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 10, 2022 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~~efforts; our ability to create effective, commercially-viable drugs; our ability to effectively and timely conduct clinical trials; our ability to ultimately distribute our drug candidates; our ability to achieve certain future regulatory, development and commercialization milestones under our license agreement with Alfasigma S.p.A.; the development of treatments or vaccines relating to the COVID-19 pandemic by other entities; and compliance with regulatory ~~requirements; 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 SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31,~~, 201~~7 2022 AND ~~201~~62021

~~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,~~2021, included in our Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2021.

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

Innovation Pharmaceuticals Inc. ~~(the “Company”)~~ 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 is intended to 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 condensed consolidated financial statements include the accounts of Innovation Pharmaceuticals Inc., a Nevada corporation, and our wholly-owned subsidiary, IPIX Pharma, an Ireland limited company. All significant intercompany transactions and balances have been eliminated in consolidation. There was no translation gain and loss for the three and nine months ended March 31, 2022 and 2021.

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~~pipeline which presently includes Brilacidin and Kevetrin by ~~focusing initially on our lead compounds, Brilacidin, Kevetrin and Prurisol and~~ advancing them ~~as quickly as possible~~ along the regulatory ~~pathway. We will develop~~pathway as well as engaging in seeking additional health care-related investment opportunities with the ~~highest quality~~aim of diversifying the Company’s assets. As of March 31, 2022, the Company has largely paused clinical development to strategically analyze all the scientific data collected to date across its portfolio of assets - see Item 2 for additional details. Drug manufacturing, scientific report writing, and ~~broadest intellectual property~~supportive research activities continue. While the analysis is performed, management is focused on other avenues of business development, including, but not limited to, ~~support our compounds.~~joint ventures, mergers and acquisitions, strategic investments, and licensing agreements, for the purpose of diversifying corporate assets.

We currently own all development and marketing rights to our ~~products.~~products, other than the license rights granted to Alfasigma S.p.A. in July 2019 for the development, manufacturing and commercialization of locally-administered Brilacidin for ulcerative proctitis/ulcerative proctosigmoiditis (“UP/UPS”). In order to successfully develop and market our products, we may have to partner with ~~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, 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 a going concern and explicitly requires management to assess an entity’s ability to continue as a going concern and to provide related disclosure 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 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 DecemberMarch 31, 2017, the Company has an accumulated deficit of $79 million, representative of recurring losses since inception. The Company is a development stage pharmaceutical company that has no sales as it does not have any products in the market and will continue to not have any revenues until it begins to market its products after it has obtained the necessary Federal Drug Administration (the “FDA”) approval. As a result, the Company expects to continue to incur losses.

~~At December 31, 2017,~~2022, the Company’s cash amounted to ~~$3.2~~$8.8 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).$4.6 million. The Company ~~had~~has 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 months ended December 31, 2017 was approximately $7.2 million, and current projections indicate that the Company will 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~~2022 and ~~2016,~~2021, amounted to ~~$9.1~~$5.4 million and ~~$6.4~~$11.3 million, respectively, and we had working capital ~~deficits was~~of approximately ~~$7.3 million and $6.1~~$4.2 million at ~~December~~March 31, ~~2017~~2022 and June 30, ~~2017, respectively.~~2021.

~~Accordingly,~~On July 31, 2020, the ~~Company’s planned operations, including total budgeted expenditures of approximately $12.2 million for the next twelve months, raise doubt about its ability to continue as~~Company entered into 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 agreementCommon Stock Purchase Agreement (the “2020 Purchase Agreement”) with Aspire Capital Fund, LLC ~~an Illinois limited liability company~~ (“Aspire Capital”)~~. The~~ which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the 24-month term of the 2020 Purchase Agreement. In consideration for entering into the 2020 Purchase Agreement, the Company ~~may consider other plans~~issued 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, includingAspire Capital 6,250,000 shares of ~~common stock, shares~~its Class A Common Stock as a commitment fee. The commitment fee of ~~preferred stock~~approximately $1.4 million was recorded as deferred financing costs and ~~stock purchase contracts through private placement transactions or registered public offerings, pursuant to its registration statement on Form S-3 filed with~~additional paid-in capital and this asset will be amortized over the ~~SEC on September 11, 2017. The Company’s future liquidity needs, and ability to address those needs, will largely be determined by~~life of the ~~success of its product candidates and key development and regulatory events and its decisions in the future.~~2020 Purchase Agreement.

~~The Company believes that~~During 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~~nine months ~~from the issuance of the accompanying financial statements.~~

~~On September 6, 2017,~~ended March 31, 2022, the Company ~~entered into a new $30 million common stock purchase agreement with~~did not sell any shares to Aspire Capital ~~(the “2017 Agreement”) to replace~~under the ~~prior 2015 $30 million common stock~~ purchase ~~agreement with Aspire Capital (the “2015 Agreement”).~~agreement. During the period from July ~~1, 2017~~31, 2020 to ~~September 5, 2017,~~March 31, 2021, the Company generated proceeds of approximately ~~$2.1~~$5.0 million under the ~~2015~~2020 Purchase Agreement with Aspire Capital 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 6.622.5 million shares of its common stock. As of ~~December~~March 31, ~~2017,~~2022, the available balance under the ~~2017~~2020 Purchase Agreement iswas approximately ~~$25.6 million.~~$25.4 million, however, the trading price for the Company’s common stock has not satisfied the minimum $0.10 price condition under the purchase agreement and no sales may occur thereunder.

~~Note~~ We currently anticipate that future budget expenditures will be approximately $4.2 million for the next 12 months, including approximately $2.2 million for development activities, supportive research, and drug manufacturing. Alternatively, if we decide to pursue a more aggressive plan with our clinical trials, we will require additional sources of capital during the fiscal years 2022 and 2023 to meet our working capital requirements for our planned clinical trials. Potential sources for capital include grant funding for COVID-19 research and equity financings. There can be no assurances that we will be successful in receiving any grant funding for our programs.

Management believes that the amounts available from Aspire Capital and under the Company’s effective shelf registration statement will be sufficient to fund the Company’s operations for the next 12 months. If we are unable to generate sufficient cash from our 2020 Purchase Agreement with Aspire Capital (which expires on July 31, 2022) or raise additional funds from others, it may be necessary to significantly reduce our current rate of spending through reductions in staff and delaying, scaling back or stopping certain research and development programs, including more costly Phase 2 and Phase 3 clinical trials on our wholly-owned development programs as these programs progress into later stage development. Insufficient liquidity may also require us to relinquish greater rights to product candidates at an earlier stage of development or on less favorable terms to us and our stockholders than we would otherwise choose in order to obtain up-front license fees needed to fund operations. These events could prevent us from successfully executing our operating plan.

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 isare computed based on the weighted-average common shares and common share equivalents outstanding during the period. Except with respect to certain voting, conversion and transfer rights and as otherwise expressly provided in the Company’s Articles of Incorporation or required by applicable law, shares of the Company’s Class A common stock and Class B common stock have the same rights and privileges and rank equally, share ratably and are identical in all respects as to all matters. Accordingly, basic and diluted net income (loss) per share are the same for both classes. Common share equivalents consist of stock options, restricted stock, warrants and convertible related party notes ~~payable underlying shares and unvested restricted stock.~~payable. Common share equivalents ~~of 46.7 million and 45.1 million shares of common stock~~ were excluded from the computation of diluted ~~loss~~earnings per share for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2022 and ~~2016, respectively,~~2021, because ~~we incurred net losses for the six months ended December 31, 2017 and 2016, and the~~their effect was anti-dilutive.

Weighted average shares of ~~including these potential~~ common ~~shares~~stock outstanding used in the ~~net loss~~calculation of basic and diluted earnings per share ~~calculations would be anti-dilutive and are therefore not included in the calculations.~~were as follows:

The Company accounts for treasury stock using the cost method. There were ~~567,184 shares and 262,080~~8,516,056 shares of ~~treasury~~Class A common stock ~~outstanding,~~and 2,358,537 shares of Class B common stock held in treasury, purchased at a total cumulative cost of ~~$417,000 and $220,000 at December~~approximately $2.3 million as of March 31, ~~2017~~2022 and June 30, ~~2017, respectively~~2021 (see Note ~~10)~~14. Equity Transactions).

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

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

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

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

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

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

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, non-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”. Our consultants do not meet the employer-employee relationship as defined by the IRS and therefore are accounted for under ASC 505-50.~~regulations.”

~~ASC 505-50-30-11 further provides that an issuer shall measure~~Awards with service-based vesting conditions only: Expense is recognized on a straight-line basis over the ~~fair value~~requisite service period of the ~~equity instruments in these transactions using~~award.

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

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

We have elected to use the Black-Scholes-Merton pricing model to determine the fair value of stock options on the dates of grant. Restricted stock isunits are measured based on the fair market values of the underlying stock on the dates of grant. We recognize stock-based compensation using the straight-line ~~vesting method over the requisite service period of the equity awards.~~method.

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, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which will simplify the income tax consequences, accounting for forfeitures and classification on the Statement of Cash Flows (i) excess tax benefits be classified 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 standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. This new pronouncement was adopted on July 1, 2016 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 cash paid to taxing authorities arising from the withholding of shares from employees (treasury stock), classified as cash outflows used in financing activities.

In June 2014, 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): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,” 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 the present value of the lease payments, in the statement of financial position; interest on the lease liability will be recognized separately from amortization of the right-of-use asset 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 value of the lease payments, in the statement of 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.

~~Intangibles, Goodwill and Other~~ —In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment” (“ASU No. 2017-04”). To simplify the subsequent measurement of goodwill, ASU No. 2017-04 eliminates Step 2 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 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount 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 commencing in the first quarter of fiscal 2021. The Company does not believe this standard will have a material impact on its financial statements or 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 of the Emerging Issues Task Force)” (“ASU No. 2016-15”). ASU No. 2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company will adopt ASU No. 2016-15 commencing in the first quarter of fiscal 2019. The Company does not believe this standard will have a material impact on its financial statements or the 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~~2022 and ~~2016,~~2021 was approximately $95,000 and $95,000, respectively and was approximately ~~$192,000,~~$286,000, and ~~$183,000~~$283,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2022 and ~~2016,~~2021, respectively.

At ~~December~~March 31, ~~2017,~~2022, the future amortization period for all patents was approximately ~~7.68~~3.43 years to 16.75 years. Future estimated ~~annual~~ amortization expenses are approximately ~~$191,000~~$95,000 for the year ending June 30, ~~2018,~~2022, $382,000 for each year from ~~2019~~2023 to 2025, $372,000 for the year ending June 30, 2026 ~~$370,000~~and a total of $905,000 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, 2034 and ~~$1,000 for the year ending June 30, 2035.~~thereafter.

					March 31, 2022		June 30, 2021
	December 31, 2017		June 30, 2017
Accrued research and development consulting fees	$	511,000	$	673,000	$	50,000	$	340,000
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						13,000		—

Total	$	548,000	$	711,000	$	71,000	$	348,000

~~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, 2022		June 30, 2021
	December 31, 2017		June 30, 2017
Accrued salaries - related parties	$	2,823,000	$	2,823,000	$	1,480,000	$	1,785,000
Accrued payroll taxes - related parties		130,000		130,000		71,000		130,000
Accrued employee bonuses		-		86,000
Withholding tax - payroll		244,000		105,000		84,000		77,000

Total	$	3,197,000	$	3,144,000	$	1,635,000	$	1,992,000

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

Under the terms of the License Agreement, Alfasigma made an initial upfront non-refundable payment of $0.4 million to the Company in July, 2019 and will make additional payments of up to $24.0 million to the Company based upon the achievement of certain milestones, including a $1.0 million payment due following commencement of the first Phase 3 clinical trial of Brilacidin for UP/UPS and an additional $1.0 million payment upon the filing of a marketing approval application with the U.S. Food and Drug Administration or the European Medicines Agency. At this time, Alfasigma has completed a Phase 1 clinical trial with Brilacidin. In addition to the milestones, Alfasigma will pay a royalty to the Company equal to six percent of net sales of Brilacidin for UP/UPS, subject to adjustment as provided in the License Agreement. The Company received an initial upfront non-refundable payment of $0.4 million and reported as revenue in July, 2019 and the Company did not receive any further payment during the nine months ended March 31, 2022 and 2021.

