash and cash equivalents as well as issuances of its equity securities. During the ~~Company’s~~nine months ended March 31, 2020, the Company issued 2,945 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of $2.6 million, upon exercise of 2,945 warrants. As of March 31, 2020, Series 1-4 warrants to purchase 4,775 shares of Series B preferred stock were outstanding. As the Company cannot be certain the remaining warrants will be exercised, there can be no assurance those funds or other funds will be available when needed (see Note 13. Equity Transactions to the condensed consolidated financial statements).

The amount of cash and cash equivalents at March 31, 2020 is approximately $0.8 million. The Company expects to seek to obtain additional funding through business development activities (i.e. licensing and partnerships) and future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available. The Company will be unable to proceed with its planned ~~operations, including total budgeted expenditures~~drug development programs, meet its administrative expense requirements, capital costs, or staffing costs without raising additional capital in the future. These condensed consolidated financial statements do not include any adjustments related to the carrying values and classifications of ~~approximately $12.2 million for~~assets and liabilities that would be necessary should the ~~next twelve months, raise doubt about its ability~~Company be unable to continue as a going concern. The Company’s plans to alleviate the doubt of its ability to continue as a going concern primarily include controlling the timing and spending on its research and development programs and raising additional funds through equity financings from its common stock purchase agreement with Aspire Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”). The Company may consider other plans to fund operations including: (1) raising additional capital through debt financings or from other sources; (2) additional funding through new relationships to help fund future clinical trial costs (i.e. licensing and partnerships); (3) reducing spending on one or more research and development programs by discontinuing development; and/or (4) restructuring operations to change its overhead structure. The Company may issue securities, including shares of common stock, shares of preferred stock and stock purchase contracts through private placement transactions or registered public offerings, pursuant to its registration statement on Form S-3 filed with the SEC on September 11, 2017. The Company’s future liquidity needs, and ability to address those needs, will largely be determined by the success of its product candidates and key development and regulatory events and its decisions in the future.

The Company believes that the actions discussed above are probable of occurring and alleviating the substantial doubt raised by our historical operating results and satisfying our estimated liquidity needs twelve months from the issuance of the accompanying financial statements.

On September 6, 2017, the Company entered into a new $30 million common stock purchase agreement with Aspire Capital (the “2017 Agreement”) to replace the prior 2015 $30 million common stock purchase agreement with Aspire Capital (the “2015 Agreement”). During the period from July 1, 2017 to September 5, 2017, the Company generated proceeds of approximately $2.1 million under the 2015 Agreement from the sale of approximately 2.6 million shares of its common stock. During the period from September 6, 2017 to December 31, 2017, the Company generated proceeds of approximately $4.4 million under the 2017 Agreement from the sale of approximately 6.6 million shares of its common stock. As of December 31, 2017, the available balance under the 2017 Agreement is approximately $25.6 million.

~~Note~~ 3. Significant Accounting Policies and Recent Accounting Pronouncements

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, ~~measurement~~valuation of ~~stock-based compensation,~~equity grants and ~~the periods of performance under collaborative research and development agreements.~~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 and diluted loss per share is computed based on the ~~weighted-average~~weighted average common shares and common share equivalents outstanding during the period. Common share equivalents consist of stock options, convertible notes payable underlying shares, ~~and~~ unvested restricted ~~stock.~~stock and Series B Convertible Preferred Stock at a conversion price at approximately $0.07 and $0.04 per share for the nine months ended March 31, 2020 and 2019, respectively. Common share equivalents of ~~46.7~~38 million shares and ~~45.1~~66 million shares of common stock were excluded from the computation of diluted loss per share for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively, because we incurred net losses for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, and the effect of including these potential common shares in the net loss per share calculations would be ~~anti-dilutive~~antidilutive and are therefore not included in the calculations.

The Company accounts for treasury stock using the cost method. There were ~~567,184~~659,448 shares and ~~262,080~~228,218 shares of treasury stock outstanding, purchased at a total cumulative cost of ~~$417,000~~$146,000 and ~~$220,000 at December~~$91,000 as of March 31, ~~2017~~2020 and June 30, ~~2017,~~2019, respectively (see Note ~~10)~~13. Equity Transactions to the condensed consolidated financial statements).

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

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

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

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:

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.

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.

The stock-based compensation expense incurred by the Company for employees and directors in connection with its stock option plan is based on the employee model of ASC 718, and the fair market value of the options is measured at the grant date. Under ASC 718 an 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”~~‘tax regulations’. Our consultants do not meet the employer-employee relationship as defined by the IRS and therefore are accounted for under ASC 505-50. Effective July 1, 2019, the Company adopted ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.

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

Upon the ~~Black-Scholes-Merton pricing model to determine~~adoption of ASU 2018-07, the Company measured the fair value of ~~stock options~~equity instruments for nonemployee based payment awards on the dates of grant. Restricted stock is 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 vesting method over the requisite service period of the equity awards.grant date.

The components of stock-based compensation expense included in the Company’s Condensed Statements of Operations for the three months and six months ended December 31, 2017 and 2016 are as follows (rounded to nearest thousand):

~~Stock Compensation -~~In ~~March 2016,~~June 2018, the FASB issued ASU ~~2016-09,~~2018-07, Compensation – Stock Compensation (Topic 718): Improvements to ~~Employee~~Nonemployee Share-Based Payment Accounting, which ~~will simplify~~allows companies to account for nonemployee awards in the ~~income tax consequences, accounting for forfeitures and classification on the Statement of Cash Flows (i) excess tax benefits be classified~~same manner as cash inflows provided by operating activities, and (ii) cash paid to taxing authorities arising from the withholding of shares from employees be classified as cash outflows used in financing activities. This standardemployee awards. The guidance is effective for ~~fiscal years, and interim periods within those~~ fiscal years beginning after December 15, ~~2016, with early adoption permitted.~~2018, and interim periods within those annual periods. This new pronouncement ~~was~~has been adopted ~~on July 1, 2016~~in the first quarter of fiscal 2020 and did not have a material effect on the Company’s financial position, or results of operations ~~but had an effect of the classification of~~or cash ~~paid to taxing authorities arising from the withholding of shares from employees (treasury stock), classified as cash outflows used in financing activities.~~flows.

~~In June 2014,~~Prior to July 1, 2019, the FASB issued ASU 2014-12, “Compensation—Stock Compensation.” The amendments in this ASU apply to reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. This ASU is the final version of Proposed ASU EITF-13D, “Compensation—Stock Compensation (Topic 718):Company accounted for leases under ASC 840, Accounting for ~~Share-Based Payments When~~Leases. Effective July 1, 2019, the ~~Terms~~Company adopted the guidance of ~~an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,”~~ASC 842, Leases, which has been deleted. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The implementation of this standard did not have a material impact on the Company’s accompanying condensed financial statements.

~~In May 2014, the FASB issued authoritative guidance that defines how companies should report revenues from contracts with customers. The standard~~ requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It provides companies with a five-step, principles-based model to use in accounting for revenue and supersedes current revenue recognition requirements, including most industry-specific and transaction-specific revenue guidance. In August 2015, the FASB deferred the effective date of the new revenue standard by one year. As a result, the new standard would not be effective for the Company until 2019. In addition, the FASB is allowing companies to early adopt this guidance for non-public entities beginning in fiscal year 2017. The guidance permits an entity to apply the standard retrospectively to all prior periods presented, with certain practical expedients, or apply the requirements in the year of adoption, through a cumulative adjustment. The Company will apply this new guidance when it becomes effective and has not yet selected a transition method. The Company, due to not having any revenue currently and in the foreseeable future, has concluded that the impact of the adoption of this accounting standard on its financial statements will not be material.

In February 2016, FASB issued ASU No. 2016-02, “Leases (Topic 842)”. The guidance requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right of use asset representing its right to use the underlying asset for the lease term. The guidance requires the following for finance leases: the right-of-use asset and a lease liability ~~will be initially measured at~~for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. The new standard provides a number of optional practical expedients in transition. The Company elected the ~~present value~~‘package of practical expedients,’ which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs; and all of the ~~lease payments,~~new standard’s available transition practical expedients. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on July 1, 2019 resulted in the ~~statement~~recognition of ~~financial position; interest~~operating lease right-of-use assets of approximately $670,000, lease liabilities for operating leases of approximately $670,000, and a zero cumulative-effect adjustment to accumulated deficit. The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less (“short-term leases”). Lease expense is recognized on a straight-line basis over the lease ~~liability will be~~term. The Company determined that the operating lease right-of-use asset is impaired as of September 30, 2019, and it recognized ~~separately from~~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 the statement of comprehensive income; and repayments of the principal portion of the lease liability will be classified within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. The guidance requires the following for operating leases: the right-of-use asset and a ~~lease liability will be initially measured at the present~~carrying value of $0 since September 30, 2019 (see Note 8. Operating Lease to the ~~lease payments, in the statement of~~condensed consolidated financial position; a single lease cost will be recognized, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and all cash payments will be classified within operating activities in the statement of cash flows. Under Topic 842 the accounting applied by a lessor is largely unchanged from that applied under previous U.S. GAAP. The amendments in Topic 842 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management has determined that based on current accounting and lease contract information the adoption of ASU No. 2016-02 is not expected to have a significant impact on the Company’s financial position, results of operations and disclosures. However, management is continually evaluating the future impact of ASU No. 2016-02 based on changes in the Company’s financial statements through the period of adoption.statements).

~~Intangibles, Goodwill and Other~~ ~~—In January~~In July 2017, the FASB issued ~~ASU No. 2017-04, “Intangibles – Goodwill~~Accounting Standards Update (“ASU”) 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and ~~Other~~Derivatives and Hedging (Topic ~~350) – Simplifying~~815): I. Accounting for Certain Financial Instruments with Down Round Features; and II. Replacement of the ~~Test~~Indefinite Deferral for ~~Goodwill Impairment” (“ASU No. 2017-04”). To simplify~~Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. Part I of this update addresses the ~~subsequent~~complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of ~~goodwill, ASU No. 2017-04 eliminates Step 2~~the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, ASU No. 2017-04 requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU No. 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2Equity, because of the ~~goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount~~existence of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU No. 2017-04 is effective for fiscal years beginning after December 15, 2019. The Company will adopt ASU No. 2017-04 commencingextensive pending content in the ~~first quarter of fiscal 2021. The Company does not believe this standard will have a material impact on its financial statements or~~FASB Accounting Standards Codification. This pending content is the ~~related footnote disclosures.~~

~~Statement of Cash Flows~~ ~~— In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus~~result of the ~~Emerging Issues Task Force)” (“ASU No. 2016-15”). ASU No. 2016-15 clarifies how~~indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain ~~cash receipts~~nonpublic entities and ~~payments should be presented~~certain mandatorily redeemable non-controlling interests. The amendments in ~~the statement~~Part II of ~~cash flows.~~this update do not have an accounting effect. This ASU ~~No. 2016-15~~ is effective for fiscal years, and interim periods within those ~~fiscal~~ years, beginning after December 15, ~~2017.~~2018, with early adoption permitted. The ~~Company will adopt~~adoption of ASU ~~No. 2016-15 commencing in~~2017-11, during the ~~first quarter of fiscal 2019. The Company does~~year ended June 30, 2019, did not ~~believe this standard will~~ have ~~a material~~any impact on ~~its~~the financial statements ~~or the~~and related ~~footnote~~ disclosures.

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

Amortization expense ~~was approximately $96,000 and $92,000,~~ for the three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019 was approximately $93,000 and $92,000, respectively, and was approximately ~~$192,000,~~$279,000, and ~~$183,000~~$277,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

~~Table of Contents~~

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

At ~~December~~March 31, ~~2017,~~2020, the future amortization period for all patents was approximately ~~7.68~~5.43 years to 16.75 years. Future estimated ~~annual~~ amortization expenses are approximately ~~$191,000~~$93,000 for the year ending June 30, ~~2018, $382,000~~2020, $373,000 for each year from ~~2019~~2021 to ~~2025, $372,000~~2024, and total of $1,535,000 for the year ending June 30, 2026, $370,000 for the year ending June 30, 2027, $132,000 for the year ending June 30, 2028, $78,000 for the years ending June 30, 2029 through the years ended 2032, $37,000 for the year ending June 30, 2033, $11,000 for the year ending June 30, 20342025 and ~~$1,000 for the year ending June 30, 2035.~~thereafter.

					March 31, 2020		June 30, 2019
	December 31, 2017		June 30, 2017
Accrued research and development consulting fees	$	511,000	$	673,000	$	40,000	$	40,000
Accrued rent (Note 8) – related parties		15,000		21,000
Accrued interest – (Note 9) related parties		22,000		17,000
Accrued rent (Note 10) - related parties						8,000		8,000
Accrued interest (Note 11) - related parties						70,000		37,000

Total	$	548,000	$	711,000	$	118,000	$	85,000

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

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

					March 31, 2020		June 30, 2019
	December 31, 2017		June 30, 2017
Accrued salaries - related parties	$	2,823,000	$	2,823,000	$	2,764,000	$	2,647,000
Accrued salaries – ex- President and Chief Medical Officer						425,000		352,000
Accrued payroll taxes - related parties		130,000		130,000		140,000		130,000
Accrued employee bonuses		-		86,000
Withholding tax - payroll		244,000		105,000
Accrued salaries						30,000		—
Withholding tax – payroll & other taxes						75,000		33,000

Total	$	3,197,000	$	3,144,000	$	3,434,000	$	3,162,000

The Company ~~signed~~has accrued payroll to Dr. Krishna Menon, ex-President of Research of approximately $1,443,000 for his past services with the Company, and this amount was included in Accrued salaries – related parties. Dr. Menon’s employment was terminated with the Company on September 18, 2018, and Dr. Menon resigned from the Company’s Board of Directors on December 11, 2018. Dr. Menon, on behalf of himself and Kard Scientific, a company controlled by the Menon family, Dr. Krishna Menon, Anita Menon, Rajah Menon, and Doret Menon, demanded payment of these amounts in October 2019; however, the Company disputes the underlying basis for these amounts and notified Dr. Menon in November 2019 of the Company’s intent not to pay them.

