9. STOCKHOLDERS' EQUITY:

Series B Preferred stock:

At July 1, 2014, the Company had 200 shares of Series B redeemable convertible Preferred stock outstanding with a par value of $0.01 per share, convertible at the option of the holder at $2.00 per share, with dividends accrued and payable at 2.5% per quarter. The Series B Preferred stock is mandatorily redeemable at $2.00 per share by the Company three years after issuance and accordingly was classified as a liability. The 200 shares have reached their maturity date, but due to the cash constraints of the Company have not been redeemed.

During the years ended June 30, 2016 and 2015, the Company declared dividends of $2,000 and $2,000 respectively. At June 30, 2016, accrued dividends payable are $10,000. The dividends are classified as a component of operations as the Series B Preferred stock is presented as a liability in these financial statements. For the fiscal year ended June 30, 2015 these amounts were presented differently but the June 30, 2015 financial statements were revised even though such revision previously was and continues to be immaterial to the prior year financial statements.

Common stock:

Holders of common stock are entitled to one vote per share on all matters to be voted on by common stockholders. In the event of liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share in all assets remaining after liabilities have been paid in full or set aside and the rights of any outstanding preferred stock have been satisfied. Common stock has no preemptive, redemption or conversion rights. The rights of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of any outstanding series of preferred stock or any series of preferred stock the Company may designate in the future.

Centerpoint holds 704,309 shares of the Company’s common stock. These shares of the Company’s common stock held by Centerpoint are for the benefit of its shareholders without any beneficial interest. The Company accounts for these shares similar to treasury stock.

During the year ended June 30, 2015, the Company issued 45,647 shares of the Company’s common stock at prices ranging from $0.43 to $1.22 per share for services valued at $41,028, in the aggregate, to consultants, a former employee and two employees. The Company also issued 75,000 shares of fully vested bonus shares granted to Smith in fiscal year 2013 which were expensed at grant date.

During the year ended June 30, 2015, the Company issued 130,953 shares of the Company’s common stock upon Bassani’s fiscal year 2014 election to convert $110,000, of his convertible notes payable – affiliate into units at a conversion price of $0.84 per unit.

During the year ended June 30, 2015, the Company sold 35,000 shares of the Company’s restricted common stock at $0.75 per share for total proceeds of $26,250. The Company also issued 40,000 shares of the Company’s restricted common stock upon receipt of its subscription receivable of $30,000 during the year ended June 30, 2015.

During the year ended June 30, 2015, the Company entered into subscription agreements to sell units for $0.50 each, with each unit consisting of one share of the Company’s restricted common stock and one warrant to purchase one half of a share of the Company’s restricted common stock for $0.75 per share until December 31, 2016 and pursuant thereto, the Company issued 1,800,000 units for total proceeds of $900,000, which included Smith’s purchase of 12,561 units by converting $6,280 of convertible notes. During the year ended June 30, 2015 cash commissions of $61,522 were paid to brokers related to the unit offering in addition to the issuance of 123,044 broker’s warrants to purchase the Company’s common stock at $0.75 per share until June 30, 2016. The broker’s warrants were valued at $0.05 per warrant and $6,152 was recorded to interest expense during the year ended June 30, 2015. The Company allocated the proceeds from the shares and the warrants based upon their relative fair values, using the share price on the day each of the subscription agreements were entered into and the fair value of the warrants, which was determined to be $0.05 per warrant. As a result, $34,826 was allocated to the warrants and $865,174 was allocated to the shares, and both were recorded as additional paid in capital.

During the year ended June 30, 2015, the Company entered into subscription agreements to exercise certain warrants with expiry dates on or before December 31, 2015, into restricted shares of the Company’s common stock at a reduced exercise price of $1.05, for the period from May 13, 2015 through June 30, 2015. The Company extended the offering for an additional 15 days to July 15, 2015 and therefore any warrants which would have expired on June 30, 2015 were automatically extended to July 15, 2015. As the $1.05 exercise price was a reduction from the original exercise prices of the warrants, and due to the limited time in which the warrant holders had to subscribe, the reduction in the offering price was accounted for as an inducement and a conversion inducement of $9,593 was recorded. Pursuant to the offering, 71,133 warrants were exercised and 71,133 shares of the Company’s restricted common stock were issued resulting in cash proceeds of $74,690 for the year ended June 30, 2015. The Company had entered into a subscription agreement to exercise 12,500 warrants at $1.05 for which a subscription receivable of $13,125 was recorded at June 30, 2015.

During the year ended June 30, 2015, Smith elected to convert $106,099 of his convertible notes at $0.45 per unit into 235,775 units of the Company, consisting of one share of the Company’s common stock and one warrant to purchase the Company’s common stock at a price of $1.50 until December 31, 2020.

During the year ended June 30, 2015, Smith and various consultants elected to convert $80,780 of deferred compensation into 99,523 shares of the Company’s common stock at conversion rates ranging from $0.72 to $1.24 per share.