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

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

The Company ~~signed a~~determined that the operating lease ~~extension agreement with Cummings Properties which began~~right-of-use asset was fully impaired on ~~October 1, 2013. The lease is for a term~~December 31, 2019. As such, the Company recognized an impairment loss of ~~five years ending 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~~approximately $643,000, after recording amortization of the right-of-use asset for July, August, and September 2019 totaling approximately $27,000, resulting in a carrying value of $0 since December 31, 2019. The Company ~~has co-signed~~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~~related matters (See Note 9. Commitments and ~~pays the Company $900 per month.~~Contingencies).

The 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:

~~Rent expense, net~~The supplemental balance sheet information related to leases for the period is as follows:

The following table provides maturities of the Company’s lease ~~income, under this operating~~liabilities at March 31, 2022 as follows:

Operating lease ~~agreement was approximately $52,000 and $51,000~~cost for the three months and the nine months ended ~~December~~March 31, ~~2017 and 2016, respectively and~~2022 was approximately ~~$104,000~~$17,000 and ~~$102,000~~$56,000, respectively. Operating lease cost for the ~~six~~three months and the nine months ended ~~December~~March 31, ~~2017~~2021 was approximately $24,000 and ~~2016,~~$76,000, 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.~~

~~We lease equipment under~~On January 22, 2020, the Company filed a non-cancelable operating lease that expires in April, 2018. The future minimum rental commitment for our operating lease for the next twelve months is $3,000, as of December 31, 2017 and was disclosed under the caption Prepaid expensescomplaint against Cummings Properties, LLC in the ~~accompanying balance sheets.~~Superior Court of the Commonwealth of Massachusetts (C.A. No. 20-77CV00101), seeking, among other things, declaratory relief that the lease terminated in September 2018, because the Company’s prior principal executive offices did not automatically extend for an additional five years from September 2018, return of the Company’s security deposit, and damages. The total lease amount is approximately $0.6 million. 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~~$1.1 million to contract research organizations as of ~~December~~March 31, ~~2017.~~2022. Expenses are recognized when services are performed by the contract research organizations.

As described in Note 8.6. Accrued Salaries and Payroll Taxes, the Company accrued payroll to Dr. Krishna Menon, ex-President of Research of approximately $1,443,000 for his past services with the Company, and this amount was included in accrued salaries and payroll taxes. As described in Note 10. Related Party Transactions,

~~Dr. Menon,~~ the ~~Company’s principal shareholder, President of Research, and Director, also serves as the Chief Operating Officer and Director of~~Company has a payable to Kard Scientific, Inc. (“KARD”). On December 7, 2007, the Company began renting office space from KARD, and since September 1, 2013, the Company no longer leases space from KARD. At December 31, 2017 and June 30, 2017, rent payable to KARD of approximately ~~$15,000~~$1,486,000 for its research and ~~$21,000, respectively, were~~development expenses and this amount was included in ~~accrued expenses.~~

~~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~~accounts payable. KARD 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~~Dr. Menon. Dr. Menon’s employment was terminated with the Company on September 18, 2018, and Dr. Menon ~~officers~~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, 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 $6,000Company’s intent not to ~~the Company for both~~pay them.

All of the ~~three months~~above disputed invoices were reflected as current liabilities as of March 31, 2022 and ~~six months ended December 31, 2017 and 2016 and the rental payment was offset with the accrued rent owed to KARD.~~June 30, 2021.

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~~2022 and June 30, ~~2017,~~2021, the accrued research and development expenses payable to KARD was approximately $1,486,000 and this amount was included in accounts payable. Dr. Menon, on behalf of himself and KARD, demanded payment of these amounts in October 2019; however, the Company disputes the underlying basis for these amounts and notified Dr. Menon in November 2019 of the Company’s intent not to pay them.

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 180,000,000 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 for his partial exercise of his option, paid by the cancellation of debt to Mr. Ehrlich of $100,000 to satisfy the exercise price (as permitted pursuant to the terms of the option agreement).

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

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

During the nine months ended March 31, ~~2017~~2022, the Company repaid the principal of $1,033,000 to Mr. Ehrlich, the Company’s Chairman and CEO. As of March 31, 2022 and June 30, ~~2017, approximately $22,000 and $17,000, respectively, is~~2021, 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.~~$250,000 and $1,283,000, respectively.

As of March 31, 2022 and June 30, 2021, the balance of accrued interest payable was $13,000 and $0, respectively (see Note ~~10.~~5. Accrued Expenses - Related Parties and Other).

As of March 31, 2022 and June 30, 2021, the total outstanding balances of principal and interest were approximately $263,000 and $1,283,000, respectively.

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

During the nine months ended March 31, 2022, the Company obtained the approval of the forgiveness of the above mentioned two loans, and the Company recorded the total loan forgiveness of $172,000 under other income.

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

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

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

On February 23, 2020, the Board of Directors approved an amendment to Section 4.1 of the 2016 Plan to increase the annual limit on the number of awards under such Plan to outside directors from 250,000 to 1,500,000. On October 10, 2021, the Board of Directors approved amendments to the 2016 Plan to increase the number of shares of common stock available for issuance thereunder to 225,000,000 shares and to increase the annual limit on the number of awards under such Plan to outside directors from 1,500,000 to 5,000,000, among other changes.

Up to ~~20,000,000~~225,000,000 shares of the Company’s Class A common stock may be issued under the 2016 Plan (subject to adjustment as described in the 2016 Plan)~~; provided that (1) no Outside Director (as defined in~~.

Amendments to the 2016 ~~Plan) may be granted awards covering more than 250,000~~Equity Incentive Plan

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

The fair value of options granted for the nine months ended March 31, 2022 and 2021 was estimated on the date of grant using the Black-Scholes-Merton Model that uses assumptions noted in ~~any~~the following table.

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, 2022 and 2021 are as follows (rounded to nearest thousand):

On October 10, 2021, the Compensation Committee approved the issuance of 2 million stock options to purchase shares of the Company’s common stock to the Company’s two independent directors in total and 1 million stock options to purchase shares of Company’s common stock to Mr. Ehrlich, the CEO, which are exercisable for 10 years at $0.24 per share of common stock. These 3 million stock options with 1 year vesting period were valued at approximately $585,000, based on the closing bid price as quoted on the OTC on October 10, 2021 at $0.24 per share. During the nine months ended March 31, 2022, the Company recorded approximately $277,000 of stock-based compensation costs and ~~(2) no participant shall be granted, during any one year period,~~charged to additional paid-in capital as of March 31, 2022. The assumptions used in the Black Scholes option-pricing model are disclosed above.

On October 10, 2021, the Company also issued to Ms. Jane Harness, the Senior Vice President, Clinical Sciences and Portfolio Management of the Company, 500,000 options to purchase common stock, which are exercisable for 10 years at $0.24 per share of common stock. These stock options with 1 year vesting period were valued at approximately $98,000, based on the closing bid price as quoted on the OTC on October 10, 2021 at $0.24 per share. During the nine months ended March 31, 2022, the Company recorded approximately $46,000 of related stock-based compensation. The assumptions used in the Black Scholes option-pricing model are disclosed above.

On September 11, 2020, 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 with 3 years vesting period were valued at approximately $33,000 and these 58,394 shares of the Company’s common stock ~~appreciation rights~~were valued at approximately $13,000, based on the closing bid price as quoted on the OTC on September 11, 2020 at $0.22 per share. During the nine months ended March 31, 2022, the Company recorded approximately $11,000 of stock-based compensation expense in connection with ~~respect to more than 4,000,000~~the foregoing equity awards, including approximately $8,000 of stock option expense and $3,000 of stock awards. During the nine months ended March 31, 2021, the Company recorded approximately $8,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $6,000 of stock option expense and $2,000 of stock awards.

On February 23, 2020, the Company issued (i) options for the purchase of 500,000 shares of common stock inat an exercise price of $0.10 per share, which is 110% of the ~~aggregate or any other awards with respect to more than 2,500,000~~previous per share closing price of $0.09 on February 21, 2020, and (ii) 500,000 shares of Class A 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~~each member of the ~~Company and its affiliates.~~

~~In connection with adoption of the 2016 Plan, the~~Company’s Board of Directors, ~~also approved forms~~consisting 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 EmployeesLeo Ehrlich, Barry Schechter and ~~Restricted Stock Award Agreement for Non-Employee Directors that will be utilized by~~Zorik Spektor.

On September 1, 2019, the Company also issued to ~~grant~~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 with a 3 year vesting period were valued at approximately $20,000, based on the closing bid price as quoted on the OTC on August 30, 2019 at $0.132 per share. During the nine months ended March 31, 2022, the Company recorded approximately $7,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $5,000 of stock option expense and $2,000 of stock awards. During the nine months ended March 31, 2021, the Company recorded approximately $7,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $5,000 of stock option expense and $2,000 of stock awards.

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, 2022, the Company recorded approximately $5,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $4,000 of stock option expense and $1,000 of stock awards. During the nine months ended March 31, 2021, 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.

On January 1, 2022, the Company agreed to issue stock options to purchase 75,000 shares of the Company’s common stock to one consultant for his one-year contract. These options were issued with an exercise price of $0.044 per share and vest 33 1/3% on January 1, 2022, 33 1/3% on July 1, 2022 and 33 1/3% on January 1, 2023. The value of these options was approximately $3,000. During the nine months ended March 31, 2022, the Company recorded approximately $1,000 of related stock-based compensation. The assumptions used in the Black Scholes option-pricing model are disclosed above.

On July 30, 2021, the Company agreed to issue stock options to purchase 100,000 shares of the Company’s common stock to one consultant for his one-year contract. These options were issued with an exercise price of $0.27 per share and vest 33 1/3% on July 30, 2021, 33 1/3% on January 30, 2022, and 33 1/3% on July 30, 2022. The value of these options was approximately $19,000. During the nine months ended March 31, 2022, the Company recorded approximately $15,000 of related stock-based compensation. The assumptions used in the Black Scholes option-pricing model are disclosed above.

On July 1, 2021, the Company agreed to issue stock options to purchase 225,000 shares of the Company’s common stock to one consultant for his one-year contract. These options were issued with an exercise price of $0.21 per share and vest 33 1/3% on July 1, 2021, 33 1/3% on January 1, 2022, and 33 1/3% on July 1, 2022. The value of these options was approximately $33,000. During the nine months ended March 31, 2022, the Company recorded approximately $27,000 of related stock-based compensation. The assumptions used in the Black Scholes option-pricing model are disclosed above.

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

On July 23, 2020, the Company agreed to issue stock options to purchase 100,000 shares of the Company’s common stock to one consultant for his one-year contract. These options were issued with an exercise price of $0.32 per share and vest 33 1/3% on July 23, 2020, 33 1/3% on January 23, 2021, and 33 1/3% on July 23, 2021. The value of these options was approximately $28,000. During the nine months ended March 31, 2022 and 2021, the Company recorded approximately $1,000 and $22,000 of related stock-based compensation, respectively. The assumptions used in the Black Scholes option-pricing model are disclosed above.

On May 18, 2020, the Company agreed to issue stock options to purchase 500,000 shares of the Company’s common stock each to two consultants for their one-year contracts. These options were issued with an exercise price of $0.14 per share and vest 33 1/3% on July 1, 2020, 33 1/3% on January 1, 2021, and 33 1/3% on July 1, 2021. The value of these options was approximately $78,000. During the nine months ended March 31, 2022 and 2021, the Company recorded approximately $0 and $39,000 of related stock-based compensation, respectively.

During the nine months ended March 31, 2022, the Company received approximately $23,000 of net proceeds from the exercise of 166,666 stock options at $0.14 per share. The details of exercises of options to purchase Class B common stock during the nine months ended March 31, 2021 are disclosed in Note 14. Equity Transactions.

There was forfeiture of 215,000 options and ~~restricted shares under~~294,330 options to purchase Class A common stock during the ~~2016 Plan.~~nine months ended March 31, 2022 and the year ended June 30, 2021, respectively, relating to the expiry of options of consultants.

