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

☒	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~~

☐	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 3, 2023 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; 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.; 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.”

		December 31,			June 30,
		2017			2017
		(Unaudited)						March 31,			June 30,
ASSETS	ASSETS							2023			2022
Current Assets:
Cash		$	3,181,000		$	4,141,000		$	1,940,000		$	3,807,000
Prepaid expenses			94,000			308,000
Security deposits			78,000			-
Subscription receivable			-			26,000
Prepaid expenses and other current assets									—			145,000
Total Current Assets			3,353,000			4,475,000			1,940,000			3,952,000

Equity investment									3,895,000			3,978,000

Other Assets:
Patents - net			4,100,000			4,212,000
Equipment - net			102,000			120,000
Patents – net									2,080,000			2,312,000
Deferred offering costs - net			183,000			227,000			—			59,000
Security deposits			-			78,000			78,000			78,000
Total Other Assets			4,385,000			4,637,000			2,158,000			2,449,000
Total Assets		$	7,738,000		$	9,112,000		$	7,993,000		$	10,379,000

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES AND STOCKHOLDERS’ EQUITY
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
Accounts payable - (including related party payables of approx. $1,511,000 and $1,511,000, respectively)								$	2,699,000		$	2,567,000
Accrued expenses - (including related party accruals of approx. $18,000 and $12,000, respectively)									74,000			92,000
Accrued salaries and payroll taxes - (including related party accrued salaries of approx. $1,601,000 and $1,563,000, respectively)									1,685,000			1,640,000
Operating lease - current liability									108,000			197,000
Convertible note payable - related party			2,022,000			2,022,000			238,000			250,000
Accrued dividend - Series B 5% convertible preferred stock									16,000			62,000
Total Current Liabilities			10,617,000			10,576,000			4,820,000			4,808,000
Other Liabilities:
Series B 5% convertible preferred stock liability at $1,080 stated value; 360 shares issued and outstanding at March 31, 2023 and 620 shares issued and outstanding at June 30, 2022									457,000			786,000
Operating lease - long term liability									—			55,000
Total Liabilities			10,617,000			10,576,000			5,277,000			5,649,000

Commitments and contingencies (Note 7)

Stockholders’ Deficiency
Commitments and contingencies (Note 10)
Stockholders’ Equity
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			-			-
Common Stock - Class A, $0.0001 par value, 600,000,000 shares authorized, 522,529,811 shares and 496,741,729 shares issued as of March 31, 2023 and June 30, 2022, respectively, 514,013,755 shares and 488,225,673 shares outstanding as of March 31, 2023 and June 30, 2022, respectively.									51,000			49,000
Common Stock - Class B, (10 votes per share); $0.0001 par value, 100,000,000 shares authorized, 6,692,473 shares and 18,000,000 shares issued as of March 31, 2023 and June 30, 2022, and 4,333,936 shares and 15,641,463 shares outstanding as of March 31, 2023 and June 30, 2022, respectively									1,000			2,000
Additional paid-in capital			76,128,000			68,295,000			129,562,000			129,090,000
Accumulated deficit			(78,605,000	)		(69,553,000	)		(124,644,000	)		(122,157,000	)
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
Treasury Stock, at cost (10,874,593 shares as of March 31, 2023 and June 30, 2022)									(2,254,000	)		(2,254,000	)
Total Stockholders’ Equity									2,716,000			4,730,000
Total Liabilities and Stockholders’ Equity								$	7,993,000		$	10,379,000

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~~72023 AND ~~201~~62022

	For the Three Months Ended						For the Six Months Ended						For the three Months Ended						For the Nine Months Ended
	December 31,						December 31,						March 31,						March 31,
	2017			2016			2017			2016			2023			2022			2023			2022

Revenues	$	-		$	-		$	-		$	-		$	—		$	—		$	—		$	—

Operating expenses:
Research and development expenses		3,963,000			2,683,000			7,768,000			4,960,000			323,000			931,000			1,159,000			4,115,000
General and administrative expenses		297,000			344,000			594,000			706,000			144,000			320,000			626,000			771,000
Officers' payroll and payroll tax expenses		130,000			130,000			260,000			260,000
Officers’ payroll and payroll tax expenses														126,000			126,000			362,000			308,000
Professional fees		78,000			152,000			330,000			361,000			48,000			81,000			209,000			301,000

Total operating expenses		4,468,000			3,309,000			8,952,000			6,287,000			641,000			1,458,000			2,356,000			5,495,000

Other operating income (expense)
Equity in loss from an investment														(38,000	)		—			(83,000	)		—
Total other operating income (expense)														(38,000	)		—			(83,000	)		—

Loss from operations		(4,468,000	)		(3,309,000	)		(8,952,000	)		(6,287,000	)		(679,000	)		(1,458,000	)		(2,439,000	)		(5,495,000	)

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	)
Other income (expense)
Other income														—			—			—			172,000
Interest expense - debt														(12,000	)		(11,000	)		(24,000	)		(61,000	)
Interest expense - preferred stock liability														(7,000	)		(17,000	)		(24,000	)		(31,000	)
Other income (expense), net														(19,000	)		(28,000	)		(48,000	)		80,000

Loss before provision for income taxes		(4,518,000	)		(3,358,000	)		(9,052,000	)		(6,386,000	)		(698,000	)		(1,486,000	)		(2,487,000	)		(5,415,000	)
Provision for income taxes		-			-						-			—			—			—			—

Net loss	$	(4,518,000	)	$	(3,358,000	)	$	(9,052,000	)	$	(6,386,000	)	$	(698,000	)	$	(1,486,000	)	$	(2,487,000	)	$	(5,415,000	)

Basic and diluted loss per share	$	(0.03	)	$	(0.03	)	$	(0.07	)	$	(0.05	)
attributable to common stockholders													$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.01	)

Weighted average number of common shares outstanding		140,749,557			125,275,060			138,960,684			124,782,071
Weighted average number of common shares														496,938,725			468,040,150			501,589,539			457,195,112

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

FOR THE ~~SIX~~THREE MONTHS AND NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017~~2023 AND ~~2016~~2022

The accompanying notes are an integral part of these condensed consolidated 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,~~2022, included in our Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2022.

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 the 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 nine months ended March 31, 2023 and 2022.

We are in the business of developing or licensing 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~~drug compound Brilacidin by ~~focusing initially on our lead compounds, Brilacidin, Kevetrin and Prurisol and~~ advancing ~~them as quickly as possible~~indications along the regulatory ~~pathway. We~~pathway as well as seeking additional health care-related investment opportunities with the aim of diversifying the Company’s assets. Ongoing activities include Brilacidin drug manufacturing, scientific report writing, and supportive research activities. The Company also acquired a non-controlling interest in BT BeaMedical Technologies Ltd. (“BTL”), formerly known as Squalus Medical Ltd., a private company developing a novel image guided surgical laser platform. 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 ~~develop~~be consummated in the ~~highest quality data and broadest intellectual property to support our compounds.~~future, the Company is committed toward executing on opportunities at hand.

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~~Our financial statements were prepared assuming we will continue as a going concern which contemplates the realization of assets and ~~explicitly requires management to assess an entity’s ability to continue as~~satisfaction of liabilities in the normal course of business. For the nine months ended March 31, 2023, the Company had a ~~going concern~~net loss of $2.5 million 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 resultsnegative cash flow from operations 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.$1.7 million. As of ~~December~~March 31, ~~2017,~~2023, the Company has ~~an accumulated deficit~~negative working capital of ~~$79 million, representative~~$2.9 million. As 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~~March 31, ~~2017,~~2023, the Company’s cash amounted to ~~$3.2~~$1.9 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).$4.8 million. The Company ~~had~~has expended substantial funds on its clinical trials and expects to continue our spending on research and development expenditures. We expect to incur further losses in the development of our business and have been dependent on funding operations from inception. These conditions raise substantial doubt about our ability to continue as a going concern. Management’s plans include continuing to finance operations through the private or public placement of debt and/or equity securities and the reduction of expenditures. However, no assurance can be given at this time as to whether we will be able to achieve these objectives. The ~~Company’s net cash used in operating activities for~~financial statements do not include any adjustment relating to the ~~six months ended December 31, 2017 was approximately $7.2 million,~~recoverability and ~~current projections indicate~~classification of recorded asset amounts or the amounts and classification of liabilities that ~~the Company will have continued negative cash flows from operating activities for the foreseeable future. Our net losses incurred for the six months ended December 31, 2017 and 2016, amounted~~might be necessary should we be unable to ~~$9.1 million and $6.4 million, respectively, and working capital deficits was approximately $7.3 million and $6.1 million at December 31, 2017 and June 30, 2017, respectively.~~continue as a going concern.