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

Under the terms of the License Agreement, Alfasigma made an initial upfront non-refundable payment of $0.4 million to the Company and will make additional payments of up to $24.0 million to the Company based upon the achievement of certain milestones, including a $1.0 million payment due following commencement of the first phase III clinical trial of Brilacidin for UP/UPS and an additional $1.0 million payment upon the filing of a marketing approval application with the U.S. Food and Drug Administration or the European Medicines Agency. At this time AlfaSigma has not commenced a Phase 1 clini cal trial with Brilacidin. In addition to the milestones, Alfasigma will pay a royalty to the Company equal to six percent of net sales of Brilacidin for UP/UPS, subject to adjustment as provided in the License Agreement.

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

Operating lease ~~extension agreement~~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 ~~Cummings Properties which began~~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 ~~October 1, 2013.~~ a straight-line basis over the lease term.

The Company determined that the operating lease right-of-use asset is ~~for a term of five years ending~~fully impaired on September 30, ~~2018, and requires monthly payments of $18,000. Innovative Medical Research Inc., a company owned by Leo Ehrlich and Dr. Krishna Menon, officers~~2019 because of the Company’s current lack of working capital (see Note 2. Going Concern and Liquidity to the condensed consolidated financial statements) resulting in its limited usage of the leased office. The Company has ~~co-signed~~been unable to enter into a sub-lease agreement for this leased office on September 30, 2019. As such, the Company recognized an impairment loss of approximately $643,000, after recording amortization of the right-of-use asset for July, August, and September 2019 totaling approximately $27,000, resulting in a carrying value of $0 since September 30, 2019. The Company vacated the leased office space in December 2019, and in January 2020 the Company initiated a lawsuit against the lessor relating to an automatic extension of the lease for the office space and ~~subleases 200 square feet of space previously used by the Company and pays the Company $900 per month.~~related matters (See Note 9).

AsThe components of ~~December 31, 2017, future minimum~~ lease ~~payments~~expense and supplemental cash flow information related to ~~Cummings Properties required under~~leases for the ~~non-cancelable operating lease~~period are as ~~follows (rounded to nearest thousand):~~follows:

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

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

Operating lease cost for the three months and the nine months ended March 31, 2020 was approximately $26,000 and $92,000, respectively. Rent expense, net of lease income, under this operating lease agreement was approximately ~~$52,000~~$58,000 and ~~$51,000~~$168,000 for the three months ~~ended December 31, 2017~~ and ~~2016, respectively and was approximately $104,000 and $102,000 for~~ the ~~six~~nine months ended ~~December~~March 31, ~~2017 and 2016,~~2019, respectively. ~~Before September 2013, the Company paid rent to Kard Scientific for share of office space and details are shown at Note 8 - Related Party Transactions below.~~

On January 22, 2020, the Company filed a ~~non-cancelable operating lease~~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 ~~expires in April, 2018. The future minimum rental commitment for our operating~~the lease for the ~~next twelve months~~Company’s prior principal executive offices did not automatically extend for an additional five years from September 2018, return of the Company’s security deposit, and damages. This action is ~~$3,000, as of December 31, 2017 and was disclosed under the caption Prepaid expenses~~ in the ~~accompanying balance sheets.~~preliminary stages and the Company is currently unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any.

The Company has total non-cancellable contractual minimum commitments of approximately ~~$2.7~~$2.0 million to contract research organizations as of ~~December~~March 31, ~~2017.~~2020. Expenses are recognized when services are performed by the contract research organizations.

As described in Note 8.8, the Company has accrued payroll to Dr. Krishna Menon, ex-President of Research of approximately $1,443,000 for his past services with the Company, and this amount was included in accrued salaries and payroll taxes. As described in Note 10, the Company has a payable to KARD of approximately $1,486,000 for its research and development expenses and this amount was included in accounts payable. KARD is a company owned by Dr. Menon. Dr. Menon’s employment was terminated with the Company on September 18, 2018, and Dr. Menon resigned from the Company’s Board of Directors on December 11, 2018. Dr. Menon, on behalf of himself and KARD, demanded payment of these amounts in October 2019; however, the Company disputes the underlying basis for these amounts and notified Dr. Menon in November 2019 of the Company’s intent not to pay them.

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

The Company charged Kard Scientific (“KARD”) $1,800 for space for the two months of July and August, 2018. Dr. Menon, a significant shareholder of the ~~Company’s principal shareholder,~~Company and the former President of Research and ~~Director,~~former director of the Company, also serves as the Chief Operating Officer and Director of Kard ~~Scientific (“KARD”). On December 7, 2007,~~Scientific. Dr. Menon’s employment was terminated with the Company ~~began renting office space~~on September 18, 2018, and Dr. Menon resigned from ~~KARD, and since~~the Company’s Board of Directors on December 11, 2018. As of September 1, ~~2013, the Company~~2018, KARD no longer leases space from ~~KARD. At December 31, 2017 and June 30, 2017, rent payable to KARD of approximately $15,000 and $21,000, respectively, were included in accrued expenses.~~the Company.

In September 2013, the Company signed a lease extension agreement with Cummings Properties for the company’s offices and laboratories at 100 Cummings Center, Suite 151-B Beverly, MA 01915. The lease is for a term of five years from October 1, 2013 to September 30, 2018 and requires monthly payments of approximately $18,000. The Company had taken over the space occupied by KARD. In addition, Innovative Medical Research Inc., (“Innovative Medical”) a company owned by Mr. Ehrlich and Dr. Menon, officers of the Company, has co-signed the lease and rents approximately 200 square feet of office space, the space previously used by the Company and pays the Company $900 per month, the same amount the Company previously paid KARD. Innovative Medical paid total rent of approximately $3,000 and $6,000 to the Company for both of the three months and six months ended December 31, 2017 and 2016 and the rental payment was offset with the accrued rent owed to KARD.

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 ~~now has its own research study capabilities and~~ no longer uses KARD. At ~~December~~March 31, ~~2017~~2020 and June 30, ~~2017,~~2019, the accrued research and development expenses payable to KARD was approximately $1,486,000 and this amount was included in accounts payable. Dr. Menon, on behalf of himself and KARD, demanded payment of these amounts in October 2019; however, the Company disputes the underlying basis for these amounts and notified Dr. Menon in November 2019 of the Company’s intent not to pay them.

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.

During the year ended June 30, 2010, Mr. Ehrlich loaned the Company a total of approximately $973,000. A condition for this note was that the Ehrlich Promissory Note A and Ehrlich Promissory Note B be replaced with a new note, Ehrlich Promissory Note C. 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. ~~The note requires that the interest rate on the amounts due on Ehrlich Promissory Notes A and B be changed retroactively, beginning October 1, 2009, to 9%.~~

On ~~April 1, 2011,~~December 29, 2010, the Company ~~amended the Ehrlich Promissory Note C and agreed~~issued 18,000,000 Equity Incentive Options to ~~retroactively convert accrued interest of approximately $97,000 through December 31, 2010 into additional principal. During the year ended June 30, 2011,~~ Mr. Ehrlich, ~~loaned the Company an additional (approximate) $997,000~~ which brought the total balance of the demand note to approximately $2,002,000. During the year ended June 30, 2012, Mr. Ehrlich loaned the Company an additional $20,000 which brought the balance of this demand note to approximately $2,022,000.

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 ~~on the outstanding balance of principal and interest of approximately $2,248,000, as of March 31, 2012,~~ 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 ~~(10)~~ years from the date of issuance.

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

On March 30, 2020, the Company issued 909,090 shares of Class B common stock at the option exercise price of $0.11 per share to Mr. Ehrlich, the Company’s Chairman and CEO, for his partial exercise of his option, paid by the cancellation of debt to Mr. Ehrlich of $100,000 to satisfy the exercise price (as permitted pursuant to the terms of the option agreement).

As of March 31, ~~2017~~2020 and June 30, ~~2017, approximately $22,000 and $17,000, respectively, is~~2019, the ~~accrued interest payable on this note.~~

~~At December 31, 2017 and June 30, 2017,~~ principal balance of this ~~demand~~convertible note payable to Mr. Ehrlich, the Company’s Chairman and CEO was approximately ~~$2,022,000.~~$1,822,000 and $1,922,000, respectively.

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

As of March 31, 2020 and June 30, 2019, the balance of accrued interest payable were $70,000 and $36,000, respectively (see Note ~~10.~~ 5. Accrued Expenses – Related Parties and Other to the condensed consolidated financial statements).

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

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

~~Current Equity Incentive Plan~~Stock-based Compensation – Stock Options

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

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

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

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

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

The fair value of options granted for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016~~2019 was estimated on the date of grant using the Black Scholes model that uses assumptions noted in the following table.

	Six months ended December 31,		Nine Months Ended March 31,
	2017	2016	2020	2019
Expected term (in years)	10	3 - 10	3 - 10	5-10
Expected stock price volatility	106.01%	57.63% to 111.62%	73.68% to 92.21%	67.34% to 104.11%
Risk-free interest rate	2.15%	0.71% to 1.73%	0.41% to 1.50%	2.51% to 2.86%
Expected dividend yield	0	0	0	0

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

On February 23, 2020, the Company issued 500,000 options each to our Chairman and CEO and two other Board members, which are exercisable for 10 years at $0.10 per share of common stock. The total value of these options to purchase 1,500,000 shares was approximately $103,000 and we recognized approximately ~~$1,400,000 and $690,000~~$103,000 of ~~total~~ stock-based compensation costs ~~related~~and charged to ~~equity grant awards~~additional paid-in capital as of March 31, 2020. The assumptions we used in the Black Scholes option-pricing model were disclosed above. On the same date, the Company also issued 500,000 Class A Common shares each to our Chairman and CEO and two other Board members (See Note 13).

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

On September 1, 2019, the Company issued to Dr. Arthur Bertolino, the President and Chief Medical Officer of the Company, 1,066,667 shares of common stock. The Company also issued 617,839 stock options to purchase shares of the Company’s common stock. These stock options are valued at approximately $71,000, based on the closing bid price as quoted on the OTC on August 30, 2019 at $0.132 per share. Due to the fact that Dr. Bertolino resigned on December 19, 2019, the Company recorded the forfeiture of his options and shares after 60 days of his resignation. During the nine months ended ~~December~~March 30, 2020, the Company reversed the stock-based compensation expenses of approximately $35,000 based on the amount of those unvested options and stock awards we expensed in the prior two quarters of the current year.

On September 1, 2019, the Company also issued to Ms. Jane Harness, the Senior Vice President, Clinical Sciences and Portfolio Management of the Company, 58,394 shares of the Company’s common stock. The Company also issued 172,987 options to purchase common stock. These stock options are valued at approximately $20,000, based on the closing bid price as quoted on the OTC on August 30, 2019 at $0.132 per share. During the nine months ended March 31, ~~2017 and 2016, respectively. The $1,400,000~~2020, the Company recorded approximately $5,000 of ~~stock- based~~stock-based compensation expense ~~for~~in connection with the ~~six months ended December 31, 2017 included~~foregoing equity awards, including approximately ~~$516,000~~$4,000 of stock ~~options~~option expense and ~~$884,000~~$1,000 of ~~restricted~~ stock awards.

~~For~~On September 1, 2018, the ~~six~~Company issued to Dr. Bertolino 1,066,667 shares of common stock. The Company also issued 617,839 stock options to purchase shares of the Company’s common stock. These stock options are valued at approximately $225,000, based on the closing bid price as quoted on the OTCQB on August 31, 2018 at $0.40 per share. As above mentioned of Dr. Bertolino’s resignation on December 19, 2019, the Company recorded the forfeiture of his options and shares after 60 days of his resignation. During the nine months ended ~~December~~March 30, 2020, the Company reversed the stock-based compensation expenses of approximately $216,000 based on the amount of those unvested options and stock awards we expensed in the prior two quarters of the current year and prior years. During the nine months ended March 31, ~~2017~~2020, the Company recorded approximately $52,000 of During the nine months ended March 31, 2019, the Company recorded approximately $188,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $65,000 of stock option expense and $123,000 of stock awards.

On September 1, 2018, the Company also issued to Ms. Harness 58,394 shares of the Company’s common stock. The Company also issued 172,987 options to purchase common stock. These stock options are valued at approximately $63,000, based on the closing bid price as quoted on the OTCQB on August 31, 2018 at $0.40 per share. During the nine months ended March 31, 2020, the Company recorded approximately $22,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $16,000 of stock option expense and $6,000 of stock awards. During the nine months ended March 31, 2019, the Company recorded approximately $17,000 of stock-based compensation expense in connection with the foregoing equity awards including approximately $12,000 of stock option expense and $5,000 of stock awards.

On September 1, 2017, the Company agreed to grant to Dr. ~~Arthur~~ Bertolino ~~the President and Chief Medical Officer of the Company,~~ under the 2016 Plan (i) 1,066,667 shares of restricted stock and (ii) a ten-year option to purchase 617,839 shares of the Company’s Class A common stock at an exercise price of $0.705 per share. Both shares and options shall vest upon the earliest to occur of the following: (1) 50% upon the first anniversary of the effective date and the remaining 50% upon the second anniversary of the effective date; (2) shares of the Company’s common stock close above $3.00 per share (as may be adjusted for any stock splits or similar actions); (3) the commencement of trading of shares of the Company’s common stock on a national securities exchange; or (4) upon a change in control of the Company. The 1,066,667 shares were valued at approximately $752,000 and the 617,839 stock options valued at approximately $399,000. Both shares and options ~~will~~were planned to be amortized over 2 years to September 1, 2019 unless the probability of the other above vesting requirements occurring ~~are~~were met at an earlier ~~date. At December 31, 2017, the Company determined that it was not probable that these accelerated vesting provisions would occur earlier than the scheduled vesting date.~~date.. During the ~~three months and six~~nine months ended ~~December~~March 31, ~~2017,~~2020, the Company recorded approximately ~~$144,000 and $192,000 of total stock-based compensation, respectively. The $144,000~~$99,000 of stock-based compensation expense ~~for~~in connection with the ~~three months ended December 31, 2017 included~~forfeiture of the foregoing equity awards, including approximately ~~$50,000~~$34,000 of stock option expense and ~~$94,000~~$65,000 of stock awards. ~~The $192,000~~During the nine months ended March 31, 2019, the Company recorded approximately $432,000 of stock-based compensation expense ~~for~~in connection with the ~~six months ended December 31, 2017 included~~foregoing equity awards, including approximately ~~$67,000~~$150,000 of stock option expense and ~~$125,000~~$282,000 of stock awards.