During the year ended June 30, 2016, the Company issued 242,034 shares of the Company’s common stock at prices ranging from $0.76 to $1.15 per share for services valued at $228,558, in the aggregate, to consultants and employees, including $69,000 expensed for 75,000 fully vested bonus shares to Smith that were issued in January 2016.

During the year ended June 30, 2016, the Company issued 12,500 shares of the Company’s restricted common stock upon receipt of its subscription receivable of $13,125 for the exercise of 12,500 warrants.

During the year ended June 30, 2016, the Company entered into subscription agreements to exercise certain warrants with expiry dates on or before December 31, 2015, into restricted shares of the Company’s common stock at a reduced exercise price of $1.05, for the period from June 30, 2015 through July 15, 2015. Pursuant to the offering, 265,894 warrants were exercised and 265,894 shares of the Company’s restricted common stock were issued resulting in cash proceeds of $174,189 and receipt of a $105,000 interest bearing, collateralized promissory note. During January 2016, the Company received a $35,000 principal payment and entered into a new agreement with the borrowers which extended the maturity date of the remaining principal and interest until June 15, 2016. All the other terms of the original agreement remain unchanged. During June 2016, the Company received a $10,000 principal payment and entered into a new agreement with the borrowers which extended the maturity date of the remaining principal and interest until September 1, 2016. All the other terms of the original agreement remain unchanged. On June 30, 2016, the Company and the borrowers agreed to cancel the existing promissory note with a remaining principal balance of $60,000 and interest of $2,727 resulting in a net cancellation of 57,142 previously issued but not outstanding restricted common shares.

During the year ended June 30, 2016, the Company entered into subscription agreements to sell units for $0.80 per unit, with each unit consisting of one share of the Company’s restricted common stock and one warrant to purchase one half of a share of the Company’s restricted common stock for $1.10 per share until June 30, 2017 and pursuant thereto, the Company issued 393,698 units for total proceeds of $314,957. During the year ended June 30, 2016, cash commissions of $24,496 were paid to brokers related to the unit offering. The Company allocated the proceeds from the shares and the warrants based upon their relative fair values, using the share price on the day each of the subscription agreements were entered into and the fair value of the warrants, which was determined to be $0.05 per warrant. As a result, $8,041 was allocated to the warrants and $306,916 was allocated to the shares, and both were recorded as additional paid in capital.

During the year ended June 30, 2016, Smith exercised 6,280 warrants at an exercise price of $0.75. The warrants were entitled to an exercise bonus of 50% of the exercise price which resulted in a reduced exercise price of $0.375 per warrant. Smith elected to convert $2,355 of deferred compensation in exchange for the issuance of 6,280 shares of the Company’s common stock.

During the year ended June 30, 2016, Smith and various consultants elected to convert $82,861 and $200,877 of deferred compensation, respectively, into 99,159 and 236,539 shares, respectively, of the Company’s common stock at conversion rates ranging from $0.76 to $1.15 per share.

Warrants:

As of June 30, 2016, the Company had approximately 8.1 million warrants outstanding, with exercise prices from $0.75 to $3.00 and expiring on various dates through December 31, 2020.

The weighted-average exercise price for the outstanding warrants is $1.24, and the weighted-average remaining contractual life as of June 30, 2016 is 3.9 years.

During the year ended June 30, 2015, warrants to purchase 67,500 shares of the Company’s common stock at $0.85 per share were issued pursuant the promissory notes entered into by Bassani and Shareholder. The warrants were determined to have a fair value of $0.10 per warrant and expire on December 31, 2018. The Company recorded interest expense of $6,750 related to the warrant issuances.

During the year ended June 30, 2015, the Company issued warrants to purchase 900,000 shares of the Company’s restricted common stock for $0.75 per share until December 31, 2016 in connection with the sale of 1,800,000 units. The Company also issued 123,044 warrants to purchase shares of the Company’s restricted common stock for $0.75 per share until June 30, 2016 to brokers as commission related to the sale of the units. The warrants were deemed to have a fair value of $0.05 per warrant and the Company recorded interest expense of $6,152 related to the warrant issuances.

In conjunction with the execution of Bassani and Smith’s extension agreements (Note 12), 3,906,953 and 1,883,324 warrants issued to Bassani and Smith (and their donees), respectively, were extended until December 31, 2020 and certain warrants with an exercise price in excess of $1.50 were reduced to $1.50. The Company recorded non-cash compensation expense related to the modification of the warrants of $223,589 for the year ended June 30, 2015.

During the year ended June 30, 2015, the Company agreed to extend the expiration date of 985,833 warrants owned by various individuals which were scheduled to expire on December 31, 2014 to March 31, 2015. The Company recorded expense related to the modification of the warrants of $986 for the year ended June 30, 2015.