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

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

The Company recognized approximately $1,400,000 and $690,000 of total stock-based compensation costs related to equity grant awards for the six months ended December 31, 2017 and 2016, respectively. The $1,400,000 of stock- based compensation expense for the six months ended December 31, 2017 included approximately $516,000 of stock options expense and $884,000 of restricted 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 be amortized over 2 years to September 1, 2019 unless the probability of the other above vesting requirements occurring are 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. During the three months and six months ended December 31, 2017, the Company recorded approximately $144,000 and $192,000 of total stock-based compensation, respectively. The $144,000 of stock-based compensation expense for the three months ended December 31, 2017 included approximately $50,000 of stock option expense and $94,000 of stock awards. The $192,000 of stock-based compensation expense for the six months ended December 31, 2017 included approximately $67,000 of stock option expense and $125,000 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 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 $13,000 and $17,000 of total stock-based compensation, respectively. The $13,000 of stock-based compensation expense for the three months ended December 31, 2017 included approximately $10,000 of stock option expense and $3,000 of stock awards. The $17,000 of stock-based compensation expense for the six months ended December 31, 2017 included approximately $13,000 of stock option expense and $4,000 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 entered into an executive employment agreement as the Company’s Associate Director, Clinical Sciences, effective on February 1, 2017. Pursuant to the employment agreement, the Company issued 10,000 shares of restricted stock and options to purchase 30,000 shares of common stock under the 2016 Plan. During the three months and six months ended December 31, 2017, the Company recorded approximately $4,000 and $7,000 of total stock-based compensation, respectively. The $4,000 of stock-based compensation expense for the three months ended December 31, 2017 included approximately $3,000 of stock option expense and $1,000 of stock awards. The $7,000 of stock-based compensation expense for the six months ended December 31, 2017 included approximately $5,000 of stock option expense and $2,000 of stock awards.

Purchase of Treasury Stock - cash paid to Federal and State Taxing Authorities arising from the withholding of common shares from an officer’s vested restricted stock grant issuance and issuance of Treasury Stock and the reversal of outstanding stock subscription receivable

On September 1, 2017, 19,465 shares of the Company’s restricted stock vested to Ms. Harness according to Ms. Harness’s employment agreement. The total taxable compensation to Ms. Harness for the 19,465 vested shares was $14,000, which is priced at the closing stock price on September 1, 2017 at $0.705 a share.

The Company issued 12,409 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 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 shares of the Company’s restricted stock vested to Dr. Arthur P. Bertolino according to Dr. Arthur P. Bertolino’s employment agreement. The total taxable compensation to Dr. Arthur P. Bertolino for the 533,334 vested shares was $373,334, which is priced at the closing stock price on December 21, 2017 at $0.7 a share.

The Company issued 295,286 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 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:~~activity:

Scheduled vesting for outstanding restricted stock awards at ~~December~~March 31, ~~2017~~2022 is as follows:

As of ~~December~~March 31, ~~2017,~~2022, there was approximately ~~$0.7 million~~$7,000 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 ~~$0.3 million~~$5,000 of compensation expected to be expensed over the next twelve months, and the total unrecognized stock-based compensation expense having a weighted average recognition period of ~~1.72~~1.30 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 grant 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,~~July 31, 2020, the Company entered into ~~a common stock purchase agreement~~the 2020 Stock Purchase Agreement (the “2020 Purchase Agreement”) with Aspire Capital ~~which replaced the prior 2015 $30 million~~ Fund, LLC (“Aspire ~~Capital stock purchase agreement and~~Capital”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the ~~36-month~~24-month term of the ~~Stock~~Agreement. In consideration for entering into the 2020 Purchase ~~Agreement. The~~Agreement, the Company issued ~~300,000~~to Aspire Capital 6,250,000 shares of its Class A ~~common stock to Aspire Capital~~Common Stock as a commitment fee. The commitment fee of approximately ~~$215,000 is~~$1.4 million was recorded as deferred financing costs and additional paid-in capital and this asset will be amortized ~~pro-rata as~~over the ~~funding is received.~~life of the 2020 Purchase Agreement. The amortized amount of ~~$31,000~~approximately $0.5 million was recorded to additional paid-in capital for the ~~six~~nine months ended ~~December~~March 31, ~~2017.~~2022 and 2021. The unamortized portion is carried on the balance sheet as deferred offering costs and was ~~$183,000~~approximately $0.2 million and $0.8 million at ~~December~~March 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 Agreement2022 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.June 30, 2021.

During the nine months ended March 31, 2022, the Company did not sell any shares to Aspire Capital under the 2020 Purchase Agreement. During the period from ~~September 6, 2017~~July 31, 2020 to ~~December~~March 31, ~~2017,~~2021, the Company generated proceeds of approximately ~~$4.4~~$4.6 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~~2020 Purchase Agreement with Aspire Capital from the sale of approximately ~~0.9~~22.5 million shares of its common stock. As of March 31, 2022, the available balance under the 2020 Purchase Agreement was approximately $25.4 million, however, the recent trading price for the Company’s common stock has not satisfied the minimum $0.10 price condition under the purchase agreement and no sales may occur thereunder.

On ~~February 1, 2018, 3,333~~September 8, 2020, Mr. Ehrlich exercised 2.2 million options to purchase 2.2 million shares of Class B common stock at the ~~Company’s restricted~~option exercise price of $0.11 per share. Mr. Ehrlich paid for this exercise of his option by the cancellation of debt to Mr. Ehrlich of $242,000 to satisfy the exercise price (See Note 11. Convertible Note Payable). The Company issued 1,787,762 shares of Class B common stock ~~vested~~(net share issuance amount), to ~~Ms. Anne Ponugoti according~~Mr. Ehrlich. The remaining 412,238 shares of Class B common stock were withheld from Mr. Ehrlich for the payment of payroll taxes.

On October 2, 2020, Mr. Ehrlich exercised 909,090 options to ~~Ms. Ponugoti’s employment agreement.~~purchase 909,090 shares of Class B common stock at the option exercise price of $0.11 per share. Mr. Ehrlich paid for this exercise of his option by the cancellation of debt to Mr. Ehrlich of $100,000 to satisfy the exercise price (See Note 11. Convertible Note Payable to the condensed consolidated financial statements). The Company issued 727,994 shares of Class B common stock (net share issuance amount), to Mr. Ehrlich. The remaining 181,096 shares of Class B common stock were withheld from Mr. Ehrlich for the payment of payroll taxes.

On December 28, 2020, Mr. Ehrlich exercised his option to purchase 13,072,730 shares of Class B common stock, at the option exercise price at $0.11 per shares for the shares, paid by the cancellation of 6,980,583 shares of Class A common stock held by Mr. Ehrlich of $1,438,000 to satisfy the exercise price. The total taxable compensation to ~~Ms. Ponugoti~~Mr. Ehrlich for the ~~3,333 vested~~13,072,730 shares was ~~$2,433, which is priced at~~approximately $540,000, based upon the closing stock price on ~~January 31, 2018 at $0.73~~December 29, 2020 of $0.21 a share. The Company withheld 1,765,203 shares of Class B common stock and cancelled an additional 854,419 shares of Class A common stock held by Mr. Ehrlich. As a result, the Company issued ~~2,645~~11,307,527 shares of Class B common shares (net of 1,765,203 shares of Class B common shares withheld to satisfy taxes), and cancelled 7,835,002 shares of Class A common stock held by Mr. Ehrlich. These shares withheld are being reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

As of March 31, 2022 and June 30, 2021, the total issued number of shares of Class B common stock were 18 million shares and the total outstanding number of shares of Class B common stock were 15,641,463.

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

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

The Series B-2 preferred stock is mandatorily redeemable under certain circumstances and, as such, is presented as a liability on the condensed consolidated balance sheets. The Company has elected to measure the value of its preferred stock using the fair value method with offsetting discounts associated with the fair value allocated to the warrants and for the intrinsic value attributed to the beneficial conversion feature (“BCF”). The fair value of the Series B-2 preferred stock (without the warrants) will be assessed at each subsequent reporting date with changes in fair value recorded in the profit and loss as a separate line item below the “loss from operations” section (See ASC 480-10-35-5).

The warrants issued in connection with the Series B-2 preferred stock are deemed to be free standing equity instruments and are recorded in permanent equity under additional paid in capital, based on a relative fair value allocation of proceeds, that is the warrants’ relative fair value to the Series B-2 preferred stock fair value (without the warrants), with an offsetting discount to the Series B-2 preferred stock. Given that the Series B-2 preferred stock is convertible at any time under these features, the underlying warrant discounts were accreted upon issuance and recorded as interest, resulting in no remaining discount to the Series B-2 preferred stock liability after the issuance.

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

The issuance costs associated with the Series B-2 preferred stock transaction were attributed to the Series B-2 preferred stock (without the warrants) and to the Series 1 and Series 2 warrants based on their relative fair values. The issuance costs attributed to the warrants of approximately $10,000 were reflected as a reduction to additional paid-in capital. The issuances costs associated with the Series B-2 preferred stock liability of $25,000 was recorded immediately as an element of interest cost, which are reflected in interest expense - preferred stock on December 11, 2020.

The Company recorded the February 8, 2021 issuance of 2,036 shares Series B-2 Preferred Stock at approximately $1.5 million and the underlying Series 1 and Series 2 warrants at approximately $0.5 million in total by allocating the gross proceeds to Series B-2 preferred stock (without the warrants) and warrants based on their relative fair values or direct valuation as appropriate. The Company recorded BCF of approximately $1.5 million associated with the issuance of the 2,036 shares of Series B-2 preferred stock to additional paid-in capital. The Company then recorded interest of approximately $2.0 million for the BCF and warrant discounts as a first day interest given that the Series B-2 preferred shares can be converted at any time to common stock and given no set term. In addition to the aforesaid $2.7 million for the BCF and warrant discounts, the total interest of approximately $31,000 and $4.7 million was reported in Interest expense - preferred stock liability during the nine months ended March 31, 2022 and 2021, respectively, in the Condensed Consolidated Statements of Operations.

The change in fair value of the total Series B-2 preferred stock was $0 during the nine months ended March 31, 2022 and 2021 in the Condensed Consolidated Statements of Operations.

Underlying Series B-2 preferred stock dividends, paid quarterly, was accrued as interest (given the liability classification of the Series B-2 preferred stock) on a daily basis given fixed dividend terms under the Series B-2 preferred stock. The Company recorded 5% dividend accretion on total outstanding Series B-2 preferred stock and the total dividends accrued of approximately $31,000 and $15,000 were treated as interest during the nine months ended March 31, 2022 and 2021, respectively, in the Condensed Consolidated Statements of Operations.

The rights and preferences of the preferred stock are set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series B-2 5% Convertible Preferred Stock filed with the Nevada Secretary of State on December 4, 2020 (the “Certificate of Designation”). Each share of preferred stock has an initial stated value of $1,080 and may be converted at any time at the holder’s option into shares of the Company’s common stock at a conversion price equal of the lower of (i) $0.35 until August 15, 2021 and $0.50 thereafter, and (ii) 85% of the lowest volume weighted average price of the Company’s common stock on a trading day during the ten trading days prior to and ending on, and including, the conversion date. The conversion price may be adjusted following certain triggering events and subsequent equity sales and is subject to appropriate adjustment in the event of stock splits, stock dividends, recapitalization or similar events affecting the Company’s common stock.

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

Following 90 days after the scheduled date for the second closing date, the Company may elect to redeem the preferred stock for 120% of the aggregate stated value then outstanding, plus all accrued but unpaid dividends and all liquidated damages and other amounts due in respect of the preferred stock. The Company’s right to redeem the preferred stock is contingent upon it having complied with a number of conditions, including compliance with its obligations under the Certificate of Designation. Shares of preferred stock generally have no voting rights, except as required by law and except that the Company shall not take certain actions without the consent of the holders of the preferred stock.

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

Subject to the satisfaction of certain circumstances, the Company may call for cancellation any or all of the warrants following 90 days after their issuance, for a payment in cash equal to 8% of the aggregate exercise price of the warrants being called. The warrants subject to any such call notice will be cancelled 10 days following the Company’s payment of the call fee, provided that the warrant holders have not exercised the warrants prior to cancellation.

During the nine months ended March 31, 2022, the Company issued 5,072 shares of its Series B-2 5% convertible preferred stock, for aggregate gross proceeds of approximately $5.0 million, upon exercise of 3,036 Series 1 warrants and exercise of 2,036 Series 2 warrants issued by the Company. With regard to the exercise of these 5,072 warrants, the Company recorded gross proceeds of approximately $5.0 million to the preferred stock liability.

As of March 31, 2022, there was no Series 1 and 2 warrants outstanding since all warrants were exercised, and there were 1,165 shares of Series B-2 5% convertible preferred stock outstanding.

