STOCKHOLDERS' EQUITY:

Series B Preferred stock:

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

$100

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, 2017

and

2016,

the Company declared dividends of

$2,000

and

$2,000

respectively. During the

three

and

nine

months ended

March 31, 2018,

the Company declared dividends of

$500

and

$1,500,

respectively. At

March 31, 2018,

accrued dividends payable are

$13,500.

The dividends are classified as a component of operations as the Series B Preferred stock is presented as a liability in these 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

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.

During the

nine

months ended

March 31, 2018,

the Company issued

18,849

shares of the Company’s common stock at prices ranging from

$0.66

$0.91

per share for services valued at

$14,631,

in the aggregate, to a consultant and an employee.

During the

nine

months ended

March 31, 2018,

the Company entered into subscription agreements to sell units for

$0.75

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

$1.00

per share with expiry dates of

June 30, 2018

and pursuant thereto, the Company issued

267,331

units for total proceeds of

$200,497,

net proceeds of

$185,622

after commissions. The Company allocated the proceeds from the

267,331

shares and the

133,666

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,

$6,152

was allocated to the warrants and

$194,345

was allocated to the shares, and both were recorded as additional paid in capital.

During the

nine

months ended

March 31, 2018,

the Company entered into subscription agreements to sell units for

$0.50

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

$0.75

per share with expiry dates of

September 30, 2018

and pursuant thereto, the Company issued

213,000

units for total proceeds of

$106,500.

The Company allocated the proceeds from the

213,000

shares and the

106,500

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,

$3,140

was allocated to the warrants and

$103,360

was allocated to the shares, and both were recorded as additional paid in capital.

During the

nine

months ended

March 31, 2018,

the Company entered into subscription agreements to exercise certain warrants with expiry dates on or before

March 31, 2018

and

June 30, 2018,

into restricted shares of the Company’s common stock at a reduced exercise price of

$0.50

for the period from

March 1, 2018

March 31, 2018.

March 31, 2018

the Company exercised its right to extend the offering an additional

days to

April 15, 2018

and therefore any warrants which would have expired on

March 31, 2018

were automatically extended to

April 15, 2018.

As the

$0.50

exercise price was a reduction from the original exercise price of

$0.75,

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

$8,000

was recorded. As a result of the offering,

80,001

warrants were exercised and

80,001

shares of the Company’s restricted common stock were issued resulting in cash proceeds of

$40,001

for the

nine

months ended

March 31, 2018.

Warrants:

As of

March 31, 2018,

the Company had approximately

12.2

million warrants outstanding, with exercise prices from

$0.75

$3.00

and expiring on various dates through

December 31, 2022.

The weighted-average exercise price for the outstanding warrants is

$1.07,

and the weighted-average remaining contractual life as of

March 31, 2018

3.6

years.

During the

nine

months ended

March 31, 2018,

warrants to purchase

322,110

shares of common stock of the Company at prices between

$1.00

and

$2.50

per share expired.

During the

nine

months ended

March 31, 2018,

the Company entered into subscription agreements to sell units for

$0.75

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

$1.00

per share with expiry dates of

June 30, 2018

and pursuant thereto, the Company issued

267,331

units for total proceeds of

$200,497,

net proceeds of

$185,622

after commissions. The Company allocated the proceeds from the

267,331

shares and the

133,666

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,

$6,152

was allocated to the warrants and

$194,345

was allocated to the shares, and both were recorded as additional paid in capital. The Company also issued

89,485

warrants to purchase

89,485

shares of the Company’s restricted common shares with an exercise price of

$1.00

per share exercisable until

June 30, 2019

as commissions related to the above sale of Units.

During the

nine

months ended

March 31, 2018,

the Company entered into subscription agreements to sell units for

$0.50

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

$0.75

per share with expiry dates of

September 30, 2018

and pursuant thereto, the Company issued

213,000

units for total proceeds of

$106,500.

The Company allocated the proceeds from the

213,000

shares and the

106,500

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,

$3,140

was allocated to the warrants and

$103,360

was allocated to the shares, and both were recorded as additional paid in capital.

During the year ended

June 30, 2017,

the Company received an interest bearing, secured promissory note for

$40,000

from Bassani as consideration to purchase warrants to purchase

800,000

shares of the Company’s restricted common stock, which warrants are exercisable at

$1.00

and have expiry dates of

December 31, 2021 (

“Bassani Warrant”). The promissory note bears interest at

per annum, was secured by a perfected security interest in the Bassani Warrant, and was payable on

November 15, 2017.

Effective

November 7, 2017

an addendum to the promissory note changed the principal of the note to

$41,513

(the original principal of

$40,000

plus accrued interest of

$1,513

), changed the maturity date of the note to

July 1, 2019

and the collateral was changed to Replacement Note

of Bassani’s

2015

Convertible Note (Note

) with a balance at

November 7, 2017

$130,000

which will be held by the Company.

During the

nine

months ended

March 31, 2018,

the Company received an interest bearing, secured promissory note for

$88,250

from Bassani as consideration to purchase warrants to purchase

1,765,000

shares of the Company’s restricted common stock, which warrants are exercisable at

$0.75

and have expiry dates of

December 31, 2020.

The warrants have a

90%

exercise bonus (Note

). The promissory note bears interest at

per annum, is secured by Bassani’s Replacement Note

of Bassani’s

2015

Convertible Note (Note

) with a balance at

November 7, 2017

$130,000,

which will be held by the Company. The secured promissory note is payable on

July 1, 2020.