~~Accordingly,~~These factors raise a substantial doubt about 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 a going concern. The ~~Company’s plans~~accompanying financial statements do not include any adjustments to ~~alleviate~~reflect the ~~doubt~~possible future effects on the recoverability and classification of ~~its ability~~assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern primarily include controlling the timing and spending on its research and development programs and raising additional funds through equity financings from its common stock purchase agreement with Aspire Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”). The Company may consider other plans to fund operations including: (1) raising additional capital through debt financings or from other sources; (2) additional funding through new relationships to help fund future clinical trial costs (i.e. licensing and partnerships); (3) reducing spending on one or more research and development programs by discontinuing development; and/or (4) restructuring operations to change its overhead structure. The Company may issue securities, including shares of common stock, shares of preferred stock and stock purchase contracts through private placement transactions or registered public offerings, pursuant to its registration statement on Form S-3 filed with the SEC on September 11, 2017. The Company’s future liquidity needs, and ability to address those needs, will largely be determined by the success of its product candidates and key development and regulatory events and its decisions in the future.concern.

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

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

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

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

Basic and diluted loss per share 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, convertible related party notes payable, ~~underlying shares~~ and ~~unvested restricted~~convertible preferred stock. 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~~2023 and ~~2016, respectively,~~2022, 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~~The 10,874,593 treasury shares ~~and 262,080~~include 8,516,056 shares of Class A common stock and 2,358,537 shares of Class B common stock held in treasury, ~~stock outstanding,~~and they were purchased at a total cumulative cost of ~~$417,000 and $220,000 at December~~approximately $2.3 million as of as of March 31, ~~2017~~2023 and June 30, ~~2017, respectively~~2022 (see Note ~~10)~~15. Equity Transactions).

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

The Company follows the guidance of accounting standard ASC 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 8. Exclusive License Agreement and Patent Assignment Agreement).

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

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

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

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~~equity incentive plan is based on ~~the employee model of~~ ASC 718, and the fair market value of the ~~options~~equity awards is measured at the grant date. ~~Under ASC 718, an employee~~

Awards with service-based vesting conditions only: Expense is ~~defined as “An individual~~recognized on a straight-line basis over ~~whom~~ the ~~grantor~~requisite service period of the award.

Awards with performance-based vesting conditions: Expense is not recognized until it is determined that it is probable the performance-based conditions will be met. When achievement of a ~~share-based compensation~~performance-based condition is probable, a catch-up of expense will be recorded as if the award ~~exercises or has~~had been vesting on a straight-line basis from the ~~right~~award date. The award will continue to ~~exercise sufficient control to establish an employer-employee relationship based~~be expensed on ~~common law as illustrated in case law and currently under U.S. tax regulations”. Our consultants do not meet~~a straight-line basis over the ~~employer-employee relationship as defined by the IRS and therefore are accounted for under ASC 505-50.~~requisite service period basis until a higher performance-based condition is met, if applicable.

~~ASC 505-50-30-11 further provides that an issuer shall measure~~Awards with market-based vesting conditions: Expense recognized on a straight-line basis over the ~~fair value~~requisite service period, which is the lesser of the ~~equity instruments in these transactions using~~derived service period or the ~~stock price and other measurement assumptions as~~explicit service period if one is present. However, if the market condition is satisfied prior to the end of the ~~earlier~~requisite service period, the Company will accelerate all remaining expense to be recognized.

Awards with both performance-based and market-based vesting conditions: If an award vesting or exercisability is conditional upon the achievement of either a market condition or performance or service conditions, the requisite service period is generally the shortest of the ~~following dates, referred to as the measurement date:~~explicit, implicit, and derived service period.

We have elected to use the Black-Scholes-Merton pricing model to determine the fair value of stock options on the dates of grant. Restricted stock isunits are measured based on the fair market values of the underlying stock on the dates of grant. The grant date is also the valuation date for the non-employee awards. We recognize stock-based compensation using the straight-line ~~vesting method~~method.

For those investments in common stock or in-substance common stock in which the Company has the ability to exercise significant influence over the ~~requisite service period~~operating and financial policies of the investee, the investment is accounted for under the equity ~~awards.~~method. For those investments in which the Company does not have such significant influence, the Company applies the accounting guidance for certain investments in debt and equity securities.

On June 9, 2022, the Company entered into a Series A Preferred Share Purchase Agreement (the “Purchase Agreement”) with BT BeaMedical Technologies Ltd. (formerly known as Squalus Medical Ltd.), a company established under the laws of the State of Israel (“BTL”), pursuant to which the Company purchased 55,556 shares of BTL’s Series A Redeemable Preferred Shares (the “Series A Shares”) and a warrant to purchase 27,778 Series A Shares for aggregate consideration of $4,000,000, or approximately $72.00 per Series A Share. Following the closing under the Purchase Agreement, the Company owns approximately 35.7% of BTL’s issued and outstanding equity securities and approximately 41.6% of BTL’s equity securities on a fully diluted basis. The Company also entered into customary investor rights and indemnification agreements with BTL. The Company therefore recorded an equity investment on our March 31, 2023 condensed consolidated balance sheet.

The ~~components~~Company’s equity in losses in excess of ~~stock-based compensation expense included~~its investment are accounted for under the equity method and consisted of the following as of March 31, 2023 and June 30, 2022 (rounded in nearest thousand):

The Company invested approximately $4,000,000 in BTL in June, 2022. The cash balance in BTL at March 31, 2023 was approximately $0.7 million and the short-term time deposits in BTL at March 31, 2023 was approximately $2.7 million. During the nine months ended March 31, 2023, BTL incurred a loss of approximately $231,000, and accordingly, the Company recorded its share of the loss in investment in BTL, in accordance with the provisions in the ~~Company’s Condensed Statements~~purchase agreement, of ~~Operations~~approximately $83,000 in the accompanying condensed consolidated statement of operations.

Summarized balance sheet information for the ~~three months~~Company’s equity method investee BTL as of March 31, 2023 and ~~six months ended December 31, 2017 and 2016 are as follows~~June 30, 2022 is presented in the following table (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~~Summarized income ~~tax consequences, accounting~~statement information 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 ASUequity method investee BTL 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~~following table for the period from June 9, 2022 (date of ~~cash flows. ASU No. 2016-15 is effective~~acquisition) to June 30, 2022 and 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.~~nine months ended March 31, 2023 (rounded to nearest thousand):

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~~2023 and ~~2016,~~2022 was approximately $94,000 and $95,000, respectively and was approximately ~~$192,000,~~$280,000 and ~~$183,000~~$286,000 for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, respectively.

~~Table of Contents~~

The Company wrote off the patent costs relating to Kevetrin of approximately $141,000 during the fourth quarter of 2022 due to discontinuation of its Kevetrin program.

At ~~December~~March 31, ~~2017,~~2023, the future amortization period for all patents was approximately ~~7.68~~2.43 years to 16.75 years. Future estimated ~~annual~~ amortization expenses are approximately ~~$191,000~~$93,000 for the year ending June 30, ~~2018, $382,000~~2023, $372,000 for each year from ~~2019~~2024 to 2025, ~~$372,000~~$362,000 for the year ending June 30, 2026, ~~$370,000~~$360,000 for the year ending June 30, 2027 ~~$132,000~~and a total of $521,000 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,		June 30,
					2023		2022
	December 31, 2017		June 30, 2017
Accrued research and development consulting fees	$	511,000	$	673,000	$	56,000	$	80,000
Accrued rent (Note 8) – related parties		15,000		21,000
Accrued interest – (Note 9) related parties		22,000		17,000
Accrued rent - related parties (Note 11. Related Party Transactions)						8,000		8,000
Accrued interest - related parties (Note 12. Convertible Note Payable - Related Party)						10,000		4,000

Total	$	548,000	$	711,000	$	74,000		92,000

~~Note 6.~~7. Accrued Salaries and Payroll Taxes –- Related Parties and Other

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

					March 31,		June 30,
					2023		2022
	December 31, 2017		June 30, 2017
Accrued salaries - related parties	$	2,823,000	$	2,823,000	$	1,530,000	$	1,492,000
Accrued payroll taxes - related parties		130,000		130,000		71,000		71,000
Accrued employee bonuses		-		86,000
Withholding tax - payroll		244,000		105,000		84,000		77,000

Total	$	3,197,000	$	3,144,000	$	1,685,000		1,640,000

~~Note 7. Commitments~~8. Exclusive License Agreement and ~~Contingencies~~Patent Assignment Agreement

~~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 Phase 1 clinical research 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 milestone payment during the nine months ended March 31, 2023 and 2022.

On April 13, 2022, the 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 certain patents in accordance with an earlier collaborative research agreement related to antifungal drug discovery work to which the Company had rights.

On May 3, 2022, the Company received payment of $18,000 from FCCDC based on FCCDC’s third-party license of broad-spectrum anti-fungals and a separate agreement between the Company 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 supported by funding from the National Institutes of Health.

On January 18, 2023, the Company was notified by FCCDC that its third-party license with Basilea Pharmaceutica for development of broad-spectrum antifungals was terminated by the licensee.

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 10. Commitments and ~~pays the Company $900 per month.~~Contingencies).

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

~~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, 2023 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~~2023 was approximately ~~$104,000~~$9,000 and ~~$102,000~~$32,000, respectively. Operating lease cost for the ~~six~~three months and the nine months ended ~~December~~March 31, ~~2017~~2022 was approximately $17,000 and ~~2016,~~$56,000, 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, as the Company’s prior principal executive offices did not automatically extend for an additional five years, 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~~$0.7 million to contract research organizations as of ~~December~~March 31, ~~2017.~~2023. Expenses are recognized when services are performed by the contract research organizations.