On September 1, 2017, the Company agreed to grant to Ms. ~~Jane~~ Harness ~~the Vice President, Clinical Sciences and Portfolio Management of the Company~~ under the 2016 Plan (i) 58,394 shares of restricted stock and (ii) a ten-year option to purchase 172,987 shares of the Company’s Class A common stock at an exercise price of $0.705 per share. Both shares and options shall vest upon the earliest to occur of the following: (1) one third upon the first anniversary of the effective date, one third upon the second anniversary of the effective date, and the remaining one third upon the third anniversary of the effective date; or (2) upon a change in control of the Company. The 58,394 shares were valued at approximately $41,000 and the 172,987 stock options valued at approximately $112,000. Both shares and options ~~will~~were planned to be amortized over 3 years to September 1, 2020 unless the other vesting requirements are met sooner. During the ~~three months and six~~nine months ended ~~December~~March 31, ~~2017,~~2020, the Company recorded approximately ~~$13,000 and $17,000 of total stock-based compensation, respectively. The $13,000~~$38,000 of stock-based compensation expense ~~for~~in connection with the ~~three months ended December 31, 2017 included~~foregoing equity awards including approximately ~~$10,000~~$28,000 of stock option expense and ~~$3,000~~$10,000 of stock awards. ~~The $17,000~~During the nine months ended March 31, 2019, the Company recorded approximately $38,000 of stock-based compensation expense ~~for~~in connection with the ~~six months ended December 31, 2017 included~~foregoing equity awards including approximately ~~$13,000~~$28,000 of stock option expense and ~~$4,000~~$10,000 of stock awards.

On September 1, ~~2017, the Company agreed to grant to Anne Ponugoti, under the~~ 2016, Plan, ten-year options to purchase 5,000 shares of the Company’s common stock at an exercise price of $0.705 per share, which shall vest upon the earliest to occur of the following: (1) one third upon the first anniversary of the effective date, one-third upon the second anniversary of the effective date, and the remaining one-third upon the third anniversary of the effective date; or (2) upon a change in control of the Company. The 5,000 stock options valued at approximately $3,000 and it will be amortized over 3 years to September 1, 2020 unless the other vesting requirements are met sooner. During the three months and six months ended December 31, 2017, the Company recorded approximately $300 and $400 of stock option expense for this option grant.

~~On January 9, 2017,~~ the Company and Ms. ~~Ponugoti~~Harness entered into an executive employment agreement as the Company’s ~~Associate Director,~~VP, Clinical Sciences and Project Management, effective on ~~February~~September 1, ~~2017. Pursuant to the employment agreement,~~2016. Commencing on September 1, 2016, the Company ~~issued 10,000~~agreed to pay Ms. Harness an annual salary of $250,000. In addition, the Company agreed to grant to Ms. Harness under the Company 2016 Equity Incentive Plan 58,394 shares of restricted ~~stock and~~stock. Ten-year options to purchase ~~30,000~~172,987 shares of the Company’s common stock ~~under the 2016 Plan.~~were also granted at an exercise price of $1.37 per share. The 58,394 shares were valued at approximately $80,000, which were amortized over three years to September 1, 2019. The 172,987 stock options were valued at approximately $220,000 and will be exercisable for 10 years at an exercise price of $1.26 per share. They were amortized over 3 years to September 1, 2019. During the ~~three months and six~~nine months ended ~~December~~March 31, ~~2017,~~2020, the Company recorded approximately ~~$4,000 and $7,000 of total stock-based compensation, respectively. The $4,000~~$17,000 of stock-based compensation expense ~~for~~in connection with the ~~three months ended December 31, 2017 included~~foregoing equity awards including approximately ~~$3,000~~$12,000 of stock option expense and ~~$1,000~~$5,000 of stock awards. ~~The $7,000~~During the nine months ended March 31, 2019, the Company recorded approximately $75,000 of stock-based compensation expense ~~for~~in connection with the ~~six months ended December 31, 2017 included~~foregoing equity awards including approximately ~~$5,000~~$55,000 of stock option expense and ~~$2,000~~$20,000 of stock awards.

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

On March 30, 2020, the Company issued 909,090 shares of Class B common stock at the option exercise price of $0.11 per share to Mr. Ehrlich, the Company’s Chairman and CEO, for his partial exercise of his 909,090 options, paid by the cancellation of debt to Mr. Ehrlich of $100,000 to satisfy the exercise (see Note 11. Convertible Note Payable - Related Party to the condensed consolidated financial statements).

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

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

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

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

As of March 31, 2020, there was approximately $118,000 of net unrecognized compensation cost related to unvested restricted stock-based compensation arrangements. This compensation is recognized on a straight-line basis resulting in approximately $111,000 of compensation expected to be expensed over the next twelve months, and the total unrecognized stock-based compensation expense having a weighted average recognition period of 0.48 years.

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

On October 5, 2018, the Company entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) with one multi-family office for the sale of ~~Treasury~~2,000 shares of the Company’s newly-created Series B 5% convertible preferred stock (“Series B preferred stock”), for aggregate gross proceeds of approximately $2.0 million. Each share of preferred stock was initially sold together with three warrants: (i) a Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance (later extended to 15 months following issuance), (ii) a Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance, and (iii) a Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance. On May 9, 2019, the Company entered into a warrant restructuring and additional issuance agreement (the “Issuance Agreement”) with the holders of the Series B preferred stock and warrants pursuant to which the Company issued an additional 100 shares of Series B preferred stock and Series 4 warrants to purchase an additional 2,500 shares of preferred stock, and the holders of the Series B preferred stock and warrants agreed to exercise warrants to purchase up to $2.0 million of Series B preferred stock through November 2019 subject to the conditions set forth in the Issuance Agreement. The Series 4 warrant entitles the holder thereof to purchase 2,500 shares of preferred stock at $982.50 per share for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance. In addition, the Company extended the termination date for the Series 1 warrants by six months, and agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock. On December 26, 2019, the Company extended the termination date for each series of warrants to December 31, 2021 (see Note 13. Equity Transactions to the condensed consolidated financial statements).

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

During the nine months ended March 31, 2020, the Company issued 2,945 shares of its Series B 5% convertible preferred stock, for aggregate gross proceeds of $2.6 million, upon exercise of 2,945 warrants. As of March 31, 2020, Series 1-4 warrants to purchase 4,775 shares of Series B preferred stock were outstanding. As the Company cannot be certain the remaining warrants will be exercised, there can be no assurance those funds or other funds will be available when needed (see Note 13. Equity Transactions to the condensed consolidated financial statements).

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

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

As of March 31, 2020 and June 30, 2019, 8,000,000 warrants to purchase shares of the Company’s common stock exercisable for 5 years at an exercise price of $0.38 per share were outstanding.

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

On March 30, 2020, the Company issued 909,090 shares of Class B common stock at the option exercise price of $0.11 per share to Mr. Ehrlich, the Company’s Chairman and CEO, for his partial exercise of his option, paid by the cancellation of debt to Mr. Ehrlich of $100,000 to satisfy the exercise price (See Note 11. Convertible Note Payable to the condensed consolidated financial statements).

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

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

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

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

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

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

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

The issuance costs associated with the Series B preferred stock transaction were attributed to the Series B preferred stock (without the warrants) and to the Series 1, Series 2 and Series 3 warrants based on their relative fair values. The issuance costs attributed to the warrants of approximately $32,000 were reflected as a reduction to additional paid-in capital. The issuances costs associated with the Series B preferred stock liability of approximately $41,000 was recorded immediately as an element of interest cost, which are reflected in interest expense - preferred stock. The Company recognized change in fair value of preferred stock liabilities of approximately $102,000 and $50,000 under Other (income) expense in the accompanying condensed consolidated statements of operations for the nine months ended March 31, 2020 and 2019, respectively.

Underlying Series B preferred stock dividends, paid quarterly, was accrued as interest (given the liability classification of the Series B preferred stock) on a daily basis given fixed dividend terms under the Series B preferred stock. The Company recorded 5% dividend accretion on total outstanding Series B preferred stock at March 31, 2020 and June 30, 2019.

The total dividends of approximately $52,000 and $32,000 are treated as interest expense – preferred stock during the nine months ended March 31, 2020 and 2019, respectively. Balance of accrued dividends of $12,000 and $24,000 was included at Preferred stock liability as of March 31, 2020 and June 30, 2019.

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

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

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

Each share of preferred stock was initially sold together with three warrants: (i) a Series 1 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up nine months following issuance (later extended to 15 months following issuance), (ii) a Series 2 warrant, which entitles the holder thereof to purchase 1.25 shares of preferred stock at $982.50 per share, or 2,500 shares of preferred stock in the aggregate for approximately $2.5 million in aggregate exercise price, for a period of up to 15 months following issuance, and (iii) a Series 3 warrant, which entitles the holder thereof to purchase 1.50 shares of preferred stock at $982.50 per share, or 3,000 shares of preferred stock in the aggregate for approximately $2.9 million in aggregate exercise price, for a period of up to 24 months following issuance. On May 9, 2019, the Company entered into a warrant restructuring and additional issuance agreement (the “Issuance Agreement”) with the holders of the Series B preferred stock and warrants pursuant to which the Company issued an additional 100 shares of Series B preferred stock and Series 4 warrants to purchase an additional 2,500 shares of preferred stock, and the holders of the Series B preferred stock and warrants agreed to exercise warrants to purchase up to $2.0 million of Series B preferred stock through November 2019 subject to the conditions set forth in the Issuance Agreement. The Series 4 warrant entitles the holder thereof to purchase 2,500 shares of preferred stock at $982.50 per share for approximately $2.5 million in aggregate exercise price, for a period of up to nine months following issuance. In addition, the Company extended the termination date for the Series 1 warrants by six months, and agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock, all 400 shares of which had been issued as of March 31, 2020. On December 26, 2019, the Company extended the termination date for each series of warrants to December 31, 2021 (see below).

The Series B Preferred shareholders’ warrants held were modified on May 9, 2019 (see Warrant Restructuring and Additional Issuance Agreement described below). Pursuant to this warrant restructuring agreement, the Company had the option to compel these shareholders to exercise each month up to $400,000 of their Series 1 warrants. These warrant holders exercised a total of approximately $4.1 million of their Series 1 to 4 warrants, starting from May 2019 through March 2020. In addition, subject to the satisfaction of certain circumstances, the Company may call for cancellation any or all of the warrants following 90 days after their issuance, for a payment in cash ~~paid~~equal to ~~Federal and State Taxing Authorities arising from~~8% of the ~~withholding~~aggregate exercise price of the warrants being called. The warrants subject to any such call notice will be cancelled 30 days following the Company’s payment of the call fee, provided that the warrant holders have not exercised the warrants prior to cancellation.

During the year ended June 30, 2019, the two preferred stockholders converted 3,891 shares of Series B preferred stock into 39.2 million shares of common stock. With regard to conversions, the Company reversed Series B preferred stock liability relating to the conversion and recorded as Additional paid-in capital at par value. The Company reversed the amount of approximately $3,068,000 based on the proportion of Series B preferred stock converted relative to the original total issued. As of June 30, 2019, 1,196 shares of Series B 5% convertible preferred stock were outstanding.

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

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

On May 9, 2019, the Company entered into a Warrant Restructuring and Additional Issuance Agreement (“Issuance Agreement”) with the Series B investors of its Series B preferred stock and warrants to purchase Series B preferred stock. Pursuant to the Issuance Agreement, the Series B investors have agreed, subject to the conditions set forth therein, to exercise existing warrants to purchase 500 shares of preferred stock and to amend the existing warrants to permit the Company to compel the exercise of up to $400,000 of existing warrants each calendar month commencing June 3, 2019 and ending November 1, 2019, or, if earlier, until the aggregate amount of the forced exercises is $2,000,000. As consideration for the Series B investors entering into the Issuance Agreement, the Company has issued 100 shares of preferred stock and warrants to purchase 2,500 shares of preferred stock (“Series 4 warrants”) to the Series B investors. In addition, the Company extended the termination date for the Series 1 warrants issued in October 2018 by six months, and has agreed to issue one additional share of preferred stock to the Series B investors for each five shares issued upon the exercise of the existing warrants or Series 4 warrants through November 9, 2019, up to a maximum of 400 shares of preferred stock, all 400 shares of which had been issued as of March 31, 2020.

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

Subsequent to the modification, the Company recognized an ~~officer’s vested restricted~~expense of approximately $294,000 due to the above modification of Series B preferred stock ~~grant issuance and issuance~~terms in the accompanying condensed consolidated statements of operations

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

Treasury Stock ~~and the reversal of outstanding stock subscription receivable~~

On September 1, ~~2017, 19,465~~2019, 58,394 restricted shares ~~of the Company’s restricted stock vested~~issued to Ms. Harness ~~according to Ms. Harness’s employment agreement.~~vested. The total taxable compensation to Ms. Harness for the ~~19,465~~58,394 vested shares was ~~$14,000, which is priced at~~approximately $1,222, based upon the closing stock price on ~~September 1, 2017 at $0.705~~August 31, 2019 of $0.13 a share.

