STOCKHOLDERS' EQUITY:

Series B Preferred stock:

Since

July 1, 2014,

the Company has

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, 2019

and

2018,

the Company declared dividends of

$2,000

and

$2,000

respectively. During the

six

months ended

December 31, 2019,

the Company declared dividends of

$1,000.

December 31, 2019,

accrued dividends payable are

$17,000.

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

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

six

months ended

December 31, 2019,

the Company issued

29,000

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

$0.48

$0.75

per share for services valued at

$16,350

in the aggregate, to

two

consultants.

During the

six

months ended

December 31, 2019,

the Company entered into a subscription agreement 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 an expiry date of

December 31, 2020,

and pursuant thereto, the Company issued

18,000

units for total proceeds of

$9,000,

net proceeds of

$8,100

after commissions of

$900.

The Company allocated the proceeds from the

18,000

shares and the

9,000

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,

$333

was allocated to the warrants and

$8,667

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

During the

six

months ended

December 31, 2019,

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

share of the Company’s restricted common stock for

$0.75

per share with an expiry date of

December 31, 2020,

and pursuant thereto, the Company issued

1,936,001

units for total proceeds of

$968,000,

net proceeds of

$881,700

after commissions of

$86,300.

The Company allocated the proceeds from the

1,936,001

shares and the

1,936,001

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,

$47,098

was allocated to the warrants and

$920,902

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

During the

six

months ended

December 31, 2018,

Smith elected to convert deferred compensation, loan payable - affiliates and accounts payable of

$3,828,

$15,000

and

$52,830,

respectively, into an aggregate

143,316

units at

$0.50

per unit, with each unit consisting of

one

share of the Company’s restricted common stock and

one

warrant to purchase

one

share of the Company’s restricted common stock for

$0.75

per share until

December 31, 2020.

Warrants:

As of

December 31, 2019,

the Company had approximately

18.8

million warrants outstanding, with exercise prices from

$0.60

$2.00

and expiring on various dates through

June 30, 2025.

The weighted-average exercise price for the outstanding warrants is

$0.84,

and the weighted-average remaining contractual life as of

December 31, 2019

2.8

years.

During the

six

months ended

December 31, 2019,

the Company entered into a subscription agreement 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 an expiry date of

December 31, 2020,

and pursuant thereto, the Company issued

18,000

units for total proceeds of

$9,000,

net proceeds of

$8,100

after commissions of

$900.

The Company allocated the proceeds from the

18,000

shares and the

9,000

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,

$333

was allocated to the warrants and

$8,667

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

During the

six

months ended

December 31, 2019,

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

share of the Company’s restricted common stock for

$0.75

per share with an expiry date of

December 31, 2020,

and pursuant thereto, the Company issued

1,936,001

units for total proceeds of

$968,000,

net proceeds of

$881,700

after commissions of

$86,300.

The Company allocated the proceeds from the

1,936,001

shares and the

1,936,001

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,

$47,098

was allocated to the warrants and

$920,902

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

During the

six

months ended

December 31, 2019,

the Company agreed to extend the expiration dates of

740,551

warrants owned by certain individuals which were scheduled to expire at

December 31, 2019.

The Company recorded interest expense related to the modification of the warrants of

$35,339.

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.

The Company recorded compensation expense related to employee stock options of

$99,500

and

$22,500

for the

three

months ended

December 31, 2019

and

2018,

respectively, and

$99,500

and

$118,000

for the

six

months ended

December 31, 2019

and

2018,

respectively. The Company granted

390,000

and

325,000

options during the

six

months ended

December 31, 2019

and

2018,

respectively.

The fair value of the options granted during the

three

and

six

months ended

December 31, 2019

and

2018

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

	Weighted Average, December 31, 2019			Range, December 31, 2019			Weighted Average, December 31, 2018			Range, December 31, 2018
Volatility		68	%	68	-	70%		70	%	63%	-	76%
Dividend yield		—			—			—			—
Risk-free interest rate		1.75	%	1.74	–	1.75%		2.73	%	2.68%	-	2.78%
Expected term (years)		5.0		5.0	to	5.2		3.9		3.4	to	4.3

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

six

months ended

December 31, 2019

is as follows:

	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at July 1, 2019		7,411,600	$	1.08		3.1	$	20,375
Granted		390,000		0.60
Exercised		-		-
Forfeited		-		-
Expired		-		-
Outstanding at December 31, 2019		7,801,600	$	1.06		2.8	$	-
Exercisable at December 31, 2019		7,801,600	$	1.06		2.8	$	-

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

December 31, 2019:

	Options			Weighted Average Grant-Date Fair Value
Nonvested at July 1, 2019		-		$	-
Granted		390,000			0.26
Vested		(390,000	)		0.26
Nonvested at December 31, 2019		—		$	—

The total fair value of stock options that vested during the

six

months ended

December 31, 2019

and

2018

was

$99,500

and

$80,500

respectively. As of

December 31, 2019,

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

six

months ended

December 31, 2019

and

2018

are as follows:

	Three months ended December 31, 2019		Three months ended December 31, 2018		Six months ended December 31, 2019		Six months ended December 31, 2018
General and administrative:
Change in fair value from modification of option terms	$	-	$	-	$	-	$	211,185
Change in fair value from modification of warrant terms		-		-		-		118,233
Fair value of stock options expensed		92,000		22,500		92,000		92,125
Total	$	92,000	$	22,500	$	92,000	$	421,543

Research and development:
Change in fair value from modification of option terms	$	-	$	-	$	-		11,115
Change in fair value from modification of warrant terms		-		-		-		44,793
Fair value of stock options expensed		7,500		-		7,500		25,875
Total	$	7,500	$	-	$	7,500	$	81,783