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 (see Note 8.7. Accrued Salaries and Payroll Taxes). As described in Note 11. 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~~Company’s intent not to pay them.

As of March 31, 2023 and rents approximately 200 square feet of office space, the space previously used by the Company and pays the Company $900 per month, the same amount the Company previously paid KARD. Innovative Medical paid total rent of approximately $3,000 and $6,000 to the Company for bothJune 30, 2022, all of the ~~three months and six months ended December 31, 2017 and 2016 and the rental payment was offset with the accrued rent owed to KARD.~~above disputed invoices were reflected as current liabilities.

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.~~KARD to conduct research study. At ~~December~~March 31, ~~2017~~2023 and June 30, ~~2017,~~2022, the accrued research and development expenses payable to KARD was approximately $1,486,000 and this amount was included in accounts payable. Dr. Menon, the Company’s ex-principal shareholder and Director, 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.

~~Other related party transactions are disclosed~~Since September 1, 2013, the Company no longer leases space from KARD. As of March 31, 2023 and June 30, 2022, rent payables to KARD of approximately $8,000, were included in ~~Note 9 below.~~accrued expenses.

During the year ended June 30, 2010, Mr. Ehrlich loaned the Company a total of approximately $973,000. A condition for this note was that the Ehrlich Promissory Note A and Ehrlich Promissory Note B be replaced with a new note, Ehrlich Promissory Note C. The Ehrlich Promissory Note C is an unsecured demand note with Mr. Ehrlich, the Company’s Chairman and CEO, that originated in 2010, bears 9% simple interest per annum and is convertible into the Company’s Class A common stock at $0.50 per share. ~~The note requires that the interest rate on the amounts due on Ehrlich Promissory Notes A and B be changed retroactively, beginning October 1, 2009, to 9%.~~

On ~~April 1, 2011,~~December 29, 2010, the Company ~~amended the Ehrlich Promissory Note C and agreed~~issued 18,000,000 Equity Incentive Options to ~~retroactively convert accrued interest of approximately $97,000 through December 31, 2010 into additional principal. During the year ended June 30, 2011,~~purchase Class B common stock to 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~~All these options were valid for ten ~~(10)~~ years from the date of ~~issuance.~~issuance and expired in May, 2022.

~~At December~~During the nine months ended March 31, ~~2017~~2023 and for year ended June 30, 2022, the Company repaid the principal of $12,000 and $1,033,000, respectively to Mr. Ehrlich. As of March 31, 2023 and June 30, ~~2017, approximately $22,000 and $17,000, respectively, is~~2022, 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 was approximately ~~$2,022,000.~~$238,000 and $250,000, respectively.

As of March 31, 2023 and June 30, 2022, the balance of accrued interest payable was $10,000 and $4,000, respectively (see Note 6. Accrued Expenses - Related Parties and Other).

~~Note 10.~~As of March 31, 2023 and June 30, 2022, the total outstanding balances of principal and interest were approximately $248,000 and $254,000, 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.

In December, 2021, 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.

14. 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~~.

The fair value of options granted during the nine months ended March 31, 2022 was estimated on the date of grant using the Black-Scholes-Merton Model that ~~(1) no Outside Director (as defined~~uses assumptions noted in the ~~2016 Plan) may be granted awards covering more than 250,000~~following table. There was no option grant during the nine months ended March 31, 2023.

The components of stock-based compensation expense included in the Company’s Statements of Operations for the three months and nine months ended March 31, 2023 and 2022 are as follows (rounded to nearest thousand):

On October 10, 2021, the Compensation Committee approved the issuance of 1 million stock options to purchase shares of the Company’s common stock each to 2 independent directors of the Company, 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. During the nine months ended March 31, 2023 and 2022, the Company recorded approximately $161,000 and $277,000 of stock-based compensation costs, respectively. The assumptions used in ~~any year~~the Black-Scholes-Merton 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 ~~(2) no participant shall be granted, during any one year period,~~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. During the nine months ended March 31, 2023 and ~~stock appreciation rights with respect~~2022, the Company recorded approximately $27,000 and $46,000 of related stock-based compensation cost, respectively. The assumptions used in the Black-Scholes-Merton option-pricing model are disclosed above.

On September 11, 2020, the Company issued to ~~more than 4,000,000~~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 inwere valued at approximately $13,000, based on the ~~aggregate or any other awards with respect to more than 2,500,000 shares of common stock in~~closing bid price as quoted on the ~~aggregate. The 2016 Plan permits~~OTC on September 11, 2020 at $0.22 per share. During the ~~grant of ISOs, non-qualified stock options, stock appreciation rights, restricted awards, performance share awards and performance compensation awards to employees, directors, and consultants of~~nine months ended March 31, 2023, the Company recorded approximately $12,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $8,000 of stock option expense and ~~its affiliates.~~$4,000 of stock awards. During the nine months ended March 31, 2022, the Company recorded approximately $11,000 of stock-based compensation expense in connection with the foregoing equity awards, including approximately $8,000 of stock option expense and $3,000 of stock awards.

InOn September 1, 2019, the Company 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 $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, 2023, the Company recorded approximately $1,000 of stock-based compensation expense in connection with ~~adoption~~the foregoing equity awards, including approximately $1,000 of stock option expense. 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.

On September 1, 2018, the Company issued to Ms. Harness 58,394 shares of the ~~2016 Plan,~~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 Board of Directors also approved forms of Incentive Stock Option Agreement for Employees, Non-qualified Stock Option Agreement for Employees, Non-qualified Stock Option Agreement for Non-Employee Directors, Restricted Stock Award Agreement for Employees and Restricted Stock Award Agreement for Non-Employee Directors that will be utilized byclosing bid price as quoted on the OTCQB on August 31, 2018 at $0.40 per share. During the nine months ended March 31, 2023, the Company ~~to grant options~~recorded no stock-based compensation expense in connection with the foregoing equity awards. 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 ~~restricted shares under the 2016 Plan.~~$1,000 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, 2023 and 2022, the Company recorded approximately $1,000 and $1,000 of related stock-based compensation. The assumptions used in the Black-Scholes-Merton 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, 2023 and 2022, the Company recorded approximately $1,000 and $15,000 of related stock-based compensation, respectively. The assumptions used in the Black-Scholes-Merton 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, 2023 and 2022, the Company recorded $0 and approximately $27,000 of related stock-based compensation, respectively. The assumptions used in the Black-Scholes-Merton 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, 2023 and 2022, the Company recorded $0 and approximately $7,000 of related stock-based compensation, respectively. The assumptions used in the Black-Scholes-Merton 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, 2023 and 2022, the Company recorded $0 and approximately $1,000 of related stock-based compensation, respectively. The assumptions used in the Black-Scholes-Merton option-pricing model are disclosed above.

There was no exercise of options to purchase Class B common stock during the nine months ended March 31, 2023 and March 31, 2022. 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 to purchase Class A common stock at $0.14 per share.

There was forfeiture of 490,000 options to purchase Class A common stock during the nine months ended March 31, 2023, relating to the expiry of options of an officer and consultants. There was forfeiture of 2,245,000 options to purchase Class A common stock during the year ended June 30, 2022.

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~~2023 is as follows:

As of ~~December~~March 31, ~~2017,~~2023, there was approximately ~~$0.7 million~~$2,000 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~~$2,000 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~~0.45 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 amortized pro-rata as the funding is received. The amortized amount of $31,000~~$1.4 million was recorded toas deferred financing costs and additional paid-in capital ~~for~~and this asset will be amortized over the ~~six months ended December 31, 2017. The unamortized portion is carried on~~life of the ~~balance sheet as~~2020 Purchase Agreement. All deferred offering costs ~~and was $183,000 at December~~were fully amortized on July 31, ~~2017. The Company registered~~2022 (date of expiration of the resale of all shares that Aspire Capital will purchase under this common stock purchase agreement. To the extent Aspire Capital purchases shares under this Purchase Agreement and subsequently sells those shares purchased, the other holders of shares of our Class A common stock may experience dilution, which may be substantial. In addition, the sale of a substantial number of shares of our Class A common stock by Aspire Capital, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we might otherwise wish to effect sales.agreement).

During the period from ~~September 6, 2017~~July 1, 2022 to ~~December~~July 31, ~~2017,~~2022 (date of expiration of the agreement), the Company did not sell any shares to Aspire Capital. During the period from July 31, 2020 to June 30, 2022, 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.

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

On ~~February 1, 2018, 3,333~~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 ~~restricted~~Series B-2 5% convertible preferred stock ~~vested~~(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 ~~Ms. Anne Ponugoti according~~the investors warrants to ~~Ms. Ponugoti’s employment agreement.~~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.