The Company issued ~~12,409~~48,775 common shares (net share issuance amount), ~~which is approximately 64% of the total vested common share amount of 19,465 common shares due to be issued~~ to Ms. Harness. The remaining ~~7,056~~9,619 shares of common stock were withheld from Ms. Harness for the payment of payroll taxes to the Federal and State taxing authorities and these shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

On ~~December 22, 2017, 533,334~~September 1, 2019, 1,066,667 restricted shares ~~of the Company’s restricted stock vested~~issued to Dr. ~~Arthur P.~~ Bertolino ~~according to Dr. Arthur P. Bertolino’s employment agreement.~~vested. The total taxable compensation to Dr. ~~Arthur P.~~ Bertolino for the ~~533,334~~1,066,667 vested shares was ~~$373,334, which is priced at~~approximately $53,545, based upon the closing stock price on ~~December 21, 2017 at $0.7~~August 30, 2019 of $0.13 a share.

The Company issued ~~295,286~~645,056 common shares (net share issuance amount), ~~which is approximately 55% of the total vested common share amount of 533,334 common shares due to be issued~~ to Dr. ~~Arthur P.~~ Bertolino. The remaining ~~238,048~~421,611 shares of common stock were withheld from Dr. ~~Arthur P.~~ Bertolino for the payment of payroll taxes to the Federal and State taxing authorities and these shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

~~In addition, the Company reversed an outstanding stock subscription receivable of $26,000 for 60,000 shares of common stock and recorded this amount as the cost of treasury stock.~~

There were 567,184 shares and 262,080 shares of treasury stock outstanding at December 31, 2017 and June 30, 2017, respectively, purchased at a total cumulative cost of $417,000 and $220,000 at December 31, 2017 and June 30, 2017, respectively.

~~The following summarizes our restricted stock activity for our restricted stock issuances:~~

~~Scheduled vesting for outstanding restricted stock awards at December 31, 2017 is as follows:~~

As of December 31, 2017, there was approximately $0.7 million of net unrecognized compensation cost related to unvested restricted stock-based compensation arrangements. This compensation is recognized on a straight-line basis resulting in approximately $0.3 million of compensation expected to be expensed over the next twelve months, and the total unrecognized stock-based compensation expense having a weighted average recognition period of 1.72 years.

~~Issuances of Common Stock and Stock Options – Pursuant to New Employment Agreements~~

On June 27, 2016, the Company and Dr. Bertolino entered into an executive employment agreement as our President and Chief Medical Officer of the Company, effective on June 27, 2016 and the Company agreed to grant to Dr. Bertolino under the Company’s 2016 Equity Incentive Plan (i) 1,066,667 shares of restricted stock and (ii) a ten-year option to purchase 617,839 shares of the Company’s Class A common stock at an exercise price of $1.39 per share. Both shares and options shall vest upon the earliest to occur of the following: (1) 50% upon the first anniversary of the effective date, and the remaining 50% upon the second anniversary of the effective date (2) completion of both a Phase 2b psoriasis study and a Phase 2 oral mucositis study; (3) the Company’s common stock closes above $3.00 per share (as may be adjusted for any stock splits or similar actions); (4) the commencement of trading of the Company’s common stock on a national securities exchange (e.g. Nasdaq or the NYSE); or (5) upon a Change in Control of the Company (as defined in the employment agreement). The 1,066,667 shares were valued at approximately $1.5 million, which will be amortized over two years to June 27, 2018. The 617,839 stock options valued at approximately $800,000 and will be exercisable for 10 years at an exercise price of $1.39 per share. During the three months and six months ended December 31, 2017, the Company recorded approximately $845,000 and $1,134,000 of total stock-based compensation, respectively. The $845,000 of stock-based compensation expense for the three months ended December 31, 2017 included approximately $295,000 of stock option expense and $550,000 of stock awards. The $1,134,000 of stock-based compensation expense for the six months ended December 31, 2017 included approximately $396,000 of stock option expense and $738,000 of stock awards.

In December, 2017 and October, 2017, respectively, the Company was able to conclude both the Phase 2b psoriasis study and a Phase 2 oral mucositis study; therefore the remaining 50% of the shares and options vested to Dr. Bertolino, and all remaining shares and options granted on June 27, 2016 were fully amortized and expensed during the three-month period ended December 31, 2017.

On July 18, 2016, the Company issued 7,500 stock options to purchase shares of the Company’s common stock to a consultant for services rendered, exercisable for 3 years at $1.38 per share of common stock. The value of these 7,500 options was approximately $4,000. During the three months ended September 30, 2016, the Company recorded approximately $4,000 of stock option expense for this option grant.

On September 1, 2016, the Company and Ms. Harness entered into an executive employment agreement as the Company’s VP, Clinical Sciences and Portfolio Management, effective on September 1, 2016. Commencing on September 1, 2016, the Company agreed to pay Ms. Harness an annual salary of $250,000. In addition, the Company agreed to grant2018, 38,930 restricted shares issued to Ms. Harness under the 2016 Plan (i) 58,394 shares of restricted stock, which shall vest upon the earliest to occur of the following: (1) one third upon the first anniversary of the effective date, one-third upon the second anniversary of the effective date, and the remaining one-third upon the third anniversary of the effective date; or (2) upon a Change in Control (as defined in the employment agreement) of the Company, and (ii) ten-year options to purchase 172,987 shares of the Company’s common stock were also granted at an exercise price of $1.37 per share, which shall vest upon the earliest to occur of the following: (1) one-third upon the first anniversary of the effective date, and the remaining balance vesting monthly in equal portions over the following 24 months; and (2) upon a Change in Control (as defined in the employment agreement) of the Company. The 58,394 shares were valued at approximately $80,000, which will be amortized over three years to September 1, 2019. The 172,987 stock options were valued at approximately $220,000 and will be exercisable for 10 years at an exercise price of $1.37 per share. They will be amortized over 3 years to September 1, 2019. During the three months and six months ended December 31, 2017, the Company recorded approximately $25,000 and $50,000 of total stock-based compensation, respectively. The $25,000 of stock-based compensation expense for the three months ended December 31, 2017 included approximately $18,000 of stock option expense and $7,000 of stock awards. The $50,000 of stock-based compensation expense for the six months ended December 31, 2017 included approximately $36,000 of stock option expense and $14,000 of stock awards.

On September 15, 2016, the Company and Dr. Lang entered into an executive employment agreement as the Company’s VP, Regulatory Affairs, effective on September 15, 2016. Commencing on September 15, 2016, the Company agreed to pay Dr. Lang an annual salary of $250,000. In addition, the Company agreed to grant to Dr. Lang under the 2016 Plan (i) 63,492 shares of restricted stock, which shall vest upon the earliest to occur of the following: (1) one-third upon the first anniversary of the effective date, one third upon the second anniversary of the effective date, and the remaining one-third upon the third anniversary of the effective date; or (2) upon a Change in Control (as defined in the employment agreement) of the Company, and (ii) ten-year options to purchase 188,262 shares of the Company’s common stock were also granted at an exercise price of $1.26 per share, which shall vest upon the earliest to occur of the following: (1) one-third upon the first anniversary of the effective date, and the remaining balance vesting monthly in equal portions over the following 24 months; and (2) upon a Change in Control (as defined in the employment agreement) of the Company. The 63,492 shares were valued at approximately $80,000, which will be amortized over three years to September 15, 2019. The 188,262 stock options were valued at approximately $220,000 and will be exercisable for 10 years at an exercise price of $1.26 per share. They will be amortized over 3 years to September 15, 2019. During the three months ended December 31, 2017 and 2016, the Company recorded approximately $0 and $4,000 of stock-based compensation expense for these equity grants, respectively. There was no stock-based compensation expense for Dr. Lang since she resigned on March 17, 2017 and the 63,492 restricted shares and the 188,262 stock options were forfeited. The $4,000 included approximately $3,000 of stock option expense and $1,000 for the stock awards.

~~On July 18, 2016, the Company issued 7,500 shares to a consultant for service rendered. The value of these 7,500 shares at $1.38 per share was approximately $10,000.~~

~~On August 1, 2016, the Company issued 11,720 shares to a consultant for service rendered. The value of these 11,720 shares at $1.28 per share was approximately $15,000.~~

~~During the three months and six months ended December 31, 2017 and 2016, there were no stock options exercised.~~

On September 6, 2017, the Company entered into a common stock purchase agreement with Aspire Capital, which replaced the prior 2015 $30 million Aspire Capital stock purchase agreement and 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 36-month term of the Stock Purchase Agreement. The Company issued 300,000 shares of its Class A common stock to Aspire Capital as a commitment fee. The commitment fee of approximately $215,000 is amortized pro-rata as the funding is received. The amortized amount of $31,000 was recorded to additional paid-in capital for the six months ended December 31, 2017. The unamortized portion is carried on the balance sheet as deferred offering costs and was $183,000 at December 31, 2017. The Company registered the resale of all shares that Aspire Capital will purchase under this common stock purchase agreement. To the extent Aspire Capital purchases shares under this Purchase Agreement and subsequently sells those shares purchased, the other holders of shares of our Class A common stock may experience dilution, which may be substantial. In addition, the sale of a substantial number of shares of our Class A common stock by Aspire Capital, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we might otherwise wish to effect sales.

During the period from September 6, 2017 to December 31, 2017, the Company generated proceeds of approximately $4.4 million under the new 2017 agreement with Aspire Capital from the sale of approximately 6.6 million shares of its common stock. As of December 31, 2017, the available balance under the new equity line agreement was approximately $25.6 million.

On March 30, 2015, the Company entered into its prior common stock purchase agreement with Aspire Capital, which provided that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital was committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the 36-month term of the Purchase Agreement. In consideration for entering into this stock purchase agreement, the Company issued to Aspire Capital 160,000 shares of its Class A common stock as a commitment fee. The commitment fee of approximately $499,000 was amortized as the funding was received. The unamortized portion of deferred offering costs from this stock purchase agreement of $227,000 was recorded to additional paid-in capital during the six months ended December 31, 2017, since the Company entered into a new $30 million common stock purchase agreement with Aspire Capital, to replace this prior $30 million 2015 Aspire Capital agreement, on September 6, 2017. During the period from July 1, 2017 to September 5, 2017, the Company generated proceeds of approximately $2.1 million under this 2015 agreement with Aspire Capital, from the sale of approximately 2.6 million shares of its common stock.

From January 1, 2018 to February 7, 2018, the Company has generated additional proceeds of approximately $0.6 million under the Common Stock Purchase Agreement with Aspire Capital from the sale of approximately 0.9 million shares of its common stock.

~~On February 1, 2018, 3,333 shares of the Company’s restricted stock vested to Ms. Anne Ponugoti according to Ms. Ponugoti’s employment agreement.~~vested. The total taxable compensation to Ms. ~~Ponugoti~~Harness for the ~~3,333~~38,930 vested shares was ~~$2,433, which is priced at~~approximately $3,690, based upon the closing stock price on ~~January~~August 31, 2018 ~~at $0.73~~of $0.40 a share. The Company issued ~~2,645~~29,658 common shares (net share issuance amount), ~~which is approximately 79% of the total vested common share amount of 3,333 common shares due to be issued~~ to Ms. ~~Ponugoti.~~Harness. The remaining ~~688~~9,272 shares of common stock were withheld from Ms. ~~Ponugoti~~Harness for the payment of payroll taxes to the Federal and State taxing ~~authorities.~~authorities and these shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

On ~~February 5,~~September 1, 2018, 533,334 restricted shares issued to Dr. Bertolino vested. The total taxable compensation to Dr. Bertolino for the ~~Board~~533,334 vested shares was approximately $87,140, based upon the closing stock price on August 31, 2018 of ~~Directors approved the retirement of 567,872~~$0.40 a share. The Company issued 314,387 common shares (net share issuance amount), to Dr. Bertolino. The remaining 218,946 shares of ~~its~~ common stock ~~in treasury, which shares are issued but are not outstanding. These shares included~~were withheld from Dr. Bertolino for the ~~688~~payment of payroll taxes to the Federal and State taxing authorities and these shares withheld ~~from Ms. Ponugoti, as a result, all treasury shares of~~are being reported by the Company ~~were retired.~~as treasury stock, at cost, on the Company’s accompanying balance sheets.

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

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

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

The table below sets forth a reconciliation of the Company’s beginning and ending Level 3 preferred stock liability balance for the period from October 5, 2018 (date of issuance of preferred stock and warrants) to June 30, 2019 and March 31, 2020.

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

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

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

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

Innovation Pharmaceuticals Inc. is a clinical stage ~~biopharmaceutical~~pharmaceutical company developing innovative therapies ~~for inflammatory diseases,~~with dermatology, oncology, ~~dermatology,~~anti-inflammatory and ~~anti-infectives~~antibiotic applications. The Company owns the rights to numerous drug compounds, including ~~Prurisol (KM-133), which is in development for psoriasis;~~ Brilacidin, our lead drug in a new class of compounds called ~~defensin-mimetics;~~defensin-mimetics, and Kevetrin (thioureidobutyronitrile), our lead anti-cancer compound.

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

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

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

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

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

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

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

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

In July 2019, the Company entered into a license agreement with Alfasigma, granting Alfasigma the worldwide right to develop, manufacture and commercialize rectally administered Brilacidin for UP/UPS. The license agreement also provides Alfasigma with a right of first refusal for Brilacidin for the treatment of more extensive forms of inflammatory bowel disease (IBD), such as Ulcerative Colitis and Crohn’s disease, and a right of first negotiation for Brilacidin in other gastrointestinal indications.

We have no product sales to date and we will not receive any product revenue until we receive approval from the FDA or equivalent foreign regulatory agencies to begin marketing a pharmaceutical product. Milestone payments from our licensee are also dependent on clinical/regulatory milestones. We are actively engaged in business development for partnering our drugs. Developing pharmaceutical products, however, is a lengthy and very expensive process and there can be no assurance that we will complete such development or commercialize such for several years, if ever.

The Company devotes most of its efforts and resources on its compounds Brilacidin and Kevetrin, which are in clinical trials: Prurisol for the treatment of psoriasis, Kevetrin for the treatment of ovarian cancer, and Brilacidin for treatments of skin infections, ulcerative proctitis (Inflammatory Bowel Disease) and prevention of oral mucositis complicating chemoradiation treatment for cancer.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.