During the year ended June 30, 2015, the Company agreed to extend the expiration date of 1,260,833 warrants owned by various individuals which were scheduled to expire between March 31, 2015 and April 30, 2015 to June 30, 2015. The Company recorded interest expense of $6,061 related to the modification of the warrants for the year ended June 30, 2015.

During the year ended June 30, 2016, warrants to purchase 1,047,806 shares of common stock of the Company at prices between $2.25 and $3.10 per share expired.

During the year ended June 30, 2016, the Company entered into subscription agreements with various warrant holders, whereby the warrant holders elected to exercise 284,445 warrants at an exercise price of $0.75 and 284,445 shares of the Company’s common stock were issued resulting in cash proceeds of $213,333. At June 30, 2016 the Company had a subscription agreement for the exercise of 10,000 warrants at an exercise price of $0.75, resulting in a subscription receivable of $7,500.

Stock options:

The Company’s 2006 Consolidated Incentive Plan, as amended (the “2006 Plan”), provides for the issuance of options (and/or other securities) to purchase up to 22,000,000 shares of the Company’s common stock. Terms of exercise and expiration of options/securities granted under the 2006 Plan may be established at the discretion of the Board of Directors, but no option may be exercisable for more than ten years.

In November 2014, the Company entered into an agreement with a board member which entitled the board member to modifications of existing stock options resulting in the extension of certain expiration dates and resulting in incremental non-cash compensation expense of $11,783 for the year ended June 30, 2015.

In February 2015, the Company entered into extension agreements with Bassani, Smith and Schafer (Note 12) which entitled them to modifications of existing stock options resulting in the extension of certain expiration dates and the reduction of certain exercise prices. The option modifications resulted in incremental non-cash compensation expense of $357,500 for the year ended June 30, 2015.

During the year ended June 30, 2016, the Company approved the modification of existing stock options held by a board member which extended certain expiration dates and resulted in incremental non-cash compensation expense of $42,550.

The Company recorded compensation expense related to employee stock options of $99,553 and $501,609 for the years ended June 30, 2016 and 2015, respectively. The Company granted 100,000 and 957,500 options during the years ended June 30, 2016 and 2015, respectively. During the years ended June 30, 2016 and 2015, 288,333 and 802,500 options expired, respectively.

The fair value of the options granted during the years ended June 30, 2016 and 2015 were estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Weighted Average, June 30, 2016		Range, June 30, 2016		Weighted Average, June 30, 2015		Range, June 30, 2015
Volatility		74%		74%		76%	74%	-	80%
Dividend yield		-		-		-		-
Risk-free interest rate		1.75%		1.75%		1.55%	0.51%	-	1.79%
Expected term (years)		5		5		6.1	2	-	10

The expected volatility was based on the historical price volatility of the Company’s common stock. The dividend yield represents the Company’s anticipated cash dividend on common stock over the expected term of the stock options. The U.S. Treasury bill rate for the expected term of the stock options was utilized to determine the risk-free interest rate. The expected term of stock options represents the period of time the stock options granted are expected to be outstanding based upon management’s estimates.

A summary of option activity under the 2006 Plan for the two years ended June 30, 2016 is as follows:

	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at July 1, 2014		4,258,870		$	2.81		3.2		-
Granted		957,500			0.74
Exercised		-			-
Forfeited		-			-
Expired		(802,500	)		2.78
Outstanding at June 30, 2015		4,413,870		$	1.88		4.1	$	398,250
Granted		100,000			0.92
Exercised		-			-
Forfeited		-			-
Expired		(288,333	)		2.90
Outstanding at June 30, 2016		4,225,537		$	1.79		3.7	$	158,675
Exercisable at June 30, 2016		4,175,537		$	1.80		3.6	$	144,175

The following table presents information relating to nonvested stock options as of June 30, 2016:

	Options			Weighted Average Grant-Date Fair Value
Nonvested at July 1, 2015		100,000		$	0.76
Granted		100,000			0.59
Vested		(150,000	)		(0.65	)
Nonvested at June 30, 2016		50,000		$	0.76

The total fair value of stock options that vested during the years ended June 30, 2016 and 2015 was $97,000 and $476,075, respectively. As of June 30, 2016, the Company had $9,913 of unrecognized compensation cost related to stock options.

Stock-based employee compensation charges in operating expenses in the Company’s financial statements for the years ended June 30, 2016 and 2015 are as follows:

	Year ended June 30, 2016		Year ended June 30, 2015
General and administrative:
Fair value of stock bonus expensed	$	69,000	$	-
Change in fair value from modification of option terms		42,550		369,283
Change in fair value from modification of warrant terms		-		223,917
Fair value of stock options expensed		66,092		378,937
Total	$	177,642	$	972,137

Research and development:
Fair value of stock options expensed	$	33,461	$	122,672
Total	$	33,461	$	122,672