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. At

June 30, 2019,

accrued dividends payable are

$16,000.

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 year ended

June 30, 2018,

the Company issued

57,790

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

$0.52

$0.91

per share for services valued at

$42,583,

in the aggregate, to

two

consultants and an employee.

During the year ended

June 30, 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

$200,496,

net proceeds of

$185,621

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

$194,344

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

During the year ended

June 30, 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

300,000

units for total proceeds of

$150,000.

The Company allocated the proceeds from the

300,000

shares and the

150,000

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,

$4,991

was allocated to the warrants and

$145,009

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

During the year ended

June 30, 2018,

the Company entered into

two

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,

2018and

May 18, 2018

through

June 15, 2018,

respectively. At

March 31, 2018

the Company exercised its right to extend the

first

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.

June 15, 2018

the Company exercised its right to extend the

second

offering an additional

days to

June 30, 2018.

As the

$0.50

exercise price was a reduction from the original exercise price of

$1.00,

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

$10,784

was recorded. As a result of the offering,

135,681

warrants were exercised and

135,681

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

$67,841

for the year ended

June 30, 2018.

In conjunction with the warrant exercises,

3,441

shares of common stock were issued as commissions and recorded to additional paid in capital.

During the year ended

June 30, 2018,

a consultant elected to convert

$60,178

of deferred compensation into

120,356

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

half a share of the Company’s restricted common stock. The

60,178

warrants to purchase common shares of the Company at

$0.75

per share have expiry dates of

September 30, 2018.

During the year ended

June 30, 2018,

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

$70,000,

$18,000

and

$65,540,

respectively, into an aggregate

307,080

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

half of a share of the Company’s restricted common stock for

$0.75

per share until

December 31, 2020.

During the year ended

June 30, 2019,

the Company issued

134,162

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

$0.50

$0.74

per share for services valued at

$93,408

in the aggregate, to

two

consultants and an employee.

During the year ended

June 30, 2019,

the Company issued

1,028

shares as commissions for the warrant exercises during the year ended

June 30, 2018

valued at

$514.

During the year ended

June 30, 2019,

the Company entered into subscription agreements under

four

different offerings 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 ranging from

June 30, 2019

through

December 31, 2020,

and pursuant thereto, the Company issued

1,793,606

units for total proceeds of

$896,801,

net proceeds of

$832,921

after commissions. The Company allocated the proceeds from the

1,793,606

shares and the

896,806

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,

$31,560

was allocated to the warrants and

$865,241

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

During the year ended

June 30, 2019,

Smith elected to convert deferred compensation and accounts payable of

$87,063

and

$12,937,

respectively, into an aggregate

200,000

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

half of a share of the Company’s restricted common stock for

$0.75

per share until

December 31, 2022.

Warrants:

As of

June 30, 2019,

the Company had approximately

16.7

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

$0.95,

and the weighted-average remaining contractual life as of

June 30, 2019

3.6

years.

During the year ended

June 30, 2019,

warrants to purchase

70,069

shares of common stock of the Company at prices ranging from

$0.85

$3.00

per share expired.

During the year ended

June 30, 2019,

the Company entered into subscription agreements under

four

different offerings 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 ranging from

June 30, 2019

through

December 31, 2020,

and pursuant thereto, the Company issued

1,793,606

units for total proceeds of

$896,801,

net proceeds of

$832,921

after commissions. The Company allocated the proceeds from the

1,793,606

shares and the

896,806

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,

$31,560

was allocated to the warrants and

$865,241

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

During the year ended

June 30, 2019,

the Company received an interest bearing, secured promissory note for

$300,000

from Bassani as consideration to purchase warrants to purchase

3,000,000

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

$0.60

and have expiry dates of

December 31, 2025.

The promissory note bears interest at

per annum, is secured by Bassani’s

January 2015

Convertible Note and as of

June 30, 2019

the accrued interest was

$10,948.

The secured promissory note is payable

July 1, 2020.