During the

nine

months ended

March 31, 2018,

the Company received

two

interest bearing, secured promissory notes with an aggregate principal amount of

$46,400

from

two

former employees as consideration to purchase warrants to purchase

928,000

shares of the Company’s restricted common stock, which warrants are exercisable at

$0.75

and have expiry dates of

December 31, 2020.

These warrants have a

90%

exercise bonus (Note

). The promissory notes bear interest at

per annum, are secured by a perfected security interest in the warrants, and are payable on

July 1, 2020.

During the

nine

months ended

March 31, 2018,

the Company issued

670,000

warrants to Smith and

247,000

warrants to a former employee and a consultant to purchase in aggregate

917,000

shares of the Company’s restricted common stock, which warrants are exercisable at

$0.75

per share and have expiry dates of

December 31, 2020.

The warrants were in exchange for services expensed at

$45,850,

in aggregate (

$33,500

to Smith). These warrants have a

90%

exercise bonus (Note

). The Company also issued

50,000

warrants to

two

consultants for services valued at

$2,500,

exercisable at

$0.75

per share which expiry dates ranging from

October 1, 2020

December 31, 2023.

During the

nine

months ended

March 31, 2018,

the Company agreed to extend the expiration dates of

5,773,706

warrants owned by certain individuals (including

5,329,869

owned by Bassani,

91,371

owned by Smith and

23,934

owned by Schafer) which were scheduled to expire at various dates ranging from

December 31, 2017

through

December 31, 2021.

The Company recorded non-cash compensation expense related to the modification of the warrants of

$296,852

(

$265,353,

$7,310

and

$1,197

for Bassani, Smith and Schafer, respectively).

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

30,000,000

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

option

may

be exercisable for more than

ten

years.

During the year ended

June 30, 2017,

the Company approved the issuance of

100,000

shares in stock bonuses to an employee and a consultant with various vesting dates from

January 15, 2018

through

January 15, 2020.

February 2018,

the Board of Directors cancelled the stock bonuses previously approved. The Company recorded

$22,321

and

$14,784

of non-cash compensation related to the stock bonuses for the

nine

months ended

March 31, 2018

and

2017,

respectively.

During the

nine

months ended

March 31, 2018,

the Company approved the modification of existing stock options held by certain employees and consultants, which extended certain expiration dates. The modifications resulted in incremental non-cash compensation of

$349,656

(including

$119,350

and

$68,000

for Bassani and Schafer, respectively).

The Company recorded compensation expense related to employee stock options of

$1,269,700

and

$6,134

for the

three

months ended

March 31, 2018

and

2017,

respectively, and

$1,369,350

and

$135,950

for the

nine

months ended

March 31, 2018

and

2017,

respectively. The Company granted

2,647,500

and

294,500

options during the

nine

months ended

March 31, 2018

and

2017,

respectively.

The fair value of the options granted during the

nine

months ended

March 31, 2018

and

2017

were estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Weighted Average, March 31, 2018			Range, March 31, 2018					Weighted Average, March 31, 2017			Range, March 31, 2017
Volatility		74	%		68%	-	75	%		79	%		78%	-	86	%
Dividend yield		-				-				-				-
Risk-free interest rate		2.44	%		1.75%	-	2.64	%		1.14	%		0.82%	-	1.17	%
Expected term (years)		5			3	-	6			4			3	-	4

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

nine

months ended

March 31, 2018

is as follows:

	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at July 1, 2017		4,545,037		$	1.42		2.9	$	176,575
Granted		2,647,500			0.76
Exercised		-			-
Forfeited		-			-
Expired		(365,312	)		-
Outstanding at March 31, 2018		6,827,225		$	1.11		4.0	$	-
Exercisable at March 31, 2018		6,827,225		$	1.11		4.0	$	-

The following table presents information relating to nonvested stock options as of

March 31, 2018:

	Options			Weighted Average Grant-Date Fair Value
Nonvested at July 1, 2017		25,000		$	0.46
Granted		2,647,500			0.52
Vested		(2,672,500	)		0.51
Nonvested at March 31, 2018		-		$	-

The total fair value of stock options that vested during the

nine

months ended

March 31, 2018

and

2017

was

$1,376,250

and

$151,770

respectively. As of

March 31, 2018,

the Company had

unrecognized compensation cost related to stock options.

Stock-based employee compensation charges in operating expenses in the Company’s financial statements for the

three

and

nine

months ended

March 31, 2018

and

2017

are as follows:

	Three months ended March 31, 2018		Three months ended March 31, 2017		Nine months ended March 31, 2018		Nine months ended March 31, 2017
General and administrative:
Fair value of stock/warrant bonuses expensed	$	1,500	$	-	$	8,723	$	6,830
Change in fair value from modification of option terms		-		-		243,761		166,031
Change in fair value from modification of warrant terms		7,091		-		163,956		-
Fair value of stock options expensed		682,485		6,134		782,135		112,699
Total	$	691,076	$	6,134	$	1,198,575	$	285,560

Research and development:
Fair value of stock bonus expensed	$	-	$	-	$	15,098	$	7,954
Change in fair value from modification of option terms		-		-		105,895		11,440
Change in fair value from modification of warrant terms		219		-		132,896		-
Fair value of stock options expensed		587,215		-		587,215		23,251
Total	$	587,434	$	-	$	841,104	$	42,645