During the period from December 4, 2020 (date of securities purchase agreement) to June 30, 2021, the Company issued 3,053 shares of its Series B-2 5% convertible preferred stock, for aggregate gross proceeds of approximately $3.0 million, upon exercise of 3,053 Series 1 warrants issued by the Company. In addition, the Company issued 2,053 shares of its Series B-2 5% convertible preferred stock, for aggregate gross proceeds of approximately $2.0 million, upon exercise of 2,053 Series 2 warrants issued by the Company. With regard to the exercise of these 5,106 warrants, the Company recorded gross proceeds of approximately $5.0 million to the preferred stock liability.

As of June 30, 2021, there was 5,072 Series 1 and 2 warrants to purchase 5,072 shares of Series B-2 5% convertible preferred stock outstanding and there was no Series B-2 5% convertible preferred stock outstanding.

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

During the nine months ended March 31, 2022, the 2020 Series B-2 5% convertible preferred stockholder converted a total of 3,907 shares of Series B-2 preferred stock into a total of approximately 38,256,706 shares of common stock. With regard to conversions, the Company reversed Series B-2 5% convertible preferred stock liability relating to the conversion and recorded $3.8 million as Additional paid-in capital at par value. The Company reversed the amount of approximately $3.8 million based on the proportion of Series B-2 5% convertible preferred stock converted relative to the original total issued.

As of March 31, 2022, Series B-2 5% convertible preferred stock liability is approximately $1.1 million.

During the period from December 4, 2020 (date of securities purchase agreement) to June 30, 2021, the 2020 Series B-2 5% convertible preferred stockholder converted a total of 10,207 shares of Series B-2 preferred stock into a total of 68,034,812 shares of common stock. With regard to conversions, the Company reversed Series B-2 5% convertible preferred stock liability relating to the conversion and recorded $10.0 million as Additional paid-in capital at par value. The Company reversed the amount of approximately $10.0 million based on the proportion of Series B-2 5% convertible preferred stock converted relative to the original total issued.

As of June 30, 2021, Series B-2 5% convertible preferred stock liability was $0.

Regarding the exercise of options to purchase 2.2 million shares of Class B common stock on September 8, 2020 by Mr. Ehrlich, the Company issued 1,787,762 shares of Class B common stock (net share issuance amount), ~~which is approximately 79% of the total vested common share amount of 3,333 common shares due~~ to ~~be issued to Ms. Ponugoti.~~Mr. Ehrlich. The remaining ~~688~~412,238 shares of Class B common stock were withheld from ~~Ms. Ponugoti~~Mr. Ehrlich for the payment of payroll taxes and were reported by the Company as treasury stock, at cost, on the Company’s accompanying balance sheets.

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

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

There were 8,516,056 shares of Class A common stock and 2,358,537 shares of Class B common stock held in treasury, purchased at a total cumulative cost of approximately $2.3 million as of March 31, 2022 and June 30, 2021.

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

The Company has elected to measure its preferred stock using the fair value method. The fair value of the preferred stock is the estimated amount that would be paid to redeem the liability in an orderly transaction between market participants at the measurement date. The Company calculates the fair value of the Series B-2 Preferred stock using a lattice model that takes into consideration the future redemption value on the instrument, which is tied to the Company’s stock price.

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

The table below sets forth a reconciliation of the Company’s beginning and ending Level 3 Series B-2 preferred stock liability balance for the nine months ended March 31, 2022 and for the year ended June 30, 2021:

The Company has evaluated events occurring subsequent to March 31, 2022 through the date these financial statements were issued and determined the following items requiring disclosure:

On ~~February 5, 2018,~~April 13, 2022, the ~~Board~~Company entered a Patent Assignment Agreement with Fox Chase Chemical Diversity Center, Inc. (“FCCDC”), pursuant to which the Company assigned the title, rights and interest in and to the applications of ~~Directors approved~~certain patents in accordance with an earlier collaborative research agreement related to antifungal drug discovery work to which the ~~retirement~~Company had rights.

On May 3, 2022, the Company was notified it would receive payment from FCCDC based on FCCDC’s third-party license of ~~567,872 shares of its common stock in treasury, which shares are issued but are not outstanding. These shares included the 688 shares withheld from Ms. Ponugoti, as~~broad-spectrum anti-fungals and a ~~result, all treasury shares~~separate agreement between Innovation and FCCDC. Some of the preliminary data used in the FCCDC research program had been obtained as part of an earlier collaboration with the Company ~~were retired.~~supported by funding from the National Institutes of Health. Additional payments from FCCDC to the Company may also be made in the future.

The following management’s discussion and ~~plan~~analysis of financial condition and results of operations supplements and should be read in conjunction with the condensed consolidated financial statements and the notes to those statements included in this Form ~~10-Q.~~10-Q and with our Annual Report on Form 10-K for the year ended June 30, 2021. 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 anti-infective, oncology, ~~dermatology,~~anti-inflammatory and ~~anti-infectives~~dermatology 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. The Company is also engaged in seeking additional health care-related investment opportunities with the aim of diversifying the Company’s assets. As of March 31, 2022, the Company has largely paused clinical development to strategically analyze all the scientific data collected to date across its portfolio of assets - See discussion by indication below. Drug manufacturing, scientific report writing, and supportive research activities continue. While the analysis is performed, management is focused on other avenues of business development, including, but not limited to, joint ventures, mergers and acquisitions, strategic investments, and licensing agreements, for the purpose of diversifying corporate assets. While no assurances are expressed or implied that any agreement will be consummated in the future, the Company is committed toward executing on opportunities at hand.

Brilacidin is being studied by independent researchers funded by US Government grants, as a potential broad-spectrum antiviral therapeutic for the treatment of viruses, including the novel coronavirus (SARS-CoV-2), which is responsible for COVID-19. We anticipate these studies to continue as long as researchers remain positive about the antiviral properties and therapeutic potential of Brilacidin and government funding is available.

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

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

In early March 2022, the Company was notified by Alfasigma that Phase 2 multinational clinical trial planning/regulatory submissions have commenced, for planned Brilacidin treatment in Ulcerative Proctitis/Ulcerative Proctosigmoiditis (UP/UPS. Phase 1 studies in healthy volunteers for treatment of UP/UPS, using Brilacidin in a proprietary Alfasigma formulation, were earlier successfully completed.

On March 7, 2022, the Company reported further findings from ~~Cellceutix Corporation~~the Phase 2 COVID-19 clinical trial and compassionate use of Brilacidin in critically-ill COVID-19 patients.

On March 7, 2022, the Company also noted that collaborative research with National Institutes of Health (NIH) and other scientists remains ongoing. Brilacidin’s broad-spectrum in vitro antiviral activity is generating positive data, including results showing Brilacidin is potent against the Alpha, Gamma and Delta variants of SARS-CoV-2, with publications and conference abstracts related to ~~Innovation Pharmaceuticals~~this research in process of preparation.

On March 15, 2022, the Company highlighted coronavirus research published by William F. DeGrado, PhD, and colleagues, which characterized the antiviral activity of Brilacidin against multiple endemic human coronaviruses (HCoVs), including HCoV-OC43, HCoV-229E, HCoV-NL63, and SARS-CoV-2, in human cell lines.

Given the promising treatment effects observed with Brilacidin in treatment of COVID-19 (from the Phase 2 clinical trial and compassionate use cases), combined with the broad-spectrum in vitro antiviral data, the Company plans to submit Brilacidin to government-sponsored platforms for possible inclusion in clinical trials and additional development funding support.

The Company is actively engaged in business development and licensing initiatives with multiple specialty and global pharmaceutical companies. The Company may also seek to enter into agreements with other third-party entities for research, development, and commercialization of other types of technologies or products. The goal of these efforts is to diversify and add value to the Company’s assets. From time to time, the Company may be party to various indications of interest and term sheets and participate in preliminary discussions and negotiations regarding potential licensing or partnership arrangements. It remains the Company’s primary objective to complete licensing deals, territorial and/or global, to provide access to non-dilutive capital to advance clinical assets forward in the most expeditious and cost-effective manner. The Company can make no assurance that partnerships will occur, but is committed toward executing on these potential alliance and partnership opportunities.

In July 2019, the Company entered into a license agreement with Alfasigma S.p.A. (“Alfasigma”), granting Alfasigma the worldwide right to develop, manufacture and commercialize rectally administered Brilacidin for ulcerative proctitis/ulcerative proctosigmoiditis (“UP/UPS”). The license agreement provides Alfasigma with a right of first refusal for Brilacidin for the treatment of more extensive forms of inflammatory bowel disease (IBD), such as ulcerative colitis and Crohn’s disease, as well as a right of first negotiation for Brilacidin in other gastrointestinal indications. Phase 1 studies in healthy volunteers using Brilacidin in a proprietary Alfasigma formulation have successfully completed, and Alfasigma has notified the Company that Phase 2 multinational clinical trial planning/regulatory submissions have commenced (1Q2022); Brilacidin drug substance has been manufactured under direction of the Company for delivery to Alfasigma for use in this study. The Company is eligible to receive $24 million in upfront and milestone payments, and a 6 percent royalty (net sales) upon the successful marketing of Brilacidin for UP/UPS.

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

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

The Company devotes most of its efforts and resources on its compounds 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.Brilacidin. 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~~As of March 31, 2022, the Company ~~remains~~has largely paused clinical development to strategically analyze all 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~~scientific data collected 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 courseacross its portfolio 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”.

assets. 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:

In December 2020, the U.S. Food and Drug Administrations (FDA) approved the Company’s Investigational New Drug (IND) application to proceed with initiation of a randomized, placebo-controlled Phase 2 clinical trial of Brilacidin in moderate-to-severe hospitalized patients with COVID-19. Similar regulatory approval was obtained from the Russian Ministry of Health. This Phase 2 clinical trial of intravenously-administered Brilacidin for COVID-19 conducted at sites in the United States and Russa has since completed (n=120). The study was a randomized, double-blind, placebo-controlled, multi-center study to evaluate the efficacy and safety of Brilacidin in COVID-19 hospitalized patients. Investigational treatment (Brilacidin or placebo) was provided in addition to standard of care treatments, and the investigational treatment regimens tested were three daily doses or five daily doses. The trial’s primary endpoint is time to sustained recovery through Day 29, using a clinical status ordinal scale based on that used in the series of National Institute of Allergy and Infectious Diseases (NIAID) Adaptive COVID-19 Treatment Trials (ACTTs). Additional endpoints included: in-hospital outcomes (e.g., duration of hospitalization, time to discharge), all-cause mortality, measurement of disease biomarkers (e.g., CRP, ferritin) and inflammation-related biomarkers (e.g., IL-1β, IL-6, IL-10, total IL-18, TNF-α), changes to SARS-CoV-2 viral load, as well as other key measures.

The Company ~~recently~~reported topline results that Brilacidin did not show a difference compared to placebo in reducing Time to Sustained Recovery Through Day 29, the study’s primary endpoint. While separation between treatment groups was not evident for the primary endpoint when including all patients in a treatment group, there was evidence of beneficial Brilacidin treatment effects on this endpoint for patient subgroups.

For the study population, early treatment with Brilacidin from onset of symptoms appeared to have a positive impact on time to sustained recovery: if a patient started study treatment within fewer than 7 days of onset of COVID-19 symptoms, patients in the Brilacidin 5-dose group achieved sustained recovery more quickly compared to the pooled placebo group (p=0.03).

Also, Brilacidin did show treatment effects on the National Early Warning Score 2 (NEWS2) secondary endpoints, with more patients in the Brilacidin 5-dose group achieving and maintaining (for at least 24 hours), a NEWS2 of ≤2 by 10 days (from randomization); plus, in addition, mean change from baseline in NEWS2 was greater for the Brilacidin treatment groups than for the pooled placebo group, at all assessment timepoints (Study Days 3, 5, 8, 11, 15, and 29).

Safety data showed Brilacidin was generally well-tolerated, with an overall safety profile in COVID-19 patients consistent with previous clinical studies. The incidence of patients with at least one treatment-emergent adverse event (TEAE) was higher for Brilacidin treatment compared to placebo. However, the proportion of patients with TEAEs is similar across groups (72 percent on active, 65 percent on placebo) after excluding the Brilacidin-related adverse events of tingling (paresthesia) and hypoesthesia (numbness), which are known, transient, mostly mild, non-serious adverse events related to Brilacidin IV treatment. The incidence of serious adverse events was the same (12 percent on active, 12 percent on placebo), and no serious adverse events were reported as related to study treatment. There was also no difference in mortality between active and placebo, with both groups experiencing low mortality rates (7 percent) compared to other studies that evaluated patients with moderate-to-severe COVID-19.