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 $7,000 and $17,000 were treated as interest during the quarter ended March 31, 2023 and 2022, respectively, in the Condensed Consolidated Statements of Operations. The total ~~taxable compensation to Ms. Ponugoti for~~dividends accrued of approximately $24,000 and $31,000 were treated as interest during the ~~3,333 vested shares was $2,433, which is priced at~~nine months ended March 31, 2023 and 2022, respectively, in the ~~closing stock price on January 31, 2018 at $0.73 a share.~~Condensed Consolidated Statements of Operations. The ~~Company issued 2,645 common shares (net share issuance amount), which is approximately 79%~~change in fair value of the total ~~vested~~Series B-2 preferred stock were $0 during the quarter ended March 31, 2023 and 2022 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 ~~share~~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 ~~3,333~~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, 2023, there was no exercise of warrants because all warrants were exercised since November 4, 2021.

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 ~~Ms. Ponugoti. The remaining 688~~the exercise of these 5,072 warrants, the Company recorded gross proceeds of approximately $5.0 million to the preferred stock liability.

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

During the nine months ended March 31, 2023, the 2020 Series B-2 5% convertible preferred stockholder converted a total of 260 shares of Series B-2 preferred stock into a total of approximately 25,690,759 shares of common stock. With regard to conversions, the Company reversed Series B-2 5% convertible preferred stock ~~were withheld from Ms. Ponugoti for the payment of payroll taxes~~liability relating to the ~~Federal~~conversion and ~~State taxing authorities.~~recorded $0.3 million as additional paid-in capital at par value. The Company reversed the amount of approximately $0.3 million based on the proportion of Series B-2 5% convertible preferred stock converted relative to the original total issued.

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, 2023 and June 30, 2022, Series B-2 5% convertible preferred stock liability was approximately $0.5 million and $0.8 million, respectively.

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

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

As of March 31, 2023 and June 30, 2022, the Company had the total of 10,874,593 treasury shares, representing 8,516,056 shares of Class A common stock and 2,358,537 shares of Class B common stock held in treasury, and they were purchased at a total cumulative cost of approximately $2.3 million as of as of March 31, 2023 and June 30, 2022.

On ~~February 5, 2018,~~December 29, 2022, Mr. Ehrlich entered into a Share Surrender Agreement with the ~~Board of Directors approved the retirement of 567,872~~Company pursuant to which Mr. Ehrlich permanently surrendered all legal right, title, and interest in 11,307,527 shares of ~~its~~Class B common stock to the Company and relinquished all rights in ~~treasury, which~~such shares, free and clear of any liens, mortgages, adverse claims, charges, security interests, encumbrances, any interest of any third party, or other restrictions or limitations whatsoever of any kind. Mr. Ehrlich received no consideration from the Company or any other party in connection with the surrender. Mr. Ehrlich effected the Surrender solely for his individual tax planning purposes. These 11,307,527 shares of Class B common stock were retired and returned to Class B common stock on the same day.

We disclose and recognize the fair value of our assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes three levels of the fair value hierarchy as follows:

Level 1: Inputs are ~~issued but~~unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not ~~outstanding. These shares included~~active, or other inputs that are observable or can be corroborated by observable market data for substantially the ~~688 shares withheld from Ms. Ponugoti, as a result, all treasury shares~~full term of the ~~Company were retired.~~related assets or liabilities; and

Level 3: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

Our financial instruments consist of cash and cash equivalents, short-term and long-term investments, accounts payable, accrued liabilities and preferred stock liability. At March 31, 2023 and 2022, the carrying values of cash and cash equivalents, accounts payable, and accrued liabilities approximated fair value due to their short-term maturities.

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

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

The table below sets forth a reconciliation of the Company’s beginning and ending Level 3 Series B-2 preferred stock liability balance for the quarter ended March 31, 2023 and for the year ended June 30, 2022:

The Company has evaluated events subsequent to March 31, 2023 through the issuance of these unaudited condensed consolidated financial statements and determined that there were no additional events requiring disclosure.

The following discussion and plan of operations should be read in conjunction with the condensed consolidated financial statements and the notes to those statements included elsewhere in this Form ~~10-Q.~~10-Q and with our Annual Report on Form 10-K for the year ended June 30, 2022. 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~~Company’s lead drug ~~compounds, including Prurisol (KM-133), which~~candidate Brilacidin is in ~~development for psoriasis; Brilacidin, our lead drug in~~ a ~~new~~ class of compounds called ~~defensin-mimetics;~~defensin-mimetics, small compounds that mimic the structure and ~~Kevetrin (thioureidobutyronitrile)~~function of defensins, also known as host defense peptides. The Company’s efforts are primarily focused on business development for the advancement of Brilacidin in the treatment of infectious diseases and Oral Mucositis. Ongoing activities include Brilacidin drug manufacturing, scientific report writing, and supportive research activities. The Company also owns an interest in BT BeaMedical Technologies Ltd. (“BTL”), ~~our lead anti-cancer compound.~~formerly known as Squalus Medical Ltd., a private company developing a novel image guided surgical laser platform. 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, although there can be no assurances that any agreement will be consummated in the future.

As of the date of this filing, Brilacidin is being studied by NIH/NIAID-affiliated and other independent researchers funded by US Government grants, as a potential broad-spectrum antifungal. We anticipate these studies to continue as long as researchers remain positive about the antifungal properties and therapeutic potential of Brilacidin and government funding is available.

On February 23, 2023, the Company ~~changed~~announced a visit to the headquarters of BT BeaMedical Technologies (“BTL”), a company in which it maintains a minority stake. The development of BTL surgical laser technology for treatment of epilepsy and brain tumors is progressing toward multiple planned FDA submissions.

On March 15, 2023, the Company reported new preclinical antifungal testing of Brilacidin is planned by NIH/NIAID-affiliated and other academic researchers based on positive results obtained to date. Related, Brilacidin in vitro and in vivo antifungal data was presented at two antifungal conferences.

On April 17, 2023, the Company reported antifungal research published in Nature Communications, a peer-reviewed journal. The scientific paper discusses combinations of Brilacidin and other antifungal drugs toward improving treatment outcomes in fungal infections.

The Company is actively engaged in business development and licensing initiatives with 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. In late September 2022, Alfasigma notified the Company that a revised clinical development plan for UP/UPS, incorporating regulatory authority feedback, is being enacted. Alteration to treatment duration requires further preclinical research, and the Company was advised by Alfasigma that its ~~name~~Phase 2 multinational clinical trial conduct was estimated to start in 2H2023. In April 2023, Alfasigma did confirm some delay in the progress of the UP/UPS clinical program, which could move out the trial start beyond end of 2023. Brilacidin drug substance is manufactured under direction of the Company as part of the licensing agreement with Alfasigma. 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. There can be no assurance that Alfasigma will meet their estimated timeline.

The Company and Fox Chase Chemical Diversity Center, Inc. (“FCCDC”) have a collaborative research agreement related to an antifungal drug discovery program. In exchange for a six percent fee tied to all potential future proceeds, the Company granted FCCDC all discovery, intellectual property and commercialization rights related to its share of this joint antifungal drug program which is for a compound other than Brilacidin. On May 3, 2022, the Company received payment of $18,000 from ~~Cellceutix Corporation~~FCCDC based on FCCDC’s third-party license of this compound. Subsequently in January 2023, this third party license was terminated.

We have no product sales to ~~Innovation Pharmaceuticals Inc.~~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 Brilacidin. 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. Advancement of our Brilacidin clinical programs is dependent on securing sufficient working capital.

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. 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.Brilacidin. 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.

~~Clinical Development Programs~~Set forth below is an overview of our most recent research and development efforts on Brilacidin through the date of this Quarterly Report on Form 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 (NCT04784897) 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 (3- and 5-day dosing) for COVID-19 conducted at sites in the United States and Russia has since completed (n=120). While the trial’s primary endpoint of time to sustained recovery through Day 29 was not met, patients who started study treatment within fewer than7 days of onset of COVID-19 symptoms achieved sustained recovery more quickly (Brilacidin 5-dose group versus pooled placebo, p=0.03). Other beneficial treatment effects based on the trial’s primary endpoint of sustained recovery were also observed in subgroups of patients with the highest (upper quartile) baseline values for key COVID-19 biomarkers. On two secondary endpoints, more patients treated with Brilacidin (5-dose group) achieved clinical improvement by 10 days as measured by National Emergency Warning Score 2 (NEWS2) criteria, and the mean change from baseline in NEWS2 was greater for Brilacidin treatment groups at all assessment timepoints. Additionally, under compassionate use of Brilacidin in critical cases of COVID-19, where Brilacidin was administered more frequently and over a longer duration than in the Phase 2 trial, investigators reported positive changes to subject status. Pursing a biomarker-driven approach, increasing Brilacidin dosing, targeting different patient populations, testing Brilacidin in combination with other drugs (e.g., remdesivir, given synergistic in vitro data) -- all are areas under consideration for potential future Brilacidin COVID-19 clinical trials pending obtaining government, partnership-based or other financial support. Antiviral data on Brilacidin in non-SARS-CoV-2 viruses has been generated and presented at scientific conferences. Results from the Brilacidin COVID-19 clinical trial, as well as findings from in vitro testing of Brilacidin in multiple viruses, are being prepared for publication.

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 advised the Company that the Phase 2 study start timing may move beyond end of 2023. There can be no assurance that Alfasigma will meet their estimated timeline.