During the year ended

June 30, 2019,

the Company received an interest bearing, secured promissory note for

$30,000

from Smith as consideration to purchase warrants to purchase

300,000

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

$0.60

and have expiry dates of

December 31, 2023.

The warrants have a

75%

exercise bonus. The promissory note bears interest at

per annum, is secured by

$30,000

of Smith’s

January 2015

Convertible Note and as of

June 30, 2019

the accrued interest was

$1,095.

The secured promissory note is payable on

July 1, 2020.

During the year ended

June 30, 2019,

Smith elected to convert deferred compensation and accounts payable of

$87,063

and

$12,937,

respectively, into an aggregate

200,000

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

half of a share of the Company’s restricted common stock for

$0.75

per share until

December 31, 2022.

During the year ended

June 30, 2019,

the Company issued

125,000

warrants to a consultant to purchase

125,000

shares of the Company’s restricted common stock, which warrants have exercise prices ranging between

$0.74

and

$1.20

per share and have expiry dates of ranging from

August 27, 2020

through

October 27, 2020.

The warrants were in exchange for services expensed at

$6,250,

in aggregate.

During the year ended

June 30, 2019,

the Company agreed to extend the expiration dates of

5,947,864

warrants owned by certain individuals (including

1,765,000

owned by Bassani and

3,104,010

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

September 30, 2018

through

December 31, 2021.

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

$163,026

(

$88,250

and

$68,758

for Bassani and Smith, respectively) and

$25,467

as interest expense.

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, 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).

During the year ended

June 30, 2019,

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

$222,300.

The Company recorded compensation expense related to employee stock options of

$236,100

and

$1,369,350

for the years ended

June 30, 2019

and

2018,

respectively. The Company granted

655,000

and

2,647,500

options during the years ended

June 30, 2019

and

2018,

respectively.

The fair value of the options granted during the years ended

June 30, 2019

and

2018

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

	Weighted Average, June 30, 2019	Range, June 30, 2019			Weighted Average, June 30, 2018	Range, June 30, 2018
Volatility	68%	58%	-	76%	74%	68%	-	75%
Dividend yield	-		-		-		-
Risk-free interest rate	2.34%	1.92%	-	2.78%	2.44%	1.75%	-	2.64%
Expected term (years)	4.1	1.9	to	4.6	5	3	-	6

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 years ended

June 30, 2019

and

2018

is as follows:

	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at July 1, 2017		4,545,097		$	1.42		2.9	$	176,575
Granted		2,647,500			0.76
Exercised		-			-
Forfeited		-			-
Expired		(365,312	)		2.35
Outstanding at June 30, 2018		6,827,225		$	1.11		3.8	$	-
Granted		655,000			0.74
Exercised		-			-
Forfeited		-			-
Expired		(70,625	)		1.26
Outstanding at June 30, 2019		7,411,600		$	1.08		3.1	$	20,375
Exercisable at June 30, 2019		7,411,600		$	1.08		3.1	$	20,375

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

June 30, 2019:

	Options			Weighted Average Grant-Date Fair Value
Nonvested at July 1, 2018		-		$	-
Granted		655,000			0.36
Vested		(655,000	)		0.36
Nonvested at June 30, 2019		-		$	-

The total fair value of stock options that vested during the years ended

June 30, 2019

and

2018

was

$236,100

and

$1,376,250

respectively. As of

June 30, 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 years ended

June 30, 2019

and

2018

are as follows:

	Year ended June 30, 2019		Year ended June 30, 2018
General and administrative:
Fair value of stock bonuses expensed	$	-	$	8,723
Change in fair value from modification of option terms		211,185		243,761
Change in fair value from modification of warrant terms		118,233		163,956
Fair value of stock options expensed		206,525		782,135
Total	$	535,943	$	1,198,575

Research and development:
Fair value of stock bonus expensed	$	-	$	15,098
Change in fair value from modification of option terms		11,115		105,895
Change in fair value from modification of warrant terms		44,793		132,896
Fair value of stock options expensed		29,575		587,215
Total	$	85,483	$	841,104