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

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

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

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

IBD, Ulcerative Proctitis/Proctosigmoiditis (UP/UPS) study - A Phase 2a trial has previously been completed by the Company, comprised of three sequential cohorts, with progressive dose escalation by cohort: cohort A (6 patients) - 50 mg, cohort B (6 patients) - 100 mg, and cohort C (5 patients) - 200 mg, respectively. Treatment with Brilacidin by daily enema administration was performed for 42 days. The primary efficacy endpoint of clinical remission (accounting for stool frequency, rectal bleeding and endoscopy findings subscores) was met by the majority of patients across the cohorts. Brilacidin was generally well-tolerated. Patient quality of life (as assessed by the short inflammatory bowel disease questionnaire, or SIBDQ) showed notable improvements. Limited systemic exposure to Brilacidin was demonstrated as measured by plasma Brilacidin concentrations. In July 2019, the Company entered into a license agreement with Alfasigma, granting Alfasigma the worldwide right to develop, manufacture and commercialize rectally administered Brilacidin for UP/UPS. Phase 1 studies in healthy volunteers using Brilacidin in a proprietary Alfasigma formulation have successfully completed, and Alfasigma has notified the Company that Phase 2 multinational clinical trial planning/regulatory submissions have commenced (1Q2022); Brilacidin drug substance has been manufactured under direction of the Company for delivery to Alfasigma for use in this study. See Note 7. Exclusive License Agreement of the notes to condensed consolidated financial statements.

IBD, Ulcerative Colitis (UC) - Brilacidin has also been developed as a treatment in more extensive forms of IBD.

Development of a delayed release oral formulation has been in progress, with development work expanding into immediate release formulations due to unexpected findings encountered. Such findings appear due to the inherent physiochemical properties of the compound, and those of polymers used to achieve delayed release. An immediate release, multi-particulate, capsule formulation has been developed, although further work has since been halted due to instability of that formulation being identified. Hence, further advancement in the indication of ulcerative colitis requires conduct of additional formulation development work prior to Phase 1 testing of that oral formulation. Completion of formulation/analytical development work, clinical trial supply manufacturing, and subsequent progression into clinical trials, are pending securing sufficient drug supply and working capital.

Oral Mucositis (OM) study - In a randomized, double-blind ~~parallel-group, placebo-controlled~~ Phase 2b2 study of Brilacidin for the prevention and control of OM in patients receiving chemoradiation for treatment of Head and Neck Cancer (HNC), Brilacidin markedly reduced the rate of severe OM (WHO Grade ≥ 3), delayed onset of severe OM and decreased duration of severe OM. The Company made available on its website a comparative data table (based on public information) showing Brilacidin compares favorably to other compounds in development for preventing and treating severe OM. The Company and the FDA have completed an End-of-Phase 2 meeting concerning the continuing development of Brilacidin oral rinse to decrease the incidence of severe OM in HNC patients receiving chemoradiation. Both parties agreed to an acceptable Brilacidin Phase 3 development pathway, including studying Brilacidin oral rinse effects on severe OM when cisplatin, the preferred chemotherapy regimen in HNC care, is administered in higher concentrations (80-100 mg/m²) every 21 days, and at lower concentrations (30-40 mg/m²) administered weekly as part of the chemoradiation regimen.

An optimized oral rinse formulation has been developed, and ongoing stability testing will be finished this year. Further advancement in the indication of oral mucositis requires additional drug formulation/analytical work, followed by clinical trial supply manufacturing prior to progressing to Phase 3 clinical trials. Given the low price per share of our common stock and the many multiple million dollar costs associated with a Phase 3 program, at this time clinical trial supply manufacturing and Phase 3 clinical trial conduct are delayed, with such activities pending securing sufficient working capital and or partnership.

ABSSSI - In February 2016, the Company submitted a Special Protocol Assessment (SPA) request, along with a final protocol, to the FDA, for a Phase 3 clinical trial of ~~Prurisol~~Brilacidin for ~~subjects with moderate~~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 ~~severe plaque psoriasis. The treatment group arms are Prurisol 300mg, Placebo, Prurisol 400mg (Ratio 3:3:1)~~delay its response to the FDA due to the low price per share of our common stock and the many multiple million dollar costs associated with a ~~treatment duration~~Phase 3 program. Our strategy, for now, is to achieve success with other trials and attract partnering opportunities that may provide significant upfront payments and milestone payments, which can then be used to fund the ABSSSI program. We see ABSSSI as the appropriate gateway indication in infectious diseases, enabling potential further studies of ~~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~~$0.6 million and ~~$1.6~~$1.0 million during the ~~six~~three months ended ~~December~~March 31, ~~2017~~2022 and ~~2016,~~2021, respectively, and approximately $2.9 million and $3.3 million during the nine months ended March 31, 2022 and 2021, respectively.

~~Future expenditures on Prurisol will be determined by the trial results when available.~~

The Company has ~~commenced~~completed a Phase 2a trial of Kevetrin in treating late-stage 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. Presently we are focusing our resources on Brilacidin, our other lead candidate.

~~Our expenditures~~Expenditures on Kevetrin were ~~approximately $0.3 million and $0.3 million~~insignificant during the ~~six months~~quarters ended ~~December~~March 31, ~~2017~~2022 and ~~2016,~~2021, 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 with the licensing of intellectual property for these diseases by returning certain patent portfolios back~~no product sales to ~~the university licensor. Research at the Company is now focused on supporting our clinical trials. As business conditions warrant,~~date and we will ~~determine our financial commitment~~not receive any product revenue until we receive approval from the FDA or equivalent foreign regulatory agencies to ~~the gram-negative bacteria~~begin marketing a pharmaceutical product. Developing pharmaceutical products, however, is a lengthy and ~~fungi programs.~~very expensive process and there can be no assurance that we will complete such development or commercialize such for several years, if ever.

Management’s discussion and analysis of financial condition and results of operations are based upon our accompanying financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles, or U.S. GAAP, and which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Note 3. Significant Accounting Policies and Recent Accounting Pronouncements, to the condensed consolidated financial statements, describes the significant accounting policies and methods used in the preparation of the Company’s financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. These estimates are the basis for our judgments about the carrying values of assets and liabilities, which in turn may impact our reported revenue and expenses. Our actual results could differ significantly from these estimates under different assumptions or conditions.

Please see Note 3 of 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. 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.

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~~currently anticipate that future budget expenditures will be approximately $4.2 million for the next 12 months, including approximately $2.2 million for development activities, supportive research, and ~~development expenses, including expenses related to additional clinical trials~~drug manufacturing. However, continuing operations 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~~next 12 months from the date of this filing is very much dependent upon our ~~expected rate of expenditures over~~ability to raise equity from existing or new financing sources. There can be no assurance as to the ~~next twelve months~~availability or terms upon which such financing and ~~beyond, we will need additional working~~ capital ~~to meet our anticipated clinical trial obligations and other working capital requirements.~~might be available.

For the three months ended ~~December~~ March 31, ~~201~~72022 and ~~201~~62021

We ~~generated no~~did not generate revenue for the three months ended March 31, 2022 and 2021.

We incurred operating expenses of approximately ~~$4.5~~$1.5 million and ~~$3.3~~$1.9 million for the three months ended ~~December~~March 31, ~~2017~~2022 and ~~2016,~~2021, 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 31, 2017 and 2016, respectively~~ (rounded to nearest thousand):

	For the three months ended				Change						For the three months ended				Change
	December 31,				2017 Vs. 2016						March 31,				2022 vs. 2021
	2017		2016		$			%			2022		2021		$			%

Clinical studies and development research	$	2,341,000	$	1,662,000		679,000			41	%	$	677,000	$	1,210,000		(533,000	)		(44	)%
Officers’ payroll and payroll tax expenses related to R&D Department		223,000		218,000		5,000			2	%
Employees payroll and payroll tax expenses related to R&D Department		262,000		354,000		(92,000	)		(26	)%		119,000		77,000		42,000			55	%
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 - employee												30,000		14,000		16,000			114	%
Stock-based compensation - consultants		-		8,000		(8,000	)		(100	)%		10,000		27,000		(17,000	)		(63	)%
Depreciation and amortization expenses		106,000		102,000		4,000			4	%		95,000		95,000		—		—		%
Total	$	3,963,000	$	2,683,000		1,280,000			48	%	$	931,000	$	1,423,000		(492,000	)		(35	)%

Research and development expenses for proprietary programs ~~increased~~decreased during the three months ended ~~December~~March 31, ~~2017~~2022 compared with the three months ended March 31, 2021, primarily due to ~~higher~~less spending on our Brilacidin program ~~and Prurisol program.~~

~~Officers’ payroll will decrease in future periods due to~~for the 50% reduction in salary of one officer, which became effective on January 16, 2018. Clinical studies and development expenses may decrease in future reporting periods depending on the Company’s current and future financial liquidity.three months ended March 31, 2022.

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

Stock-based compensation for employee increased during the three months ended March 31, 2022 due to one new issuance of 500,000 stock options to purchase shares of Company’s common stock to the Company’s Senior Vice President, Clinical Sciences and Portfolio Management in October, 2021 (see Note 13).

Stock-based compensation - consultants decreased during the three months ended ~~December~~March 31, ~~2017 related~~2022 due to ~~fewer employees engaged in preclinical development in September, 2017, which led~~less options being issued to ~~the decrease in employees’ payroll during the quarter ended December 31, 2017.~~

~~Stock- based compensation - officers increased~~consultants during the three months ended ~~December~~March 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.

~~Stock-based compensation- employee decreased during~~2022 compared with the three months ended ~~December~~March 31, ~~2017 due to the decrease in stock awards granted to employees during the quarter ended December 31, 2017 compared with the same period in 2016.~~

~~Stock-based compensation- consultant decreased during the three months ended December 31, 2017 due to no stock awards were granted to consultants during the quarter ended December 31, 2017.~~2021.

Our research and development expenses include costs related to preclinical and clinical trials, outsourced services and consulting, officers’ payroll and related payroll tax expenses, other wages and related payroll tax expenses, stock-based compensation, depreciation and amortization expenses. Clinical studies and development expenses may decrease in future reporting periods depending on the Company’s current and future financial liquidity. We manage our proprietary programs based on scientific data and achievement of research plan goals. ~~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 the cost of research and development expenses for proprietary programs and include other management, business development, accounting, information technology and administration costs, including patent filing and prosecution, recruiting, consulting and professional services, travel and meals, sales commissions, facilities, depreciation and other office expenses.

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

	For the three months ended				Change						For the three months ended				Change
	December 31,				2017 vs. 2016						March 31,				2022 vs. 2021
	2017		2016		$			%			2022		2021		$			%

Insurance and health expense	$	109,000	$	121,000		(12,000	)		(10	)%	$	68,000	$	109,000		(41,000	)		(38	)%
Patent expenses		-				-			-	%
Rent and utility expense		65,000		69,000		(4,000	)		(6	)%		17,000		25,000		(8,000	)		(32	)%
Stock-based compensation-Officers												166,000		—		166,000			—	%
Other G&A		123,000		154,000		(31,000	)		(20	)%		69,000		111,000		(42,000	)		(38	)%
Total	$	297,000	$	344,000		(47,000	)		(14	)%	$	320,000	$	245,000		75,000			31	%

General and administrative expenses ~~decreased~~increased during the three months ended ~~December~~March 31, ~~2017~~2022, primarily ~~related~~due to ~~decreases~~the increase in ~~promotion, advertising~~stock-based compensation-Officers of $166,000, offset by a decrease in insurance expense of $41,000 and ~~office expenses.~~

~~Table of Contents~~

a decrease in other G&A expense of $42,000 due to less business development consultants’ fees and business events during the three months ended March 31, 2022. Stock-based compensation for officers increased during the three months ended March 31, 2022 due to one new issuance of 3 million stock options to purchase shares of Company’s common stock to the Company’s two independent directors and the CEO in October, 2021 (see Note 13).