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 Phase 2 study of Brilacidin for the prevention and control of OM in patients receiving chemoradiation for treatment of Head and Neck Cancer (HNC), Brilacidin (administered three times daily as an oral rinse) markedly reduced the rate of severe OM (WHO Grade ≥ 3), delayed onset of severe OM and decreased duration of 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 12-month stability testing shows it to be stable. 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 Brilacidin for the treatment of ~~Concept) Study (Completed)~~

*ABSSSI- Acute Bacterial Skin and Skin Structure Infection (ABSSSI) caused by gram-positive bacteria, including methicillin-resistant Staphylococcus aureus (MRSA). We received from the FDA comments and considerations for incorporation into our study design. Management decided to delay its response to the FDA due to the low price per share of our common stock and the many multiple million dollar costs associated with a Phase 3 program. Our strategy, for now, is to achieve success with other trials and attract partnering opportunities that may provide significant upfront payments and milestone payments, which can then be used to fund the ABSSSI program. We see ABSSSI as the appropriate gateway indication in infectious diseases, enabling potential further studies of Brilacidin’s use for implant coating and biofilm infections.

Antifungal-Recent data generated from independent researchers suggest Brilacidin has potential to be developed as a novel antifungal agent. Brilacidin converted caspofungin from a fungistatic into a fungicidal drug, enabling it to overcome both drug resistance and biofilm formation. Brilacidin exerted, to a lesser degree, synergistic effects with voriconazole in A. fumigatus. Further in vitro testing showed Brilacidin synergized with caspofungin in C. albicans, C. auris and C. neoformans. In an A. fumigatus immunosuppressed mouse model in invasive pulmonary aspergillosis, Brilacidin plus caspofungin cleared infection in the lungs by almost 95 percent, compared to ~50 percent when each compound was administered individually. In an A. fumigatus mouse model in keratitis, compared to control, Brilacidin reduced fungal burden and disease severity, while also improving corneal thickness. Brilacidin also showed in vitro an additive inhibitory effect when combined with posaconazole in several species of Mucorales, the main etiological agents of mucormycosis, commonly referred to as black fungus. Brilacidin further showed potent in vitro stand-alone efficacy in C. neoformans, a major driver of illness in people living with HIV/AIDS. Brilacidin antifungal data has been presented at scientific conferences. Additional Minimum Inhibitory Concentration (MIC) in vitro testing, via NIH-NIAID-affiliated researchers and a third-party vendor, has shown promising Brilacidin activity in other hard-to-treat fungal pathogens, with further preclinical testing planned.

Expenditures on Brilacidin were approximately $0.1 million and $0.6 million during the three months ended March 31, 2023 and 2022, respectively, and approximately $0.3 million and $2.9 million during the nine months ended March 31, 2023 and 2022, respectively.

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

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

~~We are a clinical stage company.~~ We have no product sales to date and we will not receive any product revenue until we receive approval from the FDA or equivalent foreign regulatory agencies to begin marketing a pharmaceutical product. Developing pharmaceutical products, however, is a lengthy and very expensive ~~process. Assuming~~process and there can be no assurance that we ~~do not encounter any unforeseen safety~~will complete such development or ~~efficacy issues during the course of developing our product candidates, we do not expect to complete the development of a product candidate~~commercialize such 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~~Management’s Plan of ~~Dr. Krishna Menon, the Company’s President of Research, was reduced by 50%, and the Company anticipates further reductions to staff unrelated to clinical trials.~~

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

Set forth below is an overview of our research and development efforts on Prurisol, 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.

The Company ~~recently completed~~historically devoted most of its efforts and resources on business development, regulatory matters, and clinical trials. Presently, the Company does not have sufficient financial resources to advance our drug candidates meaningfully. Contingent upon sufficient funding, we anticipate that our efforts would primarily focus on advancement of our drug candidate Brilacidinfor decreasing the incidence of severe oral mucositis as a ~~randomized, double-blind, parallel-group, placebo-controlled Phase 2b trial~~complication of ~~Prurisol~~chemoradiation in Oral Mucositis. The antiviral and antifungal properties of Brilacidin also present potential clinical development opportunities going forward should sufficient funding be obtained via grants and/or pharmaceutical company partnerships. In general, 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 ~~subjects with moderate~~a promising compound to ~~severe plaque psoriasis. The treatment group arms are Prurisol 300mg, Placebo, Prurisol 400mg (Ratio 3:3:1) with a treatment duration of twelve weeks.~~be identified and brought into clinical trials.

In the ordinary course of business, we engage in a continual review of opportunities to license our drug compound(s)/ indications and enter into partnering, joint development or similar arrangements with other companies. We ~~are currently awaiting data from the trial. Subject recruitment was slower than projected due~~may generally at any time have such opportunities in various stages of active review, including, for example, entry into indications of interest and term sheets and participation in preliminary discussions and negotiations. Any such transaction could be material to competitive trials. In response, we added additional investigator sites. We completed the trial in December 2017. Our expenditures on Prurisol were approximately $3.3 million and $1.6 million during the six months ended December 31, 2017 and 2016, respectively.

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

The Company ~~has commenced a Phase 2a trial~~is monitoring BTL’s progress in advancing its novel laser-based thermal ablation technology platform targeting epilepsy and oncology procedures. BTL will use the FDA 510(k) pathway to achieve its goal of Kevetrin in treating late-stage ovarian cancer. The main objective of the trial focuses 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 of molecular pathways modulation in tumors. Modulation of the p53 protein was observed 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 resultmarketing approval in the ~~development~~United States. BTL recently received certification of ~~an oral formulation of Kevetrin~~ISO13485 for treating cancer. Pharmacokinetic data collected on Kevetrin during the initial Phase 1 clinical trial demonstrates that the compound has a short half-life of approximately two hours. Kevetrin’s 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 therapytheir new facility. ISO 13485 is the ~~preferred drug delivery method of patients. Preliminary laboratory studies are encouraging~~medical industry’s medical device standard, which is designed to ensure that all medical devices meet the proper regulatory compliance laws 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.customer needs.

~~Our expenditures on Kevetrin were approximately $0.3 million and $0.3 million during the six months ended December 31, 2017 and 2016, respectively.~~

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

~~Oral Mucositis (OM): S~~~~tudy -~~ In the completed randomized, double-blind Phase 2 study of Brilacidin for the prevention and control of OM in patients receiving chemoradiation for treatment of head and neck cancer, interim analysis of patients who received at least 55 Gy cumulative units of radiation showed the use of Brilacidin-OM met its primary endpoint with a clearly reduced incidence of severe OM (SOM) (WHO Grade ≥ 3) compared to placebo. A summary of key secondary endpoints analysis showed that based on Kaplan-Meier curves, Brilacidin-OM oral rinse showed a clear separation from placebo in delaying the onset of SOM—particularly the period from approximately 28-42 days, after the initiation of treatment, during which the incidence of SOM rose strikingly in the placebo group while not in the group being treated with Brilacidin. The ~~delay of onset of SOM data further support the positive primary endpoint findings that showed a clear reduction in the incidence of SOM in patients receiving Brilacidin-OM treatment.~~

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

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

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

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

In February 2016, the Company submitted a Special Protocol Assessment (SPA) request, along with a final protocol, to the FDA, for a Phase 3 clinical trial of Brilacidin for the treatment of Acute Bacterial Skin and Skin Structure Infection (ABSSSI) caused by Gram-positive bacteria, including methicillin-resistant Staphylococcus aureus (MRSA). We received comments and considerations from the FDA for incorporation into our study design. Management has decided to delay its response to FDA due to the low price per share of our common stock and the approximate $30 million costs required for this study which would result in significant dilution to our shareholders. Our strategy for now is to achieve success with other trials and attract partnering opportunities with significant down-payments and milestone payments which can fund these trials.

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

We have further reduced costs associated with the licensing of intellectual property for these diseases by returning certain patent portfolios back to the university licensor. Research at the Company is now focused on supporting our clinical trials. As business conditions warrant, we will determine our financial commitment to the gram-negative bacteria and fungi programs.

~~Management’s discussion and analysis~~preparation of financial ~~condition and results of operations are based upon our accompanying financial~~ statements ~~which have been prepared~~ in conformity with ~~U.S. GAAP, and which~~generally accepted accounting principles of the United States (“GAAP”) requires ~~us to make~~ estimates and assumptions that affect the reported amounts of assets and liabilities, ~~revenue~~revenues and expenses in the financial statements and ~~related disclosure~~accompanying notes. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of ~~contingent assets~~estimation uncertainty and ~~liabilities.~~have had or are reasonably likely to have a material impact on the financial condition or results of operations of the Company. Based on this definition, we have the critical accounting estimates identified below. We ~~base~~also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results which are found in Note 2 – Significant Accounting Policies of our 2022 Annual Report on Form 10-K and Note 2 – Significant Accounting Policies in the accompanying financial statements. Although we believe that our estimates, ~~on historical experience~~assumptions, and ~~on various other assumptions that we believe~~judgments are reasonable, ~~under the circumstances. These estimates~~they are ~~the basis for our judgments about the carrying values of assets and liabilities, which in turn~~based upon information presently available. Actual results may ~~impact our reported revenue and expenses. Our actual results could~~ differ significantly from these estimates under different assumptions, judgments, 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~~See Note ~~3 to the Financial Statements,~~3. Significant Accounting Policies and Recent Accounting Pronouncements into the ~~accompanying notes to Financial Statements~~condensed consolidated financial statements, for a discussion of recent accounting pronouncements and their effect, if any, on our financial statements.