A key strategic priority for the Company remains the out-licensing of its mid-stage, first-in-class clinical assets to global and/or specialty pharmaceutical companies who have expressed an interest in our pipeline. Successfully securing partnerships would afford the Company access to immediate and potentially recurring sources of non-dilutive capital, including upfront fees, milestone-based payments and tiered royalties.

~~Research and development efforts are concentrated on Prurisol, Brilacidin, and Kevetrin:~~

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

In early 2018, the Company approved steps to focus its efforts on clinical trials for its lead drug candidates. Among other changes, the salary of Dr. Krishna Menon, the Company’s President of Research, was reduced by 50%, and the Company anticipates further reductions to staff unrelated to clinical trials.

The Company’s common stock traded under the stock symbol “CTIX” on the OTCQB until the market close of June 8, 2017. As of June 9, 2017, trading on the OTCQB began under the new Innovation Pharmaceuticals name and ticker symbol “IPIX”.

Set forth below is an overview of our most recent research and development efforts on ~~Prurisol,~~Brilacidin and Kevetrin ~~and Brilacidin during fiscal 2018 and~~ through the date of this Quarterly Report on Form 10-Q. We have entered into multiple non-disclosure agreements with large and mid-sized pharmaceutical companies that enable us to continue ongoing discussions regarding potential partnering should the below trial results support such a relationship.10-Q is submitted:

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

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

IBD, UP/UPS study — (see Note 7. Exclusive License Agreement to the condensed consolidated financial statements). A Phase 2a trial comprised three sequential cohorts, with progressive dose escalation by cohort—cohort A (6 patients) - 50 mg, cohort B (6 patients) - 100 mg, and cohort C (5 patients) - 200 mg, respectively. Treatment with Brilacidin by daily enema administration was performed for 42 days. The primary efficacy endpoint of clinical remission (accounting for stool frequency, rectal bleeding and endoscopy findings subscores) was met by the majority of patients across the cohorts. Brilacidin was generally well-tolerated. Patient quality of life (as assessed by the short inflammatory bowel disease questionnaire, or SIBDQ) showed notable improvements. Limited systemic exposure to Brilacidin was demonstrated as measured by plasma Brilacidin concentrations. Future development work with locally-administered Brilacidin for UP/UPS will be conducted by Alfasigma.

IBD, Ulcerative Colitis (UC) — Brilacidin is also being developed as a treatment in more extensive forms of IBD, with formulation development plans including oral tablets first aimed for the treatment of ulcerative colitis and then Crohn’s disease. The Company has partnered with BDD Pharma for oral development of Brilacidin in tablet form utilizing BDD Pharma’s patented OralogiK™ tablet technology to achieve selective delivery of Brilacidin to the colon. Initial clinical testing in a Phase 1 single-dose escalation trial was conducted in January 2020, which tested a radio (gamma) isotope labeled Brilacidin oral formulation in healthy volunteers to assess targeting, dispersion, safety, toleration, and the pharmacokinetic profile. Following multidose testing in healthy volunteers, a placebo-controlled Phase 2b2 clinical trial in UC patients would be targeted to begin in the second half of calendar year 2020. We aim to design this patient clinical trial to firmly anchor proof-of-concept for treatment of ulcerative colitis.

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 ~~Prurisol~~Brilacidin for ~~subjects~~the treatment of Acute Bacterial Skin and Skin Structure Infection (ABSSSI) caused by gram-positive bacteria, including methicillin-resistant Staphylococcus aureus (MRSA). We received from the FDA comments and considerations for incorporation into our study design. Management decided to delay its response to FDA due to the low price per share of our common stock and the approximately $30 million costs required for this study. Our strategy, for now, is to achieve success with ~~moderate~~other trials and attract partnering opportunities that may provide significant upfront payments and milestone payments, which can then be used to ~~severe plaque psoriasis. The treatment group arms are Prurisol 300mg, Placebo, Prurisol 400mg (Ratio 3:3:1) with a treatment duration~~fund the ABSSSI program. We see ABSSSI as the appropriate gateway indication in infectious diseases, enabling potential further studies of ~~twelve weeks.~~Brilacidin’s use for implant coating and biofilm infections.

We are currently awaiting data from the trial. Subject recruitment was slower than projected due to competitive trials. In response, we added additional investigator sites. We completed the trial in December 2017. Our expendituresExpenditures on ~~Prurisol~~Brilacidin were approximately ~~$3.3~~$0.2 million and ~~$1.6~~$0.1 million during the ~~six~~three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively, and approximately $0.6 million and $1.1 million during the nine months ended March 31, 2020 and 2019, respectively.

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

The Company has ~~commenced~~completed a Phase 2a trial of Kevetrin in treating late-stage ~~ovarian cancer.~~Ovarian Cancer. The main objective of the trial ~~focuses~~focused on confirming the modulation by Kevetrin of p53 pathways in tumors, as well as monitoring the response of tumors to the treatment. ~~Highly encouraging preliminary positive data from the first patients treated showed direct evidence~~The study was successful in demonstrating modulation of ~~molecular pathways modulation~~p53 directly in ~~tumors. Modulation of the p53 protein was observed~~ovarian cancer tumor tissue in response to administration of Kevetrin; pathways analyses also pointed to concomitant cell cycle modulation at the level of gene expression. The Company believes that further pathways detail and clinical tumor responses would best be observable with more frequent and potentially higher drug exposure. Thus, the Company has decided to discontinue further enrollment into the current clinical trial and consider a similar trial when ongoing efforts result in the development of an oral formulation of Kevetrin for treating cancer.patients. Pharmacokinetic data collected on Kevetrin during the ~~initial~~ Phase 1 clinical trial ~~demonstrates~~demonstrated that the compound has a short half-life of approximately two hours. ~~Kevetrin’s~~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 ~~began January 2017.~~are approximately half completed, with the remainder of this work to be completed when the Company secures additional financial resources. Next steps in the development of Kevetrin include: completing bridging toxicology work for an oral formulation; developing the oral formulation (pill or tablet); requesting an FDA meeting to discuss trial results to date and the design of future trials; and performing a dosing safety study in healthy volunteers once the oral formulation has been developed. Once completed, these steps would likely quickly lead to Phase 2 testing of oral Kevetrin in both solid tumors and leukemias, with ovarian cancer likely continuing to be the lead indication.

~~Our expenditures~~Expenditures on Kevetrin were ~~approximately $0.3 million and $0.3 million~~insignificant during the ~~six~~both the quarters and nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016, respectively.~~

One trial of Brilacidin completed in October 2017 was a double-blind Phase 2 clinical trial of Brilacidin-OM for the treatment of oral mucositis (OM), and another was completed in July 2017, which was an open-label Phase 2 Proof-of-Concept (PoC) trial of Brilacidin for the treatment of ulcerative proctitis /proctosigmoiditis (UP/UPS), two types of Inflammatory Bowel Diseases (IBD).

~~Oral Mucositis (OM): S~~~~tudy -~~ In the completed 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, interim analysis of patients who received at least 55 Gy cumulative units of radiation showed the use of Brilacidin-OM met its primary endpoint with a clearly reduced incidence of severe OM (SOM) (WHO Grade ≥ 3) compared to placebo. A summary of key secondary endpoints analysis showed that based on Kaplan-Meier curves, Brilacidin-OM oral rinse showed a clear separation from placebo in delaying the onset of SOM—particularly the period from approximately 28-42 days, after the initiation of treatment, during which the incidence of SOM rose strikingly in the placebo group while not in the group being treated with Brilacidin. The delay of onset of SOM data further support the positive primary endpoint findings that showed a clear reduction in the incidence of SOM in patients receiving Brilacidin-OM treatment.

Given that Brilacidin-OM successfully prevented SOM from occurring, as well as delayed its onset, in a substantial number of patients, data comparisons aimed at assessing potential reduction in the duration of SOM were constrained by the fewer number of Brilacidin-OM treated patients that could be included in such analysis. While Brilacidin-OM appeared to decrease the initial duration of SOM (time from the initial WHO Grade ≥ 3 to the first WHO Grade ≤ 2 OM assessment), detailed interpretation of this and other duration data comparisons were limited.

UP/UPS: Study - This completed Phase 2a trial comprises three sequential cohorts, with progressive dose escalation by cohort—Cohort A (6 patients) -50 mg, Cohort B (6 patients) -100 mg, and Cohort C (5 patients) - 200 mg, respectively. Treatment with Brilacidin by daily enema administration was performed for 42 days. The Primary Efficacy Endpoint of Clinical Remission (accounting for Stool Frequency, Rectal Bleeding and Endoscopy Findings subscores) was met by the majority of patients across the cohorts. Brilacidin was generally well-tolerated. Patient Quality of Life (as assessed by the Short Inflammatory Bowel Disease Questionnaire or “SIBDQ”) showed notable improvements. Limited systemic exposure to Brilacidin was demonstrated as measured by plasma Brilacidin concentrations. Further analyses of data are ongoing.

We see significant opportunities in treating IBD with Brilacidin. Our development programs depending on available financial resources include new formulations (oral and foam type) with potential associated toxicology studies and clinical studies to be defined.

These data suggest that other inflammatory conditions may, likewise, be treated locally and efficaciously with Brilacidin without significant systemic absorption, better ensuring a safe and well-tolerated therapeutic profile. Given Brilacidin’s low level of systemic exposure, moderate-to-high dosing of the drug by topical application to the skin might also be supported in treating various dermatology disorders and conditions.

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 comments and considerations from the FDA for incorporation into our study design. Management has decided to delay its response to FDA due to the low price per share of our common stock and the approximate $30 million costs required for this study which would result in significant dilution to our shareholders. Our strategy for now is to achieve success with other trials and attract partnering opportunities with significant down-payments and milestone payments which can fund these trials.

~~Our expenditures on Brilacidin were approximately $1.2 million and $0.8 million during the six months ended December 31, 2017 and 2016, respectively.~~

We have ~~further reduced costs associated~~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.

We have identified conditions and events that raise substantial doubt about our ability to continue as a going concern. As of March 31, 2020, we had approximately $0.8 million in cash compared to $0.6 million of cash as of June 30, 2019. The amount of cash and cash equivalents on the balance sheet as of the date of this filing is approximately $1.5 million and is not adequate to fund our operations. The Company’s only revenue during the nine months ended March 31, 2020 is $0.4 million under the terms of the License Agreement with ~~the licensing of intellectual property for these diseases by returning certain patent portfolios back~~Alfasigma (see Note 7. Exclusive License Agreement to the ~~university licensor. Research at~~condensed consolidated financial statements). We have no product sales as we do not have any products in the market and will continue to not have significant revenues until we begin to market our products after we have obtained the necessary FDA approval. As a result, the Company expects to continue to incur losses over the next 12 months from the date of this filing. Accordingly, the Company’s planned operations, including total budgeted expenditures of approximately $11.8 million for the next twelve months, raise doubt about its ability to continue as a going concern for the next 12 months. If we are not able to continue as a going concern, it is ~~now focused on supporting~~likely that holders of our ~~clinical trials. As~~common stock will lose all of their investment. Our condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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

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

Please see Note 3 of the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the summary of significant accounting policies. In addition, please see Part II, Item 7, “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2019. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2019.

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

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 expect that our general and administrative expenses will also increase in the future as we expand our business development, by adding employees, consultants, additional infrastructure and incurring other additional costs. Based upon our expected rate of expenditures over the next ~~twelve~~12 months, ~~and beyond,~~ we ~~will need~~expect to raise additional ~~working~~ capital through, among other things, the sale of equity or debt securities to meet all of our anticipated ~~clinical trial~~ obligations for our current operations through our fiscal year end of June 30, 2020. However, continuing operations for the next 12 months from the date of this filing is very much dependent upon our ability to raise equity from existing or new financing sources. There can be no assurance as to the availability or terms upon which such financing and ~~other working~~ capital ~~requirements.~~might be available.

For the three months ended ~~December~~ March31, ~~201~~72020 and 20169

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

We incurred operating expenses of approximately ~~$4.5~~$0.9 million and ~~$3.3~~$1.1 million for the three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

Below is a summary of our research and development expenses for our proprietary programs by categories of costs for the three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively (rounded to nearest thousand):

	For the three months ended				Change						For the three months ended					Change
	December 31,				2017 Vs. 2016						March 31,					2020 vs. 2019
	2017		2016		$			%			2020			2019		$			%

Clinical studies and development research	$	2,341,000	$	1,662,000		679,000			41	%	$	323,000		$	128,000	$	195,000			152	%
Officers’ payroll and payroll tax expenses related to R&D Department		223,000		218,000		5,000			2	%		—			120,000		(120,000	)		(100	)%
Employees payroll and payroll tax expenses related to R&D Department		262,000		354,000		(92,000	)		(26	)%		77,000			84,000		(7,000	)		(8	)%
Stock-based compensation - officers		989,000		289,000		700,000			242	%
Stock-based compensation - employees		42,000		50,000		(8,000	)		(16	)%
Stock-based compensation - consultants		-		8,000		(8,000	)		(100	)%
Stock-based compensation – officers												—			222,000		(222,000	)		(100	)%
Stock-based compensation – employees												22,000			41,000		(19,000	)		(46	)%
Stock-based compensation – consultants												13,000			19,000		(6,000	)		(32	)%
Reversal of forfeited stock-based compensation												(251,000	)		—		(251,000	)		—
Depreciation and amortization expenses		106,000		102,000		4,000			4	%		92,000			93,000		(1,000	)		(1	)%
Total	$	3,963,000	$	2,683,000		1,280,000			48	%	$	276,000		$	707,000	$	(431,000	)		(61	)%

Research and development expenses for proprietary programs ~~increased~~decreased during the three months ended ~~December~~March 31, ~~2017 primarily~~2020 compared with the same period in 2019, due to ~~higher~~less spending on our ~~Brilacidin program and Prurisol program.~~

~~Officers’ payroll will decrease in future periods~~programs due to ~~the 50% reduction in salary~~our current lack of ~~one officer, which became effective on January 16, 2018.~~working capital. Clinical studies and development expenses ~~may~~will continue to decrease in future reporting periods ~~depending on~~if there is no increase in the Company’s ~~current~~financial liquidity.