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

~~There was no change in~~ Officers’ payroll and payroll tax expenses ~~for the Company~~were stable during the three 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 and the related payroll tax expenses under Research and Development Expense.2022.

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

Professional fees decreased during the three months ended ~~December~~March 31, ~~2017~~2022 primarily related to ~~decrease~~fewer transactions in ~~legal fees.~~fiscal 2022 compared to the prior year period. Professional fees during the three months ended March 31, 2021 primarily related to the 2020 Securities Purchase Agreement and issuance of Series B-2 preferred stock.

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

There was ~~slight~~a decrease ~~in interest income from bank deposits and there was no change~~ in interest expenses paid on the note payable –- related party, because the Company repaid the note payable of $1,033,000 to Mr. Ehrlich, the Company’s Chairman and CEO (see Note 911. Convertible Note Payable - Related Party of the Notes to ~~the notes to the condensed financial statements)~~Condensed Consolidated Financial Statements).

~~Net~~There was a decrease in interest expense – preferred stock liability during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 related to the 5% accrued dividend associated with the Series B-2 preferred stock (see Note 14).

We incurred net losses of ~~$4.5~~$1.5 million and ~~$3.4~~$4.0 million for the three months ended ~~December~~March 31, ~~2017~~2022 and ~~2016,~~2021, respectively, because of the above-mentioned factors.

For the ~~six~~nine months ended ~~December~~ March 31, ~~201~~72022 and ~~201~~62021

We ~~generated no~~did not generate revenue for the nine months ended March 31, 2022 and 2021.

We incurred operating expenses of approximately ~~$9.0~~$5.5 million and ~~$6.3~~$6.5 million for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2022 and ~~2016,~~2021, respectively.

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

	For the six months ended				Change						For the nine months ended				Change
	December 31,				2017 Vs. 2016						March 31,				2022 vs. 2021
	2017		2016		$			%			2022		2021		$			%

Clinical studies and development research	$	5,124,000		3,009,000		2,115,000			70	%	$	3,185,000	$	4,191,000		(1,006,000	)		(24	)%
Officers’ payroll and payroll tax expenses related to R&D Department		441,000		453,000		(12,000	)		(3	)%
Employees payroll and payroll tax expenses related to R&D Department		592,000		609,000		(17,000	)		(3	)%		524,000		310,000		214,000			69	%
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 - employee												69,000		46,000		23,000			50	%
Stock-based compensation - consultants		-		50,000		(50,000	)		(100	)%		51,000		88,000		(37,000	)		(42	)%
Depreciation and amortization expenses		211,000		198,000		13,000			7	%		286,000		283,000		3,000			1	%
Total	$	7,768,000		4,960,000		2,808,000			57	%	$	4,115,000	$	4,918,000		(803,000	)		(16	)%

Research and development expenses for proprietary programs ~~increased~~decreased during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2022 compared with the nine months ended March 31, 2021, primarily due to ~~higher~~less spending on our Brilacidin program ~~and Prurisol program.~~

Employees payroll and payroll tax expenses ~~decreased~~increased during the ~~six~~nine months ended ~~December~~March 31, ~~2017 related~~2022 compared with the nine months ended March 31, 2021, due to a new hire of an employee during the first quarter of fiscal 2022.

Stock-based compensation for employee increased during the nine months ended March 31, 2022 due to one new issuance of 500,000 stock options to purchase shares of Company’s common stock to the ~~decrease~~Company’s Senior Vice President, Clinical Sciences and Portfolio Management in ~~employees during the six months ended December 31, 2017.~~October, 2021 (see Note 13).

Stock-based compensation - officers increased during the six months ended December 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 compared with the same period in 2016.

~~Stock-based compensation-~~ consultants decreased during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2022 due to ~~granting fewer stock awards~~less options being issued to consultants during the ~~six~~nine months ended ~~December~~March 31, ~~2017.~~2022 compared with the nine months ended March 31, 2021.

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

	For the six months ended				Change						For the nine months ended				Change
	December 31,				2017 vs. 2016						March 31,				2022 vs. 2021
	2017		2016		$			%			2022		2021		$			%

Insurance and health expense	$	236,000		258,000		(22,000	)		(9	)%
Patent expenses		-		2,000		(2,000	)		(100	)%
Insurance expense											$	208,000	$	337,000		(129,000	)		(38	)%
Rent and utility expense		127,000		130,000		(3,000	)		(2	)%		58,000		77,000		(19,000	)		(25	)%
Stock-based compensation-Officers												277,000		—		277,000			—	%
Other G&A		231,000		316,000		(85,000	)		(27	)%		228,000		326,000		(98,000	)		(30	)%
Total	$	594,000		706,000		(112,000	)		(16	)%	$	771,000	$	740,000		31,000			4	%

General and administrative expenses ~~decreased~~increased during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2022, primarily ~~related~~due to ~~decreases~~the increase in ~~promotion, advertising~~stock-based compensation-Officers of $277,000, offset by a decrease in insurance expense of $129,000 and ~~office expenses.~~a decrease in other G&A expense of $98,000 due to less business development consultants’ fees and business events during the nine months ended March 31, 2022. Stock-based compensation for officers increased during the nine months ended March 31, 2022 due to one new issuance of 3 million stock options to purchase shares of Company’s common stock to the Company’s two independent directors and the CEO in October, 2021 (see note 13).

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

~~There was no change~~The decrease 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’~~2022 was due to the adjustment to officer’s accrued 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 and the related payroll tax expenses under Research and Development Expense.taxes.

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

Professional fees decreased during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2022 primarily related to ~~decrease~~fewer transactions in ~~legal fees.~~

~~Table of Contents~~

fiscal 2022 compared to the prior year period. Professional fees during the nine months ended March 31, 2021 primarily related to the 2020 Securities Purchase Agreement and issuance of Series B-2 preferred stock.

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

There was ~~slight~~an increase in other income which represents the forgiveness of the PPP Loan.

There was a decrease ~~in interest income from bank deposits and there was no change~~ in interest expenses paid on the note payable –- related party, because the Company repaid $1,033,000 of the note payable to Mr. Ehrlich, the Company’s Chairman and CEO (see Note 911. Convertible Note Payable - Related Party of the Notes to ~~the notes to the condensed financial statements)~~Condensed Consolidated Financial Statements).

There was a decrease in interest expense – preferred stock liability during the nine months ended March 31, 2022 as compared to the nine months ended March 31, 2021 related to the 5% accrued dividend associated with the Series B-2 preferred stock (see Note 14).

We incurred net losses of ~~$9.1~~$5.4 million and ~~$6.4~~$11.3 million for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2022 and ~~2016,~~2021, respectively, because of the above-mentioned factors.

As of ~~December~~March 31, ~~2017,~~2022, we had approximately ~~$3.2~~$8.8 million in cash compared to ~~$4.1~~$10.2 million of cash as of June 30, ~~2017.~~2021, and as of the date of this filing, we have approximately $8.4 million in cash. We currently anticipate that future budget expenditures will be approximately ~~$12.2~~$4.2 million for the next ~~twelve~~12 months, including approximately ~~$8.2~~$2.2 million for ~~clinical~~development activities, supportive research, and drug ~~product development. We~~manufacturing. Alternatively, if we decide to pursue a more aggressive plan with our clinical trials, we will require additional sources of ~~equity~~ capital during the fiscal ~~year 2018 in order~~years 2022 and 2023 to meet our working capital ~~requirements.~~ requirements for our planned clinical trials. Potential sources for capital include grant funding for COVID-19 research and equity financings (see below). There can be no assurances that we will be successful in receiving any grant funding for our programs.

This assessment is based on current estimates and assumptions regarding our clinical development programs and business needs. Actual working capital requirements could differ materially from ~~this~~the above working capital projection.

On ~~September 6, 2017,~~July 31, 2020, the Company entered into a ~~$30 million common stock purchase agreement~~Common Stock Purchase Agreement (the “2020 Purchase Agreement”) with Aspire Capital ~~which replaced the prior $30 million~~ Fund, LLC (“Aspire ~~Capital stock purchase agreement and~~Capital”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the ~~36-month~~24-month term of the 2020 Purchase Agreement. During the nine months ended March 31, 2022, the Company did not sell any shares to Aspire Capital under the purchase agreement. During the period from ~~September 6, 2017~~July 31, 2020 to ~~December~~March 31, ~~2017,~~2021, the Company ~~has~~ generated proceeds of approximately ~~$4.4~~$5.0 million under ~~this agreement~~the 2020 Purchase Agreement with Aspire Capital from the sale of approximately ~~6.6~~22.5 million shares of its common stock. As of ~~December~~March 31, ~~2017,~~2022, the available balance isunder the 2020 Purchase Agreement was approximately ~~$25.6 million. Our ability to continue to fund our research~~$25.4 million, however, the trading price for the Company’s common stock has not satisfied the minimum $0.10 price condition under the purchase agreement and ~~development activities and corporate overhead expenses and continue as a going concern has been and continues to be dependent on this stock purchase agreement.~~no sales may occur thereunder.

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~~the Annual Report on Form ~~10-K we filed with the SEC on September 11, 2017 and in other reports.~~10-K.

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. In the event thatIf we are unable to ~~raise sufficient~~generate enough working capital from our current or future financing ~~agreement~~agreements with Aspire Capital (which expires July 31, 2022) when needed or secure additional sources of funding, ~~from others, we~~it may be ~~required~~necessary to significantly reduce our current rate of spending through reductions in staff and delaying, scaling back or stopping certain research and development programs, including ~~the~~ more costly Phase 2 ~~clinical trials~~ and ~~potential future~~ Phase 3 clinical trials on our wholly-owned development programs as these ~~clinical trials~~programs progress into a later stage ~~of development or severely curtail our operations or otherwise impede our ongoing business efforts, or we could be forced to cease operations altogether.~~development. Insufficient liquidity may also require us to relinquish greater rights to product candidates at an earlier stage of development or on less favorable terms to us and our stockholders than we would otherwise choose in order to obtain up-front license fees needed to fund operations. These ~~liquidity~~ events could prevent us from successfully executing our ~~current~~ operating plan.

The Company has an effective shelf registration statement on Form S-3, registering the sale of up to ~~$75~~$60 million of the Company’s securities. ~~The~~However, in the future, the Company ~~filed~~may not satisfy the conditions for use of Form S-3 ~~with~~for primary offerings of securities, in which case the ~~SEC~~Company may utilize Form S-1 to register the sale of its securities, although Form S-1 offers less flexibility 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~~nine months ended ~~December~~March 31, ~~2017~~2022 and ~~2016~~2021 (rounded to nearest thousand):

The ~~increase~~Company experienced a decrease in net cash used in operating activities of ~~$1.9~~$1.6 million versus the ~~prior-year six-month period was mainly due to increases in~~prior-year. The use of cash principally resulted from our losses from operations ~~of $2.4 million, largely attributable to our increase spending for research and development expenses.~~

~~Our operating activities used cash of approximately $7.2 million and $5.3 million~~ for the ~~six~~nine months ended ~~December~~March 31, ~~2017 and 2016, respectively. This increase was~~2022, as adjusted for non-cash charges for stock-based compensation of $0.4 million, gain on forgiveness of loan payable of $0.2 million, patent amortization ~~and depreciation,~~of $0.3 million, and changes in our working capital accounts.

~~Investing activities~~The use of cash principally resulted from our losses from operations for the nine months ended March 31, 2021, as adjusted for non-cash charges for stock-based compensation of $0.1 million, patent amortization of $0.3 million, interest expense on preferred stock of $4.7 million and changes in our working capital accounts.

There was an insignificant change in net cash used in investing activities versus the prior-year ~~six-month period was~~ due to ~~a decrease~~stable spending in ~~patents costs.~~patent costs during both periods.

During the ~~six~~nine months ended ~~December~~March 31, 2017, our investing activities used 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 million and the purchases of patents of $0.05 million.

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

~~During the six months ended December 31, 2017,~~2022, we raised approximately ~~$6.5~~$5.0 million in net cash proceeds, from ~~the sale~~exercise of ~~9.2 million shares of our common~~warrants to purchase preferred stock, ~~to Aspire Capital~~ offset by ~~cash paid~~repayment of $1 million of loan balance to ~~taxing authorities arising from the withholding of shares from employees of $172,000.~~ officer.