We expect to incur losses from operations for the next few years. WeContingent upon sufficient funding, we expect to incur increasing research and development expenses, including expenses related to additional clinical trials for our proprietary programs. We ~~expect~~currently anticipate that ~~our general~~future budget expenditures will be approximately $1.9 million for the next 12 months, including approximately $0.7 million for development activities, supportive research, and ~~administrative expenses will also increase in~~drug manufacturing. However, continuing operations for 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 capital 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~~72023 and ~~201~~62022

We generated no revenue and incurred operating expenses of approximately ~~$4.5~~$0.6 million and ~~$3.3~~$1.5 million for the three months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, 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):

Research and development expenses for proprietary programs ~~increased~~decreased during the three months ended ~~December~~March 31, ~~2017~~2023 compared with the three months ended March 31, 2022, 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, 2023.

Employees payroll and payroll tax expenses was consistent during the three months ended March 31, 2023 due to no change in salary paid during the three months ended March 31, 2023 compared with the three months ended March 31, 2022.

Stock-based compensation for employees decreased during the three months ended ~~December~~March 31, ~~2017 related~~2023 due to ~~fewer employees engaged in preclinical development in September, 2017, which led to the decrease in employees’ payroll during the quarter ended December 31, 2017.~~

~~Stock- based compensation - officers increased~~no new issuance of stock options during the three months ended ~~December~~March 31, ~~2017 primarily related to~~2023 compared with 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.three months ended March 31, 2022.

Stock-based ~~compensation- employee~~compensation – consultants decreased during the three months ended ~~December~~March 31, ~~2017~~2023 due to ~~the decrease in~~no new issuance of stock ~~awards granted to employees during the quarter ended December 31, 2017 compared with the same period in 2016.~~

~~Stock-based compensation- consultant decreased~~options during the three months ended ~~December~~March 31, ~~2017 due to no stock awards were granted to consultants during~~2023 compared with the ~~quarter~~three months ended ~~December~~March 31, ~~2017.~~2022.

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,				2023 vs. 2022
	2017		2016		$			%			2023		2022		$			%

Insurance and health expense	$	109,000	$	121,000		(12,000	)		(10	)%
Patent expenses		-				-			-	%
D&O, health and clinical insurance expense											$	57,000	$	68,000	$	(11,000	)		(16	)%
Directors’ fees												38,000		38,000		—			—	%
Rent and utility expense		65,000		69,000		(4,000	)		(6	)%		9,000		17,000		(8,000	)		(47	)%
Stock-based compensation expense – Officers & Directors												—		166,000		(166,000	)		(100	)%
Business development expense												—		4,000		(4,000	)		(100	)%
Other G&A		123,000		154,000		(31,000	)		(20	)%		40,000		27,000		13,000			48	%
Total	$	297,000	$	344,000		(47,000	)		(14	)%	$	144,000	$	320,000	$	(176,000	)		(55	)%

General and administrative expenses decreased during the three months ended ~~December~~March 31, ~~2017~~2023, primarily ~~related~~due to ~~decreases~~a decrease in ~~promotion, advertising~~stock-based compensation expense – Officers & Directors of $166,000 and ~~office expenses.~~

~~Table of Contents~~

a decrease in rent and utility expense during the three months ended March 31, 2023.

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’~~officers’ payroll expenses and payroll tax ~~expenses for the Company~~expense 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.2023.

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~~2023 primarily related to decrease in legal ~~fees.~~fees and other professional fees in 2023.

There was an increase in other operating expense which represents equity in loss from an investment of approximately $38,000 and $0 for the three months ended March 31, 2023 and 2022, respectively (see Note 4. – Equity Investment).

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~~Interest expense – debt increased during the three months ended March 31, 2023 primarily due to an increase in interest paid to a finance company, and offset by 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 partially paid the note payable balance due to Mr. Ehrlich, the Company’s Chairman and CEO (see Note 912. Convertible Note Payable – Related Party of the Notes to ~~the notes to the condensed financial statements)~~Condensed Consolidated Financial Statements).

Interest expense – preferred stock liability decreased during the three months ended March 31, 2023 primarily due to less accrued dividend for less Series B 5% convertible preferred stock outstanding as of March 31, 2023 compared with March 31, 2022. There was 5% accrued dividend of $7,000 and $17,000 during the three months ended March 31, 2023 and 2022, respectively (see Note 16. – Fair Value Measurement).

We incurred net losses of ~~$4.5~~$0.7 million and ~~$3.4~~$1.5 million for the three months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, respectively, because of the above-mentioned factors.

For the ~~six~~nine months ended ~~December~~ March 31, ~~201~~72023 and ~~201~~62022

We generated no revenue and incurred operating expenses of approximately ~~$9.0~~$2.4 million and ~~$6.3~~$5.5 million for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, 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):

Research and development expenses for proprietary programs ~~increased~~decreased during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 compared with the nine months ended March 31, 2022, primarily due to ~~higher~~less spending on our Brilacidin program, increase in refunds of unused project deposits of $175,000, and ~~Prurisol program.~~increase in reimbursement for Brilacidin manufacturing expenses of $238,000 for the nine months ended March 31, 2023.

Employees payroll and payroll tax expenses decreased during the ~~six~~nine months ended ~~December~~March 31, ~~2017 related~~2023 due to ~~the decrease in employees~~no bonus paid during the ~~six~~nine months ended ~~December~~March 31, ~~2017.~~2023 compared with the nine months ended March 31, 2022.

Stock-based compensation for employee decreased during the nine months ended March 31, 2023 due to no new issuance of stock options during the nine months ended March 31, 2023 compared with the nine months ended March 31, 2022.

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~~2023 due to ~~granting fewer~~no new issuance of stock ~~awards to consultants~~options during the ~~six~~nine months ended ~~December~~March 31, ~~2017.~~2023 compared with the nine months ended March 31, 2022.

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,				2023 vs. 2022
	2017		2016		$			%			2023		2022		$			%

Insurance and health expense	$	236,000		258,000		(22,000	)		(9	)%
Patent expenses		-		2,000		(2,000	)		(100	)%
D&O, health and clinical insurance expense											$	228,000	$	208,000	$	20,000			10	%
Directors’ fees												113,000		113,000		—			—	%
Rent and utility expense		127,000		130,000		(3,000	)		(2	)%		33,000		58,000		(25,000	)		(43	)%
Stock-based compensation expense – Officers & Directors												161,000		277,000		(116,000	)		(42	%
Business development expense												4,000		29,000		(25,000	)		(86	)%
Other G&A		231,000		316,000		(85,000	)		(27	)%		87,000		86,000		1,000			1	%
Total	$	594,000		706,000		(112,000	)		(16	)%	$	626,000	$	771,000	$	(145,000	)		(19	)%

General and administrative expenses decreased during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023, primarily ~~related~~due to ~~decreases~~a decrease in ~~promotion, advertising~~stock-based compensation expense – Officers & Directors of $116,000 and ~~office expenses.~~a decrease in rent and utility expense during the nine months ended March 31, 2023.

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 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’~~2023. Payroll tax expense increased during the nine months ended March 31, 2023, primarily due to the adjustment to the over-provision for 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 in 2022.

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~~2023 primarily related to decrease in legal ~~fees.~~

There was an increase in other operating expense which represents equity in loss from an investment of approximately $83,000 and $0 for the nine months ended March 31, 2023 and 2022, respectively (see Note 4. – Equity Investment).

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~~a decrease in ~~interest~~other income ~~from bank deposits and there~~that was ~~no change~~forgiveness of PPP Loan in 2022.

There was a decrease in interest ~~expenses~~ paid on the note payable – related party, because the Company partially paid the note payable balance due to Mr. Ehrlich, the Company’s Chairman and CEO (see Note 912. Convertible Note Payable – Related Party of the Notes to ~~the notes to the condensed financial statements)~~Condensed Consolidated Financial Statements).

Interest expense – preferred stock liability decreased during the nine months ended March 31, 2023 primarily due to less accrued dividend for less Series B 5% convertible preferred stock outstanding as of March 31, 2023 compared with March 31, 2022. There was 5% accrued dividend of $24,000 and $31,000 during the three months ended March 31, 2023 and 2022, respectively (see Note 16. – Fair Value Measurement).

We incurred net losses of ~~$9.1~~$2.5 million and ~~$6.4~~$5.4 million for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, respectively, because of the above-mentioned factors.