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

Employees payroll and payroll tax expenses decreased during the three months ended ~~December~~March 31, ~~2017 related~~2020 compared with the same period in 2019, due to fewer employees engaged in preclinical development ~~in September, 2017,~~after March 31, 2019, which led to the decrease in employees’ payroll during the quarter ended ~~December~~March 31, ~~2017.~~

Stock- based compensation - officers increased during the three months ended December 31, 2017 primarily related to the stock-based compensation given to our new President and Chief Medical Officer on September 1, 2017 and the vesting milestones for the stocks and options granted to our President and Chief Medical Officer on June 27, 2016 became fully vested and expensed for the completed clinical trials in December, 2017.2020.

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

Stock-based compensation - employees decreased during the three months ended March 31, ~~2017~~2020 compared with the same period in 2019, due to the decrease of vesting in the number of stock awards granted to employees during the ~~quarter~~three months ended ~~December~~March 31, ~~2017~~2020.

Stock-based compensation - consultants decreased during the three months ended March 31, 2020 compared with the same period in ~~2016.~~

~~Stock-based compensation- consultant decreased~~2019, due to less stock awards being granted to two consultants during the three months ended ~~December~~March 31, ~~2017 due to no stock awards were granted to consultants during the quarter ended December 31, 2017.~~2020.

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

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

Below is a summary of our general and administrative expenses for the three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively (rounded to nearest thousand):

	For the three months ended				Change						For the three months ended				Change
	December 31,				2017 vs. 2016						March 31,				2020 vs. 2019
	2017		2016		$			%			2020		2019		$			%

Insurance and health expense	$	109,000	$	121,000		(12,000	)		(10	)%	$	105,000	$	121,000	$	(16,000	)		(13	)%
Patent expenses		-				-			-	%
Rent and utility expense		65,000		69,000		(4,000	)		(6	)%
Operating lease and utility expense												36,000		59,000		(23,000	)		(39	)%
Stock-based compensation-Officers												143,000		—		143,000		-%
Business development expense												143,000		27,000		116,000			430	%
Other G&A		123,000		154,000		(31,000	)		(20	)%		34,000		43,000		(9,000	)		(21	)%
Total	$	297,000	$	344,000		(47,000	)		(14	)%	$	461,000	$	250,000	$	211,000			84	%

General and administrative expenses ~~decreased~~increased during the three months ended ~~December~~March 31, ~~2017~~2020 compared with the same period in 2019, primarily ~~related~~due to ~~decreases~~the increase in ~~promotion, advertising~~stock-based compensation - officers of $143,000 (see Note 13) and ~~office expenses.~~

~~Table of Contents~~

business development expense of $116,000, which offset by the decrease in operating lease expense of $23,000.

Below is a summary of our Officers’ payroll and payroll tax expenses for the three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively (rounded to nearest thousand):

~~There was no change in~~ Officers’ payroll and payroll tax expenses ~~for the Company~~increased during the three months ended ~~December~~March 31, ~~2017 and 2016. The officers’ payroll and~~2020 compared with the same period in 2019, primarily related to an increase in payroll tax expenses represented one officer’s payroll and payroll tax expenses and 10% of payroll and payroll tax expenses paid for Dr. Menon. The Company recorded 90% of payroll paid to Dr. Menon and the related payroll tax expenses under Research and Development Expense.liabilities in this period.

Below is a summary of our Professional fees for the three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively (rounded to nearest thousand):

Professional fees ~~decreased~~increased during the three months ended ~~December~~March 31, ~~2017~~2020 compared with the same period in 2019, primarily related to an increase in legal fees of $20,000, offset by decrease in ~~legal~~audit and accounting fees.

Below is a summary of our other income (expense) for the three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively (rounded to nearest thousand):

There was ~~slight~~a decrease in ~~interest income from bank deposits and there was~~change in fair value related to the Series B preferred stock for the three months ended March 31, 2020 compared with the same period in 2019, due to no change in ~~interest expenses paid on~~fair value related to the ~~note payable – related party~~Series B preferred stock for the three months ended March 31, 2020 (see Note 914. Fair Value Measurement to the ~~notes to the~~ condensed consolidated financial statements).

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

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

We incurred net losses of ~~$4.5~~$1.0 million and ~~$3.4~~$1.1 million for the three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively because of the above-mentioned factors.

For the ~~six~~nine months ended ~~December~~ March 31, ~~201~~72020and 20169

We generated no revenue of $0.4 million and $0 million for the nine months ended March 31, 2020 and 2019, respectively. Revenue during the nine months ended March 31, 2020 represented the initial non-refundable payment from the exclusive license agreement signed with Alfasigma S.p.A., a global pharmaceutical company (see Note 7. Exclusive License Agreement to the condensed consolidated financial statements).

We incurred operating expenses of approximately ~~$9.0~~$3.6 million and ~~$6.3~~$5.1 million for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

Below is a summary of our research and development expenses for our proprietary programs by categories of costs for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively (rounded to nearest thousand):

	For the six months ended				Change						For the nine months ended					Change
	December 31,				2017 Vs. 2016						March 31,					2020 vs. 2019
	2017		2016		$			%			2020			2019		$			%

Clinical studies and development research	$	5,124,000		3,009,000		2,115,000			70	%	$	999,000		$	1,542,000	$	(543,000	)		(35	)%
Officers’ payroll and payroll tax expenses related to R&D Department		441,000		453,000		(12,000	)		(3	)%		232,000			466,000		(234,000	)		(50	)%
Employees payroll and payroll tax expenses related to R&D Department		592,000		609,000		(17,000	)		(3	)%		217,000			379,000		(162,000	)		(43	)%
Stock-based compensation - officers		1,326,000		578,000		748,000			129	%
Stock-based compensation - employees		74,000		63,000		11,000			17	%
Stock-based compensation - consultants		-		50,000		(50,000	)		(100	)%
Stock-based compensation – officers												298,000			620,000		(322,000	)		(52	)%
Stock-based compensation – employees												82,000			134,000		(52,000	)		(39	)%
Stock-based compensation – consultants												29,000			44,000		(15,000	)		(34	)%
Reversal of forfeited stock-based compensation												(251,000	)		—		(251,000	)		—	%
Depreciation and amortization expenses		211,000		198,000		13,000			7	%		279,000			278,000		1,000			—	%
Total	$	7,768,000		4,960,000		2,808,000			57	%	$	1,885,000		$	3,463,000	$	(1,578,000	)		(46	)%

Research and development expenses for proprietary programs ~~increased~~decreased during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 compared with the same period in 2019, primarily due to ~~higher~~less spending on our ~~Brilacidin program and Prurisol program.~~

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

Employees payroll and payroll tax expenses decreased during the ~~six~~nine months ended ~~December~~March 31, ~~2017 related~~2020 compared with the same period in 2019, due to fewer employees engaged in preclinical development after March 31, 2019, which led to the decrease in ~~employees~~employees’ payroll during the ~~six~~nine months ended ~~December~~March 31, ~~2017.~~2020.

Stock-based compensation - officers ~~increased~~decreased during the ~~six~~nine months ended ~~December~~March 31, 2017 primarily related to the stock-based compensation given to our President and Chief Medical Officer on September 1, 2017 and the stocks and options granted to our new President and Chief Medical Officer on June 27, 2016 that became fully vested and expensed due to the completed clinical trial milestones in December, 2017.

~~Stock-based compensation- employee increased during the six months ended December 31, 2017 due to the increase in stock awards to employees during the six months ended December 31, 2017~~2020 compared with the same period in ~~2016.~~2019, due to the fact that the Company’s President and Chief Medical Officer resigned on December 19, 2019 and the Company reversed the stock-based compensation expenses of approximately $251,000 based on the amount of those unvested options and stock awards we expensed in the current year and all prior periods.

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

Stock-based compensation - consultants decreased during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 compared with the same period in 2019, due to ~~granting fewer~~less stock awards being granted to consultants during the ~~six~~nine months ended ~~December~~March 31, ~~2017.~~2020.

Below is a summary of our general and administrative expenses for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively (rounded to nearest thousand):

	For the six months ended				Change						For the nine months ended				Change
	December 31,				2017 vs. 2016						March 31,				2020 vs. 2019
	2017		2016		$			%			2020		2019		$			%

Insurance and health expense	$	236,000		258,000		(22,000	)		(9	)%	$	357,000	$	376,000	$	(19,000	)		(5	)%
Patent expenses		-		2,000		(2,000	)		(100	)%
Rent and utility expense		127,000		130,000		(3,000	)		(2	)%
Operating lease and utility expense												104,000		181,000		(77,000	)		(43	)%
Stock-based compensation-Officers												143,000		—		143,000			—	%
Patent write off expense												—		155,000		(155,000	)		(100	)%
Business development expense												325,000		73,000		252,000			345	%
Other G&A		231,000		316,000		(85,000	)		(27	)%		151,000		157,000		(6,000	)		(4	)%
Total	$	594,000		706,000		(112,000	)		(16	)%	$	1,080,000	$	942,000	$	138,000			15	%

General and administrative expenses ~~decreased~~increased during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 compared with the same period in 2019, primarily ~~related~~due to ~~decreases~~the increase in ~~promotion, advertising~~stock-based compensation - officers of $143,000 (see Note 13) and ~~office expenses.~~business development expense of $252,000, which offset by the decrease in patent write off expense of $155,000 and operating lease expense of $77,000.

Below is a summary of our Officers’ payroll and payroll tax expenses for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively (rounded to nearest thousand):

There was no change in ~~Officers’~~officers’ payroll and payroll tax expenses for the Company during the ~~six~~nine months ended ~~December~~March 31, 2017 and 2016. The officers’ payroll and payroll tax expenses represented one officer’s payroll and payroll tax expenses and 10% of payroll and payroll tax expenses paid for Dr. Menon. The Company recorded 90% of payroll paid to Dr. Menon and2020 compared with the ~~related payroll tax expenses under Research and Development Expense.~~same period in 2019.

Below is a summary of our Professional fees for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively (rounded to nearest thousand):

Professional fees decreased during the ~~six~~nine months ended ~~December~~March 31, ~~2017 primarily related~~2020 compared with the same period in 2019, due to ~~decrease in~~less audit and accounting fees and legal fees.

Below is a summary of our other income (expense) for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively (rounded to nearest thousand):

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

There was ~~slight decrease~~an increase in ~~interest income from bank deposits and there was no~~ change in ~~interest expenses paid on~~fair value related to the ~~note payable – related party~~Series B preferred stock during the nine months ended March 31, 2020 compared with the same period in 2019, due to more exercise of warrants to purchase Preferred stock (see Note 914. Fair Value Measurement to the ~~notes to the~~ condensed consolidated financial statements).

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

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

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

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

We incurred net losses of ~~$9.1~~$5.2 million and ~~$6.4~~$7.2 million for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively because of the above-mentioned factors.

As of ~~December~~March 31, ~~2017,~~2020, we had approximately ~~$3.2~~$0.8 million in cash compared to ~~$4.1~~$0.6 million of cash as of June 30, ~~2017.~~2019. The amount of cash and cash equivalents on the balance sheet as of the date of this filing is approximately $1.5 million and is not adequate to fund our operations. We anticipate that future budget expenditures, based upon us obtaining the adequate financial resources to enable us to operate at our budgeted operations, will be approximately ~~$12.2~~a total of $11.8 million for the next twelve months, including approximately ~~$8.2~~$8.3 million for clinical activities, supportive research, and drug ~~product development. We will require additional sources of equity capital during the fiscal year 2018 in order to meet our working capital requirements.~~product. This assessment is based on current estimates and assumptions regarding our clinical development programs and business needs. Actual working capital requirements could differ materially from this ~~above working capital~~ projection.

~~On September 6, 2017,~~Therefore, our current projected budgeted average monthly cash flow shortfall is anticipated to average approximately $1 million per month for the ~~Company entered into a $30 million common stock purchase agreement with Aspire Capital which replaced~~next 12 months from the prior $30 million Aspire Capital stock purchase agreement and 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 milliondate of the ~~Company’s common stock over the 36-month term~~filing of ~~the Purchase Agreement. During the period from September 6, 2017~~this report. We are working to ~~December 31, 2017, the Company has generated proceeds~~reduce our projected monthly cash flow shortfall and we are currently seeking new sources of approximately $4.4 million under this agreement with Aspire Capital from the sale of approximately 6.6 million shares of its common stock. As of December 31, 2017, the available balance is approximately $25.6 million. Our ability to continuefinancing to fund our additional research and development ~~activities~~work and ~~corporate overhead~~general and administrative expenses over the next 12 months from the date of this filing. We have the ability to delay incurring certain operating expenses in the next 12 months, which could reduce our cash flow shortfall, if needed.

The current primary potential source of cash available to us is proceeds from the exercise of outstanding warrants to purchase shares of our Series B preferred stock, which warrants we issued in October 2018 and ~~continue as a going concern has been and continues~~May 2019. In addition, we may receive payments upon the achievement of milestones pursuant to our license agreement with Alfasigma or similar license agreements in the future. There can be ~~dependent on this stock purchase agreement.~~no assurance of the exercise of these warrants or the receipt of these milestone payments in the future.

Our ability to successfully raise sufficient funds through the sale of equity securities, ~~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 our Annual Report on Form 10-K we filed with the SEC on September 11, 2017 and in other reports.