During the ~~six~~nine months ended ~~December~~March 31, ~~2016,~~2021, we raised approximately ~~$2.9~~$4.6 million in net cash proceeds from ~~the~~ sale of ~~2.4 million shares of our~~ common stock to Aspire ~~Capital.~~Capital, $5.0 million in net cash proceeds from issuance of Series B-2 preferred stock and $5.0 million in net cash from exercise of warrants, offset by purchase of treasury stock of $0.7 million.

The Company, ~~plans~~contingent on future sales of its securities, currently expects to incur total operating expenses of approximately ~~$12.2~~$4.2 million for the next ~~twelve~~12 months, including approximately ~~$8.2~~$2.2 million for ~~clinical~~development activities, supportive research, and drug ~~product development.~~manufacturing. The Company has limited experience with pharmaceutical ~~drug~~product development. As such, ~~the~~this budget estimate may ~~not be accurate.~~change in the future. In addition, the actual work to be performed is not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional work may become necessary or a change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget and on our projected timeline of drug development.

The Company will be unable to proceed with its planned drug development programs, meet its administrative expense requirements, capital costs, or staffing costs without accessing its financing available with Aspire Capital of approximately $25.6 million as of December 31, 2017. Management has put in place this new 2017 equity purchase agreement with Aspire Capital to fund its future clinical trial expenses and overhead expenses over the next twelve months. This purchase agreement 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$30 million, of ~~the Company’s common stock over the 36-month term of the Purchase Agreement. Management believes,~~which approximately $25.4 million remains as of the date of this filing and which expires on July 31, 2022. However, the trading price for the Company’s common stock has not satisfied the minimum $0.10 price condition under the purchase agreement and no sales may occur thereunder.

Management believes that the ~~funding amount~~amounts available from Aspire Capital and under the Company’s effective shelf registration statement will be ~~available as needed by the Company. Adverse market conditions in~~sufficient to fund the Company’s ~~per share price~~operations for the next 12 months from the date 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 sufficient cash from our 2020 Purchase Agreement with Aspire Capital ~~purchase agreement~~(which expires on July 31, 2022) or raise additional funds from others, 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.~~(for example licensing and partnerships) and future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available to us.

~~Below is~~Please see Note 9. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q, for a ~~table that presents our~~discussion of recent contractual ~~obligations~~commitments and ~~commercial commitments as of December 31, 2017 (rounded to the nearest million):~~

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.

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

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,~~2022, 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,~~2022, the principal executive officer and principal financial officer of the Company have 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,~~2022, 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~~See Note 9 in the accompanying condensed consolidated financial statements.

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,~~2021, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2021.

(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~~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~~ 456,580,514
Common Stock Class B, $0.0001 par value		~~None~~15,641,463

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of ~~December~~March 31, ~~2017 (unaudited)~~2022 and June 30, ~~2017 (audited)~~2021 (unaudited)	4
	Condensed Consolidated Statements of Operations ~~(unaudited)~~ for the three months and ~~six~~nine months ended ~~December~~March 31, ~~2017~~2022 and ~~2016~~2021 (unaudited)	5
	Condensed Consolidated Statements of ~~Cash Flows (unaudited)~~Stockholders’ Equity for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2022 and ~~2016~~2021 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2022 and 2021 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	79
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2031
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3146
Item 4.	Controls and Procedures	3246

��
PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	3347
Item 1A	Risk Factors	3347
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3347
Item 3.	Defaults Upon Senior Securities	3347
Item 4.	Mine Safety Disclosures	3347
Item 5.	Other Information	3347
Item 6.	Exhibits	3448

SIGNATURES		3549

	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,
	2022			2021
ASSETS
Current Assets:
Cash	$	8,795,000		$	10,194,000
Prepaid expenses and other current assets		27,000			495,000
Total Current Assets		8,822,000			10,689,000
Other Assets:
Patent costs - net		2,518,000			2,754,000
Deferred offering costs		240,000			778,000
Security deposit		78,000			78,000
Total Other Assets		2,836,000			3,610,000
Total Assets	$	11,658,000		$	14,299,000
Current Liabilities:
Accounts payable - (including related party payables of approx. $1,511,000 and $1,511,000, respectively)	$	2,400,000		$	2,563,000
Accrued expenses - (including related party accruals of approx. $21,000 and $8,000, respectively)		71,000			348,000
Accrued salaries and payroll taxes - (including related party accrued salaries of approx. $1,551,000 and $1,915,000, respectively)		1,635,000			1,992,000
Operating lease - current liability		189,000			165,000
Convertible note payable - related party		250,000			1,283,000
Accrued dividend - Series B 5% convertible preferred stock		46,000			15,000
Loan payable		0			172,000
Total Current Liabilities		4,591,000			6,538,000
Other Liabilities:
Series B 5% convertible preferred stock liability at $1,080 stated value; 1,165 and 0 shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively		1,145,000			0
Operating lease - long term liability		107,000			252,000
Total Liabilities		5,843,000			6,790,000

Commitments and contingencies (Note 9)

Stockholders’ Equity
Preferred stock, $0.001 par value, 10,000,000 designated shares, no shares issued and outstanding		0			0
Common Stock - Class A, $0.0001 par value, 600,000,000 shares authorized, 465,096,570 shares and 426,673,198 shares issued as of March 31, 2022 and June 30, 2021, respectively, 456,580,514 shares and 418,157,142 shares outstanding as of March 31, 2022 and June 30, 2021, respectively.		46,000			42,000
Common Stock - Class B, (10 votes per share); $0.0001 par value, 100,000,000 shares authorized, 18,000,000 shares issued as of March 31, 2022 and June 30, 2021, and 15,641,463 shares outstanding as of March 31, 2022 and June 30, 2021		2,000			2,000
Additional paid-in capital		128,552,000			124,835,000
Accumulated deficit		(120,531,000	)		(115,116,000	)
Treasury Stock, at cost (10,874,593 shares as of March 31, 2022 and June 30, 2021)		(2,254,000	)		(2,254,000	)
Total Stockholders’ Equity		5,815,000			7,509,000
Total Liabilities and Stockholders’ Equity	$	11,658,000		$	14,299,000

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

	For the three Months Ended						For the Nine months Ended
	March 31,						March 31
	2022			2021			2022			2021

Revenues	$	0		$	0		$	0		$	0

Operating expenses:
Research and development expenses		931,000			1,423,000			4,115,000			4,918,000
General and administrative expenses		320,000			245,000			771,000			740,000
Officers’ payroll and payroll tax expenses		126,000			126,000			308,000			378,000
Professional fees		81,000			124,000			301,000			450,000

Total operating expenses		1,458,000			1,918,000			5,495,000			6,486,000

Net loss from operations		(1,458,000	)		(1,918,000	)		(5,495,000	)		(6,486,000	)

Other income (expense)
Other income		0			0			172,000			0
Interest expense - debt		(11,000	)		(37,000	)		(61,000	)		(119,000	)
Interest expense - preferred stock liability		(17,000	)		(2,005,000	)		(31,000	)		(4,702,000	)
Other expense, net		(28,000	)		(2,042,000	)		80,000			(4,821,000	)

Loss before provision for income taxes		(1,486,000	)		(3,960,000	)		(5,415,000	)		(11,307,000	)
Provision for income taxes		0			0			0			0
Net loss	$	(1,486,000	)	$	(3,960,000	)	$	(5,415,000	)	$	(11,307,000	)

Basic and diluted loss per share attributable to common stockholders	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.03	)

Basic and diluted weighted average number of common shares		468,040,150			411,823,424			457,195,112			370,330,298

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

	Common Stock A						Common Stock B											Treasury Stock
	Shares			Par Value $0.0001			Shares			Par Value $0.0001		Additional Paid-in Capital			Accumulated Deficit			Shares		Amount			Total
Balance at June 30, 2020		329,170,544		$	33,000			1,818,180		$	0	$	102,819,000		$	(101,244,000	)		659,448	$	(146,000	)	$	1,462,000

Shares sold to Aspire Capital under 2020 Purchase Agreement at $0.20 - $0.22 range		13,500,000			1,000			—			0		2,850,000			0			—		0			2,851,000
Shares issued as commitment fee of $1,438,000 on 7/31/2020 at $0.23, net of amortization of offering costs of $120,000		6,250,000			1,000			—			0		1,317,000			0			—		0			1,318,000
Shares issued to employee for services at $0.132 to $0.398		—			0			—			0		5,000			0			—		0			5,000
Stock options issued to employee for services at $0.132 to $0.398		—			0			—			0		14,000			0			—		0			14,000
Stock options issued to consultant for services at $0.14 to $0.32		—			0			—			0		43,000			0			—		0			43,000
Purchase of 2,200,000 shares of Common Stock Class B to Officer & 412,238 shares were withheld for tax purposes as Treasury shares		—			0			2,200,000			0		242,000			0			—		0			242,000
Issuance of shares for tax purposes as Treasury Shares		—			0			(412,238	)		0		0			0			412,238		(90,000	)		(90,000	)
Issuance of 58,394 shares to employee & 21,606 shares were withheld for tax purposes as Treasury shares		58,394			0			—			0		0			0			—		0			0
Issuance of shares for tax purposes as Treasury Shares		(21,606	)		0			—			0		0			0			21,606		(3,000	)		(3,000	)
Net loss for the three months ended 9/30/2020		—			0			—			0		0			(1,173,000	)		—		0			(1,173,000	)
Balance at September 30, 2020		348,957,332		$	35,000			3,605,942		$	0	$	107,290,000		$	(102,417,000	)		1,093,292	$	(239,000	)	$	4,669,000

Shares sold to Aspire under 2020 Purchase Agreement at $0.20 - $0.22 range		9,000,000			1,000			—			1,000		1,570,000			0			—		0			1,572,000
Shares issued to employee for services at $0.132 to $0.398		—			0			—			0		4,000			0			—		0			4,000
Stock options issued to employee for services at $0.132 to $0.398		—			0			—			0		10,000			0			—		0			10,000
Stock options issued to consultant for services at $0.14 to $0.43		—			0			—			0		17,000			0			—		0			17,000
Cancellation of debt for the purchase of 909,090 shares of Common Stock Class B & 181,096 shares were withheld for tax purposes as Treasury shares		—			0			909,090			0		100,000			0			—		0			100,000
Issuance of shares for tax purposes as Treasury Shares		—			0			(181,096	)		0		0			0			181,096		(37,000	)		(37,000	)
To record Series B Discount - Warrants		—			0			—			0		870,000			0			—		0			870,000
To record issuance costs Series 1 & 2 Warrants		—			0			—			0		(10,000	)		0			—		0			(10,000	)
To record beneficial conversion feature associated with the issuance of the 3,053 shares of Series B-2 preferred stock		—			0			—			0		1,793,000			0			—		0			1,793,000
Conversion of 1,183 preferred stocks into 9,346,303 common stocks		9,346,303			1,000			—			0		1,161,000			0			—		0			1,162,000
Cancellation of 6,980,583 Class A shares to satisfy the purchase of 13,072,730 shares of Common Stock Class B		(6,980,583	)		(1,000	)		13,072,730			1,000		1,438,000			0			6,980,583		(1,438,000	)		0
Shares were withheld for tax purposes as Treasury Shares		(854,419	)		0			(1,765,203	)		0		0			0			2,619,622		(540,000	)		(540,000	)
Net loss for the three months ended 12/31/2020		—			0			—			0		0			(6,174,000	)		—		0			(6,174,000	)
Balance at December 31, 2020		359,468,633		$	36,000			15,641,463		$	2,000	$	114,243,000		$	(108,591,000	)		10,874,593	$	(2,254,000	)	$	3,436,000

Offering cost		—			0			—			0		(179,000	)		0			—		0			(179,000	)
Shares issued to employee for services at $0.132 to $0.398		—			0			—			0		4,000			0			—		0			4,000
Stock options issued to employee for services at $0.132 to $0.398		—			0			—			0		10,000			0			—		0			10,000
Stock options issued to consultant for services at $0.14 to $0.43		—			0			—			0		27,000			0			—		—			27,000
Conversion of 12 preferred stocks into 87,567 common stock		87,567			0			—			0		13,000			0			—		0			13,000
To record Series B Discount - Warrants		—			0			—			0		540,000			0			—		0			540,000
To record beneficial conversion feature associated with the issuance of the 2,036 shares of Series B-2 preferred stock		—			0			—			0		1,460,000			0			—		0			1,460,000
Conversion of 9,012 preferred stock into 58,600,942 common stocks		58,600,942			6,000			—			0		8,848,000			0			—		0			8,854,000
Net loss for the three months ended 3/31/2021		—			0			—			0		0			(3,960,000	)		—		0			(3,960,000	)
Balance at March 31, 2021		418,157,142		$	42,000			15,641,463		$	2,000	$	124,966,000		$	(112,551,000	)		10,874,593	$	(2,254,000	)	$	10,205,000