As of ~~December~~March 31, ~~2017,~~2023, we had approximately ~~$3.2~~$1.9 million in cash compared to ~~$4.1~~$3.8 million of cash as of June 30, ~~2017. We~~2022, and as of the date of this filing, we have approximately $1.7 million in cash. Contingent upon sufficient funding, we currently anticipate that future budget expenditures will be approximately ~~$12.2~~$1.9 million for the next ~~twelve~~12 months, including approximately ~~$8.2~~$0.7 million for ~~clinical~~development activities, supportive research, and drug ~~product development. We will require additional sources of equity capital during the fiscal year 2018 in order to meet our working capital requirements.~~ manufacturing.

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

On September 6, 2017, the Company entered into a $30 million common stock purchase agreement with Aspire Capital which replaced the prior $30 million Aspire Capital stock purchase agreement and provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the 36-month term of the Purchase Agreement. During the period from September 6, 2017 to December 31, 2017, the Company has generated proceeds of approximately $4.4 million under this agreement with Aspire Capital from the sale of approximately 6.6 million shares of its common stock. As of December 31, 2017, the available balance is approximately $25.6 million. Our ability to continue to fund our research 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.

Our ability to successfully raise sufficient funds through the sale of equity securities, when needed, is subject to many risks and uncertainties and even if we are successful, future equity issuances would result in dilution to our existing stockholders. Our risk factors are described under the heading “Risk Factors” in Part I, Item 1A and elsewhere in our Annual Report on Form ~~10-K we filed with the SEC on September 11, 2017 and in other reports.~~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 that we are unable to raise ~~sufficient capital from our current financing agreement with Aspire Capital when needed or secure~~ additional ~~sources of funding~~funds from others, we may be required to delay, reduce our current rate of spending through reductions in staff and delaying, scaling back or stopping certain research and development programs, including the more costly Phase 2 clinical trials and potential future Phase 3 clinical trials on our wholly-owned development programs, as these clinical trials progress into a later stage of development or severely curtail our operations or otherwise impede our ~~ongoing~~on-going business efforts, ~~or we~~which could ~~be forced~~have a material adverse effect on our future business, operating results, financial condition and long-term prospects. The Company expects to cease operations altogether. 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 orderseek to obtain ~~up-front license fees needed~~additional funding through business development activities (for example licensing and partnerships) and future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available to us.

Our financial statements were prepared assuming we will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have negative working capital of $2.9 million and have incurred losses since inception of $124.6 million. We expect to incur further losses in the development of our business and have been dependent on raising capital to fund ~~operations.~~operations from inception. These ~~liquidity events could prevent us from successfully executing~~conditions raise substantial doubt about our ~~current operating plan.~~ability to continue as a going concern. Management’s plans include continuing to finance operations through the private or public placement of debt and/or equity securities and the reduction of expenditures. However, no assurance can be given at this time as to whether we will be able to achieve these objectives. The financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

The Company ~~has an effective shelf registration statement on~~does not satisfy the conditions for use of Form S-3 ~~registering~~for primary offerings of securities, and as a result, the Company generally may only utilize Form S-1 to register the sale of upits securities. Form S-1 offers less flexibility on the timing and types of offerings compared to ~~$75 million of the Company’s securities. The Company filed the~~ Form ~~S-3 with the SEC on September 11, 2017, which included registering the shares underlying the 2017 $30 million Aspire Capital stock purchase agreement.~~

The following table provides information regarding our cash position, cash flows and capital expenditures for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 and ~~2016~~2022 (rounded to nearest thousand):

										Nine Months Ended						Change
	Six Months Ended December 31,						% Change Increase/			March 31,						Increase/
	2017			2016			(Decrease)			2023			2022			(Decrease)
																%
Net cash used in operating activities	$	(7,177,000	)	$	(5,250,000	)		37	%	$	(1,737,000	)	$	(5,322,000	)		(67	)%
Net cash used in investing activities		(90,000	)		(117,000	)		(23	)%		(48,000	)		(50,000	)		(4	)%
Net cash provided by financing activities		6,307,000			2,916,000			116	%
Net cash provided by (used in) financing activities											(82,000	)		3,973,000			(102	)%
Net decrease in cash	$	(960,000	)	$	(2,451,000	)		(61	)%	$	(1,867,000	)	$	(1,399,000	)		33	%

~~The increase in net~~Net cash used in operating activities ~~of $1.9 million versus~~for the ~~prior-year six-month period~~nine months ended March 31, 2023 and 2022 was ~~mainly due to increases in 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~~$1.7 million and $5.3 million, ~~for~~a decrease of $3.6 million. For the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 operating cash flows reflect our net loss of $2.5 million, noncash charges (stock-based compensation expense, amortization expense and ~~2016, respectively. This~~equity in loss from investment) of $0.6 million and a net increase ~~was adjusted for non-cash charges for stock-based compensation, amortization and depreciation, and~~from changes in ~~our working capital accounts.~~operating assets and liabilities of approximately $0.2 million.

~~Investing activities~~Changes in operating assets and liabilities include increase in accounts payable of $0.1 million and a decrease in prepaid expenses and other assets of $0.1 million, offset by a decrease in operating lease liability of $0.1 million.

Net cash used in our investing activities for the nine months ended March 31, 2023, as compared to net cash used in our investing activities ~~versus the prior-year six-month period~~in 2022, decreased by approximately $2,000. The decrease was due primarily to a decrease in ~~patents~~patent costs.

Net cash used in financing activities for the nine months ended March 31, 2023, as compared to net cash provided by our financing activities in 2022, decreased by approximately $4.1 million. The decrease was due primarily to decreases in proceeds from exercise of warrants to purchase Series B Preferred stock.

During the ~~six~~nine months ended ~~December~~March 31, ~~2017, our investing activities used cash~~2023, the Company did not raise any funds and repaid a note payable of ~~$0.1 million, consisting~~$12,000 and paid dividends on preferred stock 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.$70,000.

During the ~~six~~nine months ended ~~December~~March 31, ~~2017, we~~2022, the Company raised ~~approximately $6.5~~$5.0 million in net cash proceeds, from ~~the sale~~exercise of ~~9.2~~warrants to purchase preferred stock and repaid $1.0 million ~~shares~~ of ~~our common stock~~a note payable to Aspire Capital offset by cash paid to taxing authorities arising from the withholding of shares from employees of $172,000. During the six months ended December 31, 2016, we raised approximately $2.9 million in net cash proceeds, from the sale of 2.4 million shares of our common stock to Aspire Capital.officer.

The Company, ~~plans~~contingent on future sales of its securities, currently expects to incur total operating expenses of approximately ~~$12.2~~$1.9 million for the next ~~twelve~~12 months, including approximately ~~$8.2~~$0.7 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 million of the Company’s common stock over the 36-month term of the Purchase Agreement. Management believes, as of the date of this filing that the funding amount from Aspire Capital will be available as needed by the Company. Adverse market conditions in the Company’s per share price 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 Aspire Capital purchase agreement 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 10. 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.~~S-K under the Securities Exchange Act of 1934, as amended.

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

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

As of ~~December~~March 31, ~~2017,~~2023, 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,~~2023, 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,~~2023, 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 10. Commitments and Contingencies 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,~~2022, 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.~~2022.

~~(1)~~

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

(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~~ 514,013,755
Common Stock Class B, $0.0001 par value		~~None~~4,333,936

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of ~~December~~March 31, ~~2017 (unaudited)~~2023 and June 30, ~~2017 (audited)~~2022 (unaudited)	4
	Condensed Consolidated Statements of Operations ~~(unaudited)~~ for the three months and ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 and ~~2016~~2022 (unaudited)	5
	Condensed Consolidated Statements of ~~Cash Flows (unaudited)~~Stockholders’ Equity for the ~~six~~three months and nine months ended ~~December~~March 31, ~~2017~~2023 and ~~2016~~2022 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2023 and 2022 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	79
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2026
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3136
Item 4.	Controls and Procedures	3236


PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	3337
Item 1A	Risk Factors	3337
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3337
Item 3.	Defaults Upon Senior Securities	3337
Item 4.	Mine Safety Disclosures	3337
Item 5.	Other Information	3337
Item 6.	Exhibits	3437

SIGNATURES		3538

	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		$	-


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

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

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

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

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

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

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

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

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

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

	March 31,			June 30,
BT BeaMedical Technologies Ltd.	2023			2022
Assets
Cash	$	744,000		$	3,850,000
Short term investment		2,663,000			—
Other current assets		122,000			1,000
Total current assets	$	3,529,000		$	3,851,000
Long-term assets		159,000			—
Total assets	$	3,688,000		$	3,851,000

Liabilities and equity
Current liabilities	$	124,000		$	195,000
Long-term liabilities		102,000			—
Total liabilities	$	226,000		$	195,000
Equity
Equity	$	3,772,000		$	3,735,000
Accumulated deficits		(310,000	)		(79,000	)
Total equity		3,462,000			3,656,000
Total liabilities and equity	$	3,688,000		$	3,851,000

	For the nine months ended March 31,			For the period from June 9, 2022 (date of acquisition) to June 30,
	2023			2022

Net sales and revenue	$	19,000		$	—

Research and development costs	$	266,000		$	7,000
Administrative expenses		75,000			55,000
Total operating expense	$	341,000		$	62,000