~~We have been successful at raising capital in the past but there can be no assurance that additional capital will be available on terms acceptable to us or in amounts sufficient~~ to meet our ~~needs.~~current and future operating expenditures is uncertain and subject to market conditions generally, the market for our common stock, and our ability to sell our common stock and other risks. These factors, among others, raise substantial doubt about our ability to continue as a going concern for the next 12 months. In the event that we are unable to raise sufficient ~~capital from our current financing agreement with Aspire Capital when needed or secure~~ additional ~~sources of funding from others,~~funds, we may be required to delay, reduce our current rate of spending through reductions in staff and delaying, scaling back or stopping certain research and development programs, including the more costly Phase 2 clinical trials and potential future Phase 3 clinical trials on our wholly-owned development programs, as these clinical trials progress into a later stage of development or severely curtail our operations or otherwise impede our ~~ongoing~~on-going business efforts, orwhich could have a material adverse effect on our future business, operating results, financial condition and long-term prospects. In addition, we ~~could~~may be forced to cease all operations, ~~altogether. Insufficient~~in which event investors may lose their entire investment in the Company. Our condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. See Note 2. Going Concern and Liquidity to the condensed consolidated financial statements included elsewhere in this report for a further discussion of our liquidity ~~may also require us~~and the conditions and events which raise substantial doubt regarding our ability 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 liquidity events could prevent us from successfully executing our current operating plan.

~~$75 Million Shelf Registration Statement~~continue as a going concern for the next 12 months.

The Company ~~has an effective shelf~~does not currently satisfy the conditions for use of Form S-3 for primary offerings of securities, and the Company will not be able to use a registration statement on Form S-3 ~~registering~~to raise capital until the aggregate market value of the Company’s common equity held by non-affiliates equals or exceeds $75 million or the Company lists its common stock on a national securities exchange such as Nasdaq or the NYSE. The Company will utilize Form S-1 to register the sale of upits securities, although Form S-1 offers less flexibility on the timing and types of offerings compared to ~~$75 million of the Company’s securities. The Company filed the~~ Form ~~S-3 with the SEC on September 11, 2017, which included registering the shares underlying the 2017 $30 million Aspire Capital stock purchase agreement.~~

The following table provides information regarding our cash position, cash flows and capital expenditures ~~for the six months ended December 31, 2017 and 2016~~ (rounded to nearest thousand):

										Nine Months Ended						Change
	Six Months Ended December 31,						% Change Increase/			March 31,						Increase/
	2017			2016			(Decrease)			2020			2019			(Decrease)
																%
Net cash used in operating activities	$	(7,177,000	)	$	(5,250,000	)		37	%	$	(2,334,000	)	$	(4,992,000	)		(53	)%
Net cash used in investing activities		(90,000	)		(117,000	)		(23	)%		(57,000	)		(18,000	)		217	%
Net cash provided by financing activities		6,307,000			2,916,000			116	%		2,587,000			3,054,000			(15	)%
Net decrease in cash	$	(960,000	)	$	(2,451,000	)		(61	)%
Net increase (decrease) in cash										$	196,000		$	(1,956,000	)		(110	)%

The ~~increase~~decrease in net cash used in operating activities of ~~$1.9~~$2.7 million versus the prior-year ~~six-month~~nine-month period was mainly due to ~~increases~~decreases in our losses from operations of ~~$2.4~~$1.9 million, largely attributable to ~~our~~ increase in initial non-refundable payment from the exclusive license agreement signed with Alfasigma S.p.A., a global pharmaceutical company (see Note 7. Exclusive License Agreement to the condensed consolidated financial statements) and less spending for research and development expenses.

Our operating activities used cash of ~~approximately $7.2~~$2.3 million and ~~$5.3~~$5.0 million for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, respectively. ~~This increase was~~The use of cash in these periods principally resulted from our losses from operations, mentioned above, as adjusted for non-cash charges for stock-based compensation, patent amortization ~~and depreciation,~~change in fair value of preferred stock, interest expense on preferred stock, impairment expense of operating lease, and changes in our working capital accounts.

The ~~decrease~~increase in net cash used in investing activities versus the prior-year ~~six-month~~nine-month period was due to a decrease in ~~patents costs.~~sales proceeds of property, plant and equipment.

During the ~~six~~nine months ended ~~December~~March 31, ~~2017,~~2020 and 2019, our ~~investing~~total net financing activities ~~used~~provided cash of $0.1 million, consisting of spending on patent costs of $0.1 million. During the six months ended December 31, 2016, our investing activities used cash of $0.1 million, including the purchases of fixed assets of $0.05$2.6 million and ~~the purchases of patents of $0.05 million.~~

~~The increase in net cash provided by financing activities of approximately $3.4~~$3.1 million, ~~versus the prior-year six-month period was due to an increase in sales of shares of our common stock to Aspire Capital.~~respectively.

During the ~~six~~nine months ended ~~December~~March 31, ~~2017,~~2020 and 2019, we raised approximately ~~$6.5~~$2.6 million and $3.1 million in net cash proceeds from ~~the sale~~exercise of ~~9.2 million shares~~warrants and from issuance of ~~our common~~Series B preferred stock ~~to Aspire Capital offset by cash paid to taxing authorities arising from the withholding~~and exercise of shares from employees of $172,000. During the six months ended December 31, 2016, we raised approximately $2.9 million in net cash proceeds, from the sale of 2.4 million shares of our common stock to Aspire Capital.warrants, respectively.

The Company, dependent on its future sale of its securities, plans to incur total expenses of approximately ~~$12.2~~$11.8 million for the next ~~twelve~~12 months, including approximately ~~$8.2~~$8.3 million for clinical activities, supportive research, and drug product development. The Company has limited experience with pharmaceutical drug development. As such, the budget estimate may not be accurate. In addition, the actual work to be performed is not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional work may become necessary or a change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget and on our projected timeline of drug development.

The Company will be unable to proceed with its planned drug development programs, meet its administrative expense requirements, capital costs, or staffing costs without ~~accessing~~raising additional capital in the next several months. The current primary potential source of cash available to the Company is proceeds from the exercise of warrants to purchase shares of Series B preferred stock, which warrants were issued in October 2018 and May 2019. In addition, the Company may receive payments upon the achievement of milestones pursuant to its ~~financing available with Aspire Capital of approximately $25.6 million as of December 31, 2017. Management has put in place this new 2017 equity purchase~~license agreement with ~~Aspire Capital to fund~~Alfasigma or similar license agreements in the future. There can be no assurance of the exercise of warrants or the receipt of milestone payments by the Company in the future.

During the nine months ended March 31, 2020, the Company issued 2,945 shares of its ~~future clinical trial expenses and overhead expenses over the next twelve months. This purchase agreement provides that,~~Series B 5% convertible preferred stock, for aggregate gross proceeds of $2.6 million, upon ~~the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed~~exercise of 2,945 warrants. As of March 31, 2020, Series 1-4 warrants to purchase ~~up to an aggregate~~4,775 shares of ~~$30.0 million of~~Series B preferred stock were outstanding. As the ~~Company’s common stock over~~Company cannot be certain the ~~36-month term of the Purchase Agreement. Management believes, as of the date of this filing that the funding amount from Aspire Capital~~remaining warrants will be exercised, there can be no assurance those funds or other funds will be available aswhen needed by(see Note 13. Equity Transactions to the ~~Company. Adverse market conditions~~condensed consolidated financial statements, included in ~~the Company’s per share price~~Part I, Item 1 of ~~its common stock and its trading volume may prevent the Company from funding its working capital requirements as needed.~~

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

~~Below is a table that presents our contractual obligations and commercial commitments as of December 31, 2017 (rounded~~Please see Note 9 to the ~~nearest million):~~condensed consolidated financial statements, Commitments and Contingencies, for a discussion of recent contractual commitments and contingent liability - disputed invoices.

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

The Company maintains an investment portfolio in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. The Company holds investments that are subject to credit risk, but not interest rate risks. The Company does not own derivative financial instruments in our investment portfolio. Accordingly, the Company does not believe there is any material market risk exposure that would require disclosure under this item.

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~~March 31, ~~2017,~~2020, management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on such evaluation, as of ~~December~~March 31, ~~2017,~~2020, the principal executive officer and principal financial officer of the Company ~~have~~has concluded that the Company’s disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended ~~December~~March 31, ~~2017,~~2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

~~None~~On January 22, 2020, the Company filed a complaint against Cummings Properties, LLC in the Superior Court of the Commonwealth of Massachusetts (C.A. No. 20-77CV00101), seeking, among other things, declaratory relief that the lease for the Company’s prior principal executive offices did not automatically extend for an additional five years from September 2018, return of the Company’s security deposit, and damages. This action is in the preliminary stages and the Company is currently unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any.

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, ~~2017,~~2019, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2019.

(1)

~~(1)~~

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

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.

Large Accelerated Filer	¨☐	Accelerated Filer	x☐
Non-Accelerated Filer	¨☒	Smaller reporting company	¨☒
	~~(Do not check if a smaller reporting company)~~	Emerging growth company	¨ ☐

Class of Securities		Shares Outstanding
Common Stock Class A, $0.0001 par value		~~145,688,782~~ 292,754,152
Common Stock Class B, $0.0001 par value		~~None~~1,818,180

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of ~~December~~March 31, ~~2017 (unaudited)~~2020 and June 30, ~~2017 (audited)~~2019 (unaudited)	4
	Condensed Consolidated Statements of Operations ~~(unaudited)~~ for the three months and ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016~~2019 (unaudited)	5
	Condensed Consolidated Statements of ~~Cash Flows (unaudited)~~Stockholders’ Deficiency for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2020 and ~~2016~~2019 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2020 and 2019 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	79
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2035
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3150
Item 4.	Controls and Procedures	3250


PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	3351
Item 1A	Risk Factors	3351
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3351
Item 3.	Defaults Upon Senior Securities	3351
Item 4.	Mine Safety Disclosures	3351
Item 5.	Other Information	3351
Item 6.	Exhibits	3452

SIGNATURES		3553

	December 31,			June 30,
	2017			2017
	(Unaudited)
ASSETS
Current Assets:
Cash	$	3,181,000		$	4,141,000
Prepaid expenses		94,000			308,000
Security deposits		78,000			-
Subscription receivable		-			26,000
Total Current Assets		3,353,000			4,475,000
Other Assets:
Patents - net		4,100,000			4,212,000
Equipment - net		102,000			120,000
Deferred offering costs - net		183,000			227,000
Security deposits		-			78,000
Total Other Assets		4,385,000			4,637,000
Total Assets	$	7,738,000		$	9,112,000

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable - (including related party payables of approximately $1,486,000 and 1,506,000, respectively)	$	4,850,000		$	4,699,000
Accrued expenses - (including related party accruals of approximately $37,000 and $38,000, respectively)		548,000			711,000
Accrued salaries and payroll taxes - (including related party accrued salaries of approximately $2,953,000 and $2,953,000, respectively)		3,197,000			3,144,000
Convertible note payable - related party		2,022,000			2,022,000
Total Current Liabilities		10,617,000			10,576,000
Total Liabilities		10,617,000			10,576,000

Commitments and contingencies (Note 7)

Stockholders’ Deficiency
Preferred stock, $0.001 par value, 10,000,000 designated shares, no shares issued and outstanding		-			-
Common Stock - Class A, $0.0001 par value, 300,000,000 shares authorized, 145,555,966 and 135,536,501 issued as of December 31, 2017 and June 30, 2017, respectively, 144,988,782 and 135,274,421 outstanding as of December 31, 2017 and June 30, 2017, respectively		15,000			14,000
Common Stock - Class B, (10 votes per share); $0.0001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of December 31, 2017 and June 30, 2017, respectively		-			-
Additional paid-in capital		76,128,000			68,295,000
Accumulated deficit		(78,605,000	)		(69,553,000	)
Treasury Stock, at cost (567,184 shares and 262,080 shares as of December 31, 2017 and June 30, 2017, respectively)		(417,000	)		(220,000	)
Total Stockholders’ Deficiency		(2,879,000	)		(1,464,000	)
Total Liabilities and Stockholders’ Deficiency	$	7,738,000		$	9,112,000

	March 31,			June 30,
	2020			2019
ASSETS
Current Assets:
Cash	$	775,000		$	579,000
Prepaid expenses and other current assets		36,000			46,000
Total Current Assets		811,000			625,000
Other Assets:
Patent costs - net		3,120,000			3,342,000
Property, plant and equipment - net		—			1,000
Security deposit		78,000			78,000
Total Other Assets		3,198,000			3,421,000
Total Assets	$	4,009,000			4,046,000

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable - (including related party payables of approx. $1,498,000 and $1,511,000, respectively)	$	2,320,000		$	2,127,000
Accrued expenses - (including related party accruals of approx. $78,000 and $45,000, respectively)		118,000			85,000
Accrued salaries and payroll taxes - (including related party accrued salaries of approx. $3,329,000 and $3,129,000, respectively)		3,434,000			3,162,000
Operating lease - current portion		132,000			-
Note payable - related party		1,822,000			1,922,000
Total Current Liabilities		7,826,000			7,296,000
Other Liabilities:
Series B 5% convertible preferred stock liability at $1,080 stated value; 350 and 1,196 shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively		200,000			879,000
Operating lease - non-current portion		454,000			-
Total Liabilities		8,480,000			8,175,000
Commitments and contingencies (Note 9)
Stockholders' Deficiency
Preferred stock, $0.001 par value, 10,000,000 designated shares, no shares issued and outstanding		—			—
Common stock - Class A, $0.0001 par value, 600,000,000 shares and 300,000,000 shares authorized, as of March 31, 2020 and June 30, 2019, respectively, 267,408,840 shares and 202,860,141 shares issued as of March 31, 2020 and June 30, 2019, respectively, 266,749,392 shares and 202,631,923 shares outstanding as of March 31, 2020 and June 30, 2019, respectively		27,000			21,000
Common stock - Class B, (10 votes per share); $.0001 par value, 100,000,000 shares authorized, 1,818,180 shares and 909,090 shares issued and outstanding as of March 31, 2020 and June 30, 2019, respectively		—			—
Additional paid-in capital		95,414,000			90,537,000
Accumulated deficit		(99,766,000	)		(94,596,000	)
Treasury stock, at cost (659,448 shares and 228,218 shares as of March 31, 2020 and June 30, 2019, respectively)		(146,000	)		(91,000	)
Total Stockholders' Deficiency		(4,471,000	)		(4,129,000	)
Total Liabilities and Stockholders' Deficiency	$	4,009,000		$	4,046,000