									Additional
	Common Stock A				Common Stock B				Paid-in			Accumulated			Treasury Stock
	Shares		Amount		Shares		Amount		Capital			Deficit			Shares		Amount			Total
Balance at June 30, 2021		418,157,142	$	42,000		15,641,463	$	2,000	$	124,835,000		$	(115,116,000	)		10,874,593	$	(2,254,000	)	$	7,509,000

Offering cost		—		0		—		0		(179,000	)		0			—		0			(179,000	)
Restricted stock awards of common stock issued to employee for services		—		0		—		0		3,000			0			—		0			3,000
Stock options issued to employee for services		—		0		—		0		8,000			0			—		0			8,000
Stock options issued to consultants for services		—		0		—		0		29,000			0			—		0			29,000
Conversion of 3,036 shares of preferred stock into 18,939,080 shares of common stock		18,939,080		2,000		—		0		2,981,000			0			—		0			2,983,000
Net loss for the three months ended 9/30/2021		—		0		—		0		0			(2,056,000	)		—		0			(2,056,000	)

Balance at September 30, 2021		437,096,222	$	44,000		15,641,463	$	2,000	$	127,677,000		$	(117,172,000	)		10,874,593	$	(2,254,000	)	$	8,297,000

Offering cost										(180,000	)										(180,000	)
Restricted stock awards of common stock issued to employee for services		—		0		—		0		2,000			0			—		0			2,000
Stock options issued to employee for services		—		0		—		0		27,000			0			—		0			27,000
Stock options issued to consultants for services		—		0		—		0		12,000			0			—		0			12,000
Stock options issued to director for services		—		0		—		0		111,000			0			—		0			111,000
Conversion of 536 shares of preferred stock into 7,854,545 shares of common stock		7,854,545		1,000		—		0		525,000			0			—		0			526,000
Shares of common stock issued for exercise of options		166,666		0		—		0		23,000			0			—		0			23,000
Net loss for the three months ended 12/31/2021		—		0		—		0		0			(1,873,000	)		—		0			(1,873,000	)

Balance at December 31, 2021		445,117,433	$	45,000		15,641,463	$	2,000	$	128,197,000		$	(119,045,000	)		10,874,593	$	(2,254,000	)	$	6,945,000

Offering cost										(179,000	)										(179,000	)
Restricted stock awards of common stock issued to employee for services		—		0		—		0		2,000			0			—		0			2,000
Stock options issued to employee for services		—		0		—		0		28,000			0			—		0			28,000
Stock options issued to consultants for services		—		0		—		0		10,000			0			—		0			10,000
Stock options issued to director for services		—		0		—		0		166,000			0			—		0			166,000
Conversion of 335 shares of preferred stock into 11,463,081 shares of common stock		11,463,081		1,000		—		0		328,000			0			—		0			329,000
Net loss for the three months ended 3/31/2022		—		0		—		0		0			(1,486,000	)		—		0			(1,486,000	)

Balance at March 31, 2022		456,580,514	$	46,000		15,641,463	$	2,000	$	128,552,000		$	(120,531,000	)		10,874,593	$	(2,254,000	)	$	5,815,000

	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

	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,415,000	)	$	(11,307,000	)
*Adjustments to reconcile net loss to net cash used in operating activities:*
Stock based compensation		398,000			134,000
Amortization of patent costs		286,000			283,000
Gain on forgiveness of loans payable		(172,000	)		0
Interest expense-preferred stock		0			4,672,000
*Changes in operating assets and liabilities:*
Prepaid expenses and security deposits		468,000			47,000
Accounts payable		(163,000	)		10,000
Accrued expenses		(277,000	)		574,000
Accrued officers’ salaries and payroll taxes		(357,000	)		(1,157,000	)
Operating lease liability		(121,000	)		(101,000	)
Note payable to officer		0			(53,000	)
Accrued dividend		31,000			5,000
Net cash used in operating activities		(5,322,000	)		(6,893,000	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Patent costs		(50,000	)		(53,000	)
Net cash used in investing activities		(50,000	)		(53,000	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock, net of offering costs		0			4,603,000
Proceeds from issuance of preferred stocks and warrants, net of financing costs		0			4,990,000
Proceeds from exercise of preferred stock warrants		4,983,000			5,017,000
Proceeds from exercise of options		23,000			0
Purchase of treasury stock		0			(670,000	)
Repayment of note payable to officer		(1,033,000	)		0
Net cash provided by financing activities		3,973,000			13,940,000

NET INCREASE (DECREASE) IN CASH		(1,399,000	)		6,994,000
CASH, BEGINNING OF PERIOD		10,194,000			6,018,000
CASH, END OF PERIOD	$	8,795,000		$	13,012,000

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	44,000		$	44,000
Cash paid for tax	$	0		$	0
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INVESTING AND FINANCING ACTIVITIES
Beneficial conversion features on preferred stock and warrant discounts recorded as interest expense-preferred stock	$	0		$	4,672,000
Shares issued as deferred offering costs	$	0		$	1,438,000
Cancellation of 6,980,583 Class A shares for the purchase of 13,072,730 shares of Common Stock Class B	$	0		$	1,438,000
Conversion of Series B Convertible Preferred stock to Common stock	$	3,838,000		$	10,029,000
Cancellation of shareholder debt for the purchase of 3.1M shares of Common Stock Class B shares	$	0		$	342,000

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.

	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 (years)		March 31, 2022			June 30, 2021
Purchased Patent Rights- Brilacidin and related compounds		14	$	4,082,000		$	4,082,000
Purchased Patent Rights-Anti-microbial- surfactants and related compounds		12		144,000			144,000
Patents - Kevetrin and related compounds		17		1,330,000			1,280,000
Total patents cost				5,556,000			5,506,000
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds				(2,600,000	)		(2,373,000	)
Accumulated amortization for Patents-Kevetrin and related compounds				(438,000	)		(379,000	)
Patents, net			$	2,518,000		$	2,754,000

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

	Nine months Ended March 31, 2022
Lease Cost
Operating lease cost (included in general and administrative in the Company’s condensed consolidated statement of operations)	$	47,000
Variable lease cost		9,000
	$	56,000
Other Information
Cash paid for amounts included in the measurement of lease liabilities for the nine months ended March 31, 2022	$	121,000
Weighted average remaining lease term - operating leases (in years)		3.00
Average discount rate - operating leases		18	%

	At March 31, 2022
Operating leases
Short-term operating lease liabilities	$	189,000
Long-term operating lease liabilities		107,000

Total operating lease liabilities	$	296,000

	Operating Leases
Fiscal Year Ending June 30,

2022		56,000
2023		223,000
2024 (remaining 3 months)		57,000
Total lease payments		336,000
Less: Imputed interest/present value discount		(40,000	)

Present value of lease liabilities	$	296,000

	Nine months ended March 31,
	2022			2021
Expected term (in years)	5-10			5-10
Expected stock price volatility	80.84 to 112.37		%	89.88 to 95.47		%
Risk-free interest rate	0.69% to 1.61		%	0.48 to 0.68		%
Expected dividend yield		0			0

	Three months ended March 31				Nine months ended March 31
	2022		2021		2022		2021

Research and development expenses	$	40,000	$	41,000	$	121,000	$	134,000
General and administrative expenses		166,000		—		277,000		—
Total stock-based compensation expense	$	206,000	$	41,000	$	398,000	$	134,000

	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

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

Outstanding at June 30, 2020		22,803,098		$	0.18		1.83	$	5,857,312
Granted		452,987		$	0.27		6.96		—
Exercised		(16,181,820	)	$	0.11		—		—
Forfeited/expired		(294,330	)	$	0.55		—		—
Outstanding at June 30, 2021		6,779,935		$	0.35		4.45	$	345,923

Granted		3,900,000		$	0.24		9.00		—
Exercised		(166,666	)	$	0.14		—		—
Forfeited/expired		(215,000	)	$	0.51		—		—
Outstanding at March 31, 2022		10,298,269		$	0.30		5.77	$	—
Exercisable at March 31, 2022		6,466,949		$	0.34		3.70	$	—
Unvested stock options at March 31, 2022		3,831,320		$	0.23		9.26	$	—

				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

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Total unvested shares outstanding at June 30, 2020		116,787		$	0.32

Total shares granted		58,394		$	0.22
Total shares vested		(58,395	)	$	0.41
Total shares forfeited		—		$	—
Total unvested shares outstanding at June 30, 2021		116,786		$	0.22

Total shares granted		—		$	—
Total shares vested		(58,394	)	$	0.25
Total shares forfeited		—		$	—
Total unvested shares outstanding at March 31, 2022		58,392		$	0.19

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

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

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

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

Exercise of Series 1 and 2 warrants		4,983,000
Conversion of Series B-2 preferred stock to common stock		(3,838,000	)
Change in fair value of Series B-2 preferred stock (1)	(—)
Balance, March 31, 2022	$	1,145,000

⁽¹⁾	Change in fair value of preferred stock is reported in interest expense-preferred stock.
⁽²⁾	The 5% accrued dividend is reported in interest expense-preferred stock in the statement of operation and the remaining accrued dividends of $46,000 and $15,000 was included under current liability as of March 31, 2022 and June 30, 2021, respectively.

	·	In the Phase 2 clinical trial, beneficial Brilacidin treatment effects were observed on National Early Warning Score 2 (NEWS2) secondary endpoints, as well as on the primary endpoint for patient subgroups (with most elevated biomarker/viral load levels). For this study population, early treatment with Brilacidin from onset of symptoms appeared to have a positive impact on time to sustained recovery: if a patient started study treatment within fewer than 7 days of onset of COVID-19 symptoms, patients in the Brilacidin 5-dose group achieved sustained recovery more quickly compared to the pooled placebo group (p=0.03).

	·	From compassionate use of Brilacidin in critically-ill COVID-19 patients, noticeable treatment effects attributed to the use of Brilacidin were reported by investigators. Patients receiving compassionate use of Brilacidin were at advanced stages of disease and had exhausted other conventional treatment options. Compassionate use cases comprised Brilacidin being administered to critically-ill COVID‑19 patients over a longer duration (up to 10 days of treatment) than in the Phase 2 COVID-19 clinical trial (3 and 5 day dosing), with some patients also receiving higher and more frequent (twice daily) dosing. There appeared to be a potentially favorable treatment response based on increased Brilacidin dosing. For the Brilacidin compassionate use cases, in general, investigators observed more stable disease with initial improvements evident on chest x-rays and in COVID-19 disease biomarkers (e.g., C-Reactive Protein and ferritin). While nearly all of these critically-ill patients ultimately succumbed to severe hypoxic respiratory failure (secondary to COVID-19 viral pneumonia) and expired, survival time for these patients who initially were not expected to live beyond a few days was appreciably extended.

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 1/2 UC Safety/toleration/PK and Proof of Concept in preparation
	ABSSSI (Acute Bacterial Skin and Skin Structure Infection)	Phase 2 (completed)
	COVID-19	Phase 2 Study (completed)
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~~

	·	~~Prurisol~~ ~~- Prurisol, our lead anti-psoriasis drug candidate, is a small molecule compound acting on the principles of immune modulation and PRINS (~~P~~soriasis susceptibility-related~~ R~~NA Gene~~ In~~duced by~~ Stress) reduction that has been found to be effective against psoriasis in animal models, both in induced psoriasis as well as a xenograft model with human psoriatic tissue. It is currently in Phase 2 clinical development with the recently completed study below:

		Active Clinical Trials: Phase 2b, Multi-center, Randomized, Double Blind, Parallel Group, Placebo-controlled Trial to Study the Efficacy and Safety of Two Oral Doses of Prurisol Administered Twice Daily for Twelve Weeks to Subjects with Moderate to Severe Chronic Plaque Psoriasis

Six months ended
December 31,

Expected term (in years)

Expected stock price volatility

57.63% to 111.62%

Risk-free interest rate

0.71% to 1.73%

Expected dividend yield