Loss from operations	$	(322,000	)	$	(62,000	)
Other income (expense)		91,000			1,000
Net loss	$	(231,000	)	$	(61,000	)

	Useful life (years)	December 31, 2017			June 30, 2017
Purchased Patent Rights – Brilacidin, and related compounds	14	$	4,082,000		$	4,082,000
Purchased Patent Rights – Anti-microbial – surfactants and related compounds	12		144,000			144,000
Patents – Kevetrin and related compounds	17		1,388,000			1,308,000
			5,614,000			5,534,000
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds			(1,310,000	)		(1,158,000	)
Accumulated amortization for Patents –Kevetrin and related compounds			(204,000	)		(164,000	)
		$	4,100,000		$	4,212,000

	Useful life		March 31,			June 30,
	(years)		2023			2022

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 - Brilacidin and other compounds		17		1,194,000			1,146,000
Total patents cost				5,420,000			5,372,000
Less: Accumulated amortization				(3,340,000	)		(3,060,000	)
Patents, net			$	2,080,000			2,312,000

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

	During the Nine Months Ended March 31, 2023
Lease Cost
Operating lease cost (included in general and administrative in the Company’s condensed consolidated statement of operations)	$	23,000
Variable lease cost		9,000
	$	32,000
Other Information
Cash paid for amounts included in the measurement of lease liabilities for the nine months ended March 31, 2023	$	145,000
Weighted average remaining lease term – operating leases (in years)		0.50
Average discount rate – operating leases		18	%

	At March 31, 2023
Operating leases
Short-term operating lease liabilities	$	108,000
Long-term operating lease liabilities		—
Total operating lease liabilities	$	108,000

	Operating Leases
Fiscal Year Ending June 30,
2023	$	56,000
2024 (remaining 3 months)		56,000
Total lease payments		112,000
Less: Imputed interest/present value discount		(4,000	)

Present value of lease liabilities	$	108,000

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

	Three months ended March 31				Nine months ended March 31
	2023		2022		2023		2022
General and administrative expenses	$	—	$	166,000	$	161,000	$	277,000
Research and development expenses		4,000		40,000		42,000		121,000
Total stock-based compensation expense	$	4,000	$	206,000	$	203,000	$	398,000

	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, 2021		6,779,935		$	0.35		4.45	$	345,923
Granted		3,900,000		$	0.24		8.75		—
Exercised		(166,666	)	$	0.14		—		—
Forfeited/expired		(2,245,000	)	$	0.54		—		—
Outstanding at June 30, 2022		8,268,269		$	0.25		6.91	$	—
Granted		—		$	—		—		—
Exercised		—		$	—		—		—
Forfeited/expired		(490,000	)	$	0.50		—		—
Outstanding at March 31, 2023		7,778,269		$	0.23		6.56	$	—
Exercisable at March 31, 2023		7,720,607		$	0.23		6.55	$	—
Unvested stock options at March 31, 2023		57,662		$	0.22		7.45	$	—

				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, 2021		116,786		$	0.22
Total shares granted		—		$	—
Total shares vested		(58,394	)	$	0.25
Total shares forfeited		—		$	—
Total unvested shares outstanding at June 30, 2022		58,392		$	0.19

Total shares granted		—		$	—
Total shares vested		(38,929	)	$	0.18
Total shares forfeited		—		$	—
Total unvested shares outstanding at March 31, 2023		19,463		$	0.22

	June 30, 2022

Expected dividend yield		5	%
Expected stock-price volatility		60	%
Risk-free interest rate		2.92	%
Stock price	$	0.03
Exercise price	$	982.5

	FY 2022
Balance, June 30, 2021	$	—
Exercise of Series 1 and 2 warrants		4,983,000
Conversion of Series B-2 preferred stock to common stock		(4,374,000	)
Change in fair value of Series B-2 preferred stock ⁽¹⁾		177,000
Balance, June 30, 2022	$	786,000

Conversion of Series B-2 preferred stock to common stock		(329,000	)
Change in fair value of Series B-2 preferred stock ⁽¹⁾		—
Balance, March 31, 2023	$	457,000

Compound	Target/Indication	Clinical Status
Brilacidin	Oral Mucositis (OM)	Phase 2 Study (completed) Phase 3 planned, contingent upon sufficient funding
	Inflammatory Bowel Disease (IBD)	Phase 2 UP/UPS Proof of Concept Study (completed) Phase 1 Safety/toleration/PK of oral dosage form (completed)
	ABSSSI (Acute Bacterial Skin and Skin Structure Infection)	Phase 2 (completed)


27
~~Compound~~	~~Target/Indication~~	~~Clinical Status~~
~~Prurisol~~	~~Psoriasis~~	~~Phase 2b (Completed)~~ Table of Contents
~~Brilacidin~~	*ABSSSI	~~Phase 2 (Completed)~~
	~~Oral Mucositis~~	~~Phase 2 (Completed; Fast Track)~~
	~~Inflammatory Bowel Disease~~	~~Phase 2 (Proof~~

	·	~~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

	·	~~Brilacidin~~ ~~- This lead drug candidate is in a new immunomodulatory class~~ ~~with anti-inflammatory and antibiotic properties~~ called defensin-mimetics. Modeled after Host Defense Proteins (HDPs), the “front-line” of defense in the immune system, it is a small, non-peptidic, synthetic molecule that kills pathogens swiftly and thoroughly. Just as importantly, Brilacidin also functions in a robust immunomodulatory capacity, lessening inflammation and promoting healing. In June 2017, the Company completed an open-label Phase 2 Proof-of-Concept (PoC) trial of Brilacidin for the treatment by daily enema of ulcerative proctitis (UP)/ ulcerative proctosigmoiditis (UPS), two types of Inflammatory Bowel Diseases (IBD). Study results showed significant patient benefit and low systemic absorption. The Company is also studying Brilacidin’s effect on Oral Mucositis (under Fast Track designation) and, in October 2017, announced it had completed the Phase 2 study below:

		Active Clinical Trials: Phase 2, Multi-center, Randomized, Double-blind, Placebo controlled Study to Evaluate the Efficacy and Safety of Brilacidin Oral Rinse Administered Daily for 7 Weeks in Attenuating Oral Mucositis in Patients with Head and Neck Cancer Receiving Concurrent Chemotherapy and Radiotherapy

	·	~~Kevetrin~~ - Our lead anti-cancer compound, is a small molecule compound that modulates p53, a protein involved in controlling cell mutations. In the majority of all cancers, regardless of origin, the p53 pathway is mutated, compromising its anti-tumor functions. In particular, most epithelial ovarian cancer patients have high-grade serous cancer, characterized by near universal p53 gene abnormalities. Pre-clinical research has demonstrated Kevetrin’s unique mechanism of action to induce apoptosis, slow tumor progression and reduce tumor volume in many types of cancers, including lung, breast, colon, prostate, squamous cell carcinoma and a leukemia tumor model. The FDA has awarded Orphan Drug designations for Kevetrin for ovarian cancer, retinoblastoma and pancreatic cancer as well as Rare Pediatric Disease designation for Retinoblastoma. It is currently in the Phase 2 clinical development study below:

		~~Active Clinical Trials: A Phase 2 study of Kevetrin (thioureidobutyronitrile) in Subjects with Platinum-Resistant/Refractory Ovarian Cancer~~

	Three months ended				Change
	December 31				2017 vs. 2016
	2017		2016		$		%

Officers’ payroll and payroll tax expenses	$	130,000	$	130,000		-		-

	Six months ended				Change
	December 31				2017 vs. 2016
	2017		2016		$		%

Officers’ payroll and payroll tax expenses	$	260,000		260,000		-		-	%

	Payments Due by Period
	Total		Less than One Year		2 Year		3-5 Years		More than 5 Years

CRO obligations (1)	$	2.7	$	2.7	$	-	$	-	$	-
Lease obligations (2)	$	0.2	$	0.1	$	0.1	$	-	$	-
Total	$	2.9	$	2.8	$	0.1	$	-	$	-

~~(1)~~	~~The Company has contractual minimum commitments to Contract Research Organizations as of December 31, 2017.~~

~~(2)~~	The Company signed a lease extension agreement with Cummings Properties which began on October 1, 2013. The lease is for a term of five years ending on September 30, 2018, and requires monthly payments of approximately $18,000. The Company will receive $900 per month from the sublease of 200 square feet of space to Innovative Medical Research Inc., a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of our Company, which is not included in the table above.

Exhibit No.	Title	Method of Filing

31.1	~~President of Research Certifications required under Section 302 of the Sarbanes Oxley Act of 2002~~	~~Filed herewith~~

~~31.2~~	Chief Executive Officer and Chief Financial Officer Certifications required under Section 302 of the Sarbanes Oxley Act of 2002	Filed herewith

32.1	~~President of Research Certifications required under Section 906 of the Sarbanes Oxley Act of 2002~~	~~Furnished herewith~~

~~32.2~~	Chief Executive Officer and Chief Financial Officer Certifications required under Section 906 of the Sarbanes Oxley Act of 2002	Furnished herewith

101	The following materials from the Company’s Quarterly Report on Form 10-Q for the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) related notes	Filed herewith
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)	Filed herewith