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

Revenues	$	—		$	—		$	400,000		$	—

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

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

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

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

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

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

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

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

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

	Common Stock A					Common Stock B				Additional						Treasury Stock
	Shares			Par Value $0.0001		Shares		Par Value $0.0001		Paid-in Capital			Accumulated Deficit			Shares		Amount			Total
Balance at June 30, 2018		163,103,927		$	17,000		—	$	—	$	83,747,000		$	(85,915,000	)		—	$	—		$	(2,151,000	)

Shares issued to consultant for services at $0.84 - $1.38		—			—		—		—		3,000			—			—		—			3,000
Shares issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		112,000			—			—		—			112,000
Stock options issued to consultant for services at $0.43 - $0.73		—			—		—		—		10,000			—			—		—			10,000
Stock options issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		60,000			—			—		—			60,000
Issuance of 572,264 shares to Officer and employee		572,264			—		—		—		—			—			—		—			—
Shares issued to employee for services at $0.398 - $1.37		—			—		—		—		12,000			—			—		—			12,000
Stock options issued to employee for services at $0.398 - $1.37		—			—		—		—		32,000			—			—		—			32,000
Net loss for the three months ended 9/30/2018		—			—		—		—		—			(2,050,000	)		—		—			(2,050,000	)
Balance at September 30, 2018		163,676,191		$	17,000		—	$	—	$	83,976,000		$	(87,965,000	)		—	$	—		$	(3,972,000	)

Shares issued to consultant for services at $0.84 - $1.38		—			—		—		—		2,000			—			—		—			2,000
Shares issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		148,000			—			—		—			148,000
Stock options issued to consultant for services at $0.43 - $0.73		—			—		—		—		10,000			—			—		—			10,000
Stock options issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		78,000			—			—		—			78,000
Issuance of 533,334 shares to Officer & 218,946 shares were withheld for tax purposes as Treasury shares, so net issuance was 314,387 shares		(218,946	)		—		—		—		—			—			218,946		(87,000	)		(87,000	)
Issuance of 38,930 shares to employee, 9,272 shares were withheld for tax purposes as Treasury shares, so net issuance was 29,658 shares		(9,272	)		—		—		—		—			—			9,272		(4,000	)		(4,000	)
Issuance of 12,500 shares to Consultant		12,500			—		—		—		—			—			—		—			—
Conversion of 1,310 preferred stocks to 12,808,388 common stock		12,808,388			1,000		—		—		(1,000	)		—			—		—			—
Offering cost for Q2-2019		—			—		—		—		(159,000	)		—			—		—			(159,000	)
To record underlying Series 1, Series 2 and Series 3 Warrants attached to 2,000 shares Series B Preferred Stock		—			—		—		—		817,000			—			—		—			817,000
To record beneficial conversion feature of Series B preferred stock & warrants discounts		—			—		—		—		1,917,000			—			—		—			1,917,000
Transfer of the related preferred stock liability to APIC		—			—		—		—		963,000			—			—		—			963,000
Allocating warrants (proportion of value exercised) to Pref Stock Liability		—			—		—		—		(20,000	)		—			—		—			(20,000	)
Shares issued to employee for services at $0.398 - $1.37		—			—		—		—		15,000			—			—		—			15,000
Stock options issued to employee for services at $0.398 - $1.37		—			—		—		—		34,000			—			—		—			34,000
Net loss for the three months ended 12/31/2018		—			—		—		—		—			(3,979,000	)		—		—			(3,979,000	)
Balance at December 31, 2018		176,268,861		$	18,000		—	$	—	$	87,780,000		$	(91,944,000	)		228,218	$	(91,000	)	$	(4,237,000	)

Shares issued to consultant for services at $0.84 - $1.38		—			—		—		—		2,000			—			—		—			2,000
Shares issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		145,000			—			—		—			145,000
Stock options issued to consultant for services at $0.43 - $0.73		—			—		—		—		17,000			—			—		—			17,000
Stock options issued to officer as equity awards at $0.398 to $0.705		—			—		—		—		77,000			—			—		—			77,000
Shares issued to employee for services at $0.398 - $1.37		—			—		—		—		12,000			—			—		—			12,000
Stock options issued to employee for services at $0.398 - $1.37		—			—		—		—		33,000			—			—		—			33,000
Cancellation of debt for the purchase of 909,090 shares of Common Stock Class B		—			—		909,090		—		100,000			—			—		—			100,000
5% dividend paid by issuance of preferred stock		—			—		—		—		17,000			—			—		—			17,000
Conversion of 954 preferred stocks to 11,306,457 common stock		11,306,457			1,000		—		—		(1,000	)		—			—		—			—
Transfer of the related preferred stock liability to APIC		—			—		—		—		735,000			—			—		—			735,000
Allocating warrants (proportion of value exercised) to Pref Stock Liability		—			—		—		—		(45,000	)		—			—		—			(45,000	)
Reversal of the stock based compensation related to unvested options and shares		—			—		—		—		(4,000	)		—			—		—			(4,000	)
Net loss for the three months ended 3/31/2019		—			—		—		—		—			(1,137,000	)		—		—			(1,137,000	)

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

	For the Three Months Ended						For the Six Months Ended
	December 31,						December 31,
	2017			2016			2017			2016

Revenues	$	-		$	-		$	-		$	-

Operating expenses:
Research and development expenses		3,963,000			2,683,000			7,768,000			4,960,000
General and administrative expenses		297,000			344,000			594,000			706,000
Officers' payroll and payroll tax expenses		130,000			130,000			260,000			260,000
Professional fees		78,000			152,000			330,000			361,000

Total operating expenses		4,468,000			3,309,000			8,952,000			6,287,000

Loss from operations		(4,468,000	)		(3,309,000	)		(8,952,000	)		(6,287,000	)

Other income (expenses)
Interest income		-			1,000			1,000			2,000
Interest expense		(50,000	)		(50,000	)		(101,000	)		(101,000	)
Total other income - net		(50,000	)		(49,000	)		(100,000	)		(99,000	)

Loss before provision for income taxes		(4,518,000	)		(3,358,000	)		(9,052,000	)		(6,386,000	)
Provision for income taxes		-			-						-

Net loss	$	(4,518,000	)	$	(3,358,000	)	$	(9,052,000	)	$	(6,386,000	)

Basic and diluted loss per share	$	(0.03	)	$	(0.03	)	$	(0.07	)	$	(0.05	)

Weighted average number of common shares outstanding		140,749,557			125,275,060			138,960,684			124,782,071

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

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

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

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

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

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

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

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

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

	2017			2016

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(9,052,000	)	$	(6,386,000	)
*Adjustments to reconcile net loss to net cash used in operating activities:*
Common stock and stock options issued as payment for compensation, services rendered and financing costs		1,400,000			690,000
Amortization of patent costs		192,000			183,000
Depreciation of equipment		18,000			15,000
*Changes in operating assets and liabilities:*
Prepaid expenses and security deposits		214,000			73,000
Accounts payable		151,000			(305,000	)
Accrued expenses		(163,000	)		452,000
Accrued officers' salaries and payroll taxes		53,000			28,000

Net cash used in operating activities		(7,187,000	)		(5,250,000	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment		-			(64,000	)
Patent costs		(80,000	)		(53,000	)

Net cash used in investing activities		(80,000	)		(117,000	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock, net of offering costs		6,478,000			2,916,000
Purchase of treasury stock		(171,000	)		-

Net cash provided by financing activities		6,307,000			2,916,000

NET DECREASE IN CASH		(960,000	)		(2,451,000	)

CASH, BEGINNING OF PERIOD		4,141,000			6,310,000

CASH, END OF PERIOD	$	3,181,000		$	3,859,000

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	96,000		$	29,000

SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW
INVESTING AND FINANCING ACTIVITIES
Commitment shares issued as deferred offering costs	$	215,000		$	-
Reversal of subscription receivable to treasury stock	$	26,000		$	-

	(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.

	(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.

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

	ii.	The date at which the counterparty’s performance is complete.

	Three months ended December 31				Six months ended December 31
	2017		2016		2017		2016
Research and development expenses
Professional fees	$	-	$	8,000	$	-	$	50,000
Employees’ bonus		42,000		50,000		74,000		62,000
Officers’ bonus		989,000		289,000		1,326,000		578,000
Total stock-based compensation expense	$	1,031,000	$	347,000	$	1,400,000	$	690,000

	Useful life (years)	December 31, 2017			June 30, 2017
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		1,388,000			1,308,000
			5,614,000			5,534,000
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds			(1,310,000	)		(1,158,000	)
Accumulated amortization for Patents –Kevetrin and related compounds			(204,000	)		(164,000	)
		$	4,100,000		$	4,212,000

	Useful life		March 31, 2020			June 30, 2019

Purchased Patent Rights- Brilacidin, and related compounds		14	$	4,082,000		$	4,082,000
Purchased Patent Rights-Anti-microbial- surfactants and related compounds		12		144,000			144,000
Patents - Kevetrin and related compounds		17		1,175,000			1,118,000
				5,401,000			5,344,000
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds				(1,993,000	)		(1,765,000	)
Accumulated amortization for Patents-Kevetrin and related compounds				(288,000	)		(237,000	)
Total			$	3,120,000		$	3,342,000

Year ending June 30,
2018	$	109,000
2019		54,000
Total minimum payments	$	163,000

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

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

Total operating lease liabilities	$	586,000

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

Present value of lease liabilities	$	586,000

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2017		40,655,245		$	0.22		3.61	$	31,662,730

Granted		795,826			0.71		9.67
Forfeited/expired		(172,500	)		3.26
Outstanding at December 31, 2017		41,278,571			0.22		3.24	$	21,696,800

Exercisable at December 31, 2017		40,356,641			0.21		3.10	$	21,696,800

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

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

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value

Outstanding at June 30, 2018		41,643,571		$	0.22		2.76	$	17,523,113
Granted		1,195,826		$	0.31		7.64		—
Exercised		(909,090	)	$	0.11		—		—
Forfeited/expired		(19,260,424	)	$	0.21		—		—
Outstanding at June 30, 2019		22,669,883		$	0.24		2.41	$	1,340,000
Granted		2,540,826		$	0.08		9.32		—
Exercised		(909,090	)	$	0.11		—		—
Forfeited/expired		(2,858,521	)	$	0.66		—		—
Outstanding at March 31, 2020		21,443,098		$	0.18		1.85	$	380,836
Exercisable at March 31, 2020		19,597,124		$	0.18		1.12	$	335,836
Unvested stock options at March 31, 2020		1,845,974		$	0.14		9.69	$	—

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

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

	Year Ending June 30,
	2020		2021		2022		2023		Total

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

	Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value

Outstanding at June 30, 2018		—		$	—		—	$	—
									—
Granted		10,500			982.50		2.00		—
Exercised		(2,780	)		982.50		2.00		—
Expired		-			-				—
Outstanding at June 30, 2019		7,720		$	985.50		1.21	$	752,700

Granted		—			—		—		—
Exercised		(2,945	)		897.02		3.11		—
Expired									—
Outstanding at March 31, 2020		4,775			850.00		1.75		4,224,839

Average risk-free interest rate	2.73	%
Average expected life-years	5
Expected volatility	52.77	%
Expected dividends	0	%

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

	June 30, 2019			May 9, 2019

Expected dividend yield		0.00	%		0.00	%
Expected stock-price volatility		54.5	%		51.9	%
Risk-free interest rate		2.18	%		2.43	%
Expected term of warrants (years)		0.1			0.25
Stock price	$	535.12		$	535.12
Exercise price ( modified on December 26, 2019 as above stated)	$	850.00		$	982.50

				Weighted
				Average
				Grant
	Number of			Date Fair
	Shares			Value

Total awards outstanding at June 30, 2017		601,728		$	1.39
Total shares granted		1,125,061			0.71
Total shares vested		(552,799	)		1.40
Total shares forfeited
Total unvested shares outstanding at December 31, 2017		1,173,990		$	0.75

Series B 5% convertible preferred stock liability
Balance, July 1, 2018	$	—
Issuance of preferred stock at fair value		1,116,000
Issuance of preferred stock by exercise of warrants		2,895,000
Conversion of preferred stock to common stock		(3,068,000	)
Change in fair value of preferred stock due to modification of terms		(357,000	)
Issuance of 100 shares valued at $535.12 per share Series B Preferred Stock per May 2019 Modification		54,000
Contingent consideration of 400 extra shares		214,000
5% accrued dividend (1) – for the year ended 6.30.2019		42,000
Settlement of accrued dividend by issuance of PS		(17,000	)
Balance, June 30, 2019	$	879,000

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

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

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

Compound	Target/Indication	Clinical Status
Brilacidin	Oral Mucositis (OM)	Phase 2 Study (completed) Phase 3 in preparation
	Inflammatory Bowel Disease (IBD)	Phase 2 UP/UPS Proof of Concept Study (completed) Phase 1 Safety/toleration/PK of oral dosage form (completed) Phase 2 UC Safety/toleration/PK and Proof of Concept in preparation
	ABSSSI (Acute Bacterial Skin and Skin Structure Infection)	Phase 2 (completed)
	COVID-19	Phase 2 in preparation
Kevetrin	Ovarian Cancer	Phase 2 Study (completed)

~~Compound~~	~~Target/Indication~~	~~Clinical Status~~
~~Prurisol~~	~~Psoriasis~~	~~Phase 2b (Completed)~~
~~Brilacidin~~	*ABSSSI	~~Phase 2 (Completed)~~
	~~Oral Mucositis~~	~~Phase 2 (Completed; Fast Track)~~
	~~Inflammatory Bowel Disease~~	~~Phase 2 (Proof of Concept) Study (Completed)~~
~~Kevetrin~~	~~Ovarian Cancer~~	~~Phase 2~~