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 outside of shareholders’ equity. 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, 2015 and 2014, the Company declared dividends of $2,000 and $2,000 respectively. During the six months ended December 31, 2015, the Company declared dividends of $1,000. At December 31, 2015, accrued dividends payable are $9,000.

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 six months ended December 31, 2015, the Company issued 36,296 shares of the Company’s common stock at prices ranging from $0.69 to $1.15 per share for services valued at $100,904, in the aggregate, to consultants and employees, including $69,000 expensed for 75,000 fully vested bonus shares to Smith that were granted but not issued.

During the six months ended December 31, 2015, 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 six months ended December 31, 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 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. As of December 31, 2015, the Company has recorded the $35,000 as a promissory note receivable and the remaining unpaid principal and interest totaling $71,878, as a promissory note receivable for shares.

During the six months ended December 31, 2015, 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 228,750 units for total proceeds of $183,000. During the six months ended December 31, 2015, cash commissions of $18,300 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, $4,603 was allocated to the warrants and $178,397 was allocated to the shares, and both were recorded as additional paid in capital.

During the six months ended December 31, 2015, a warrant holder elected to exercise 14,000 warrants at an exercise price of $0.75 and 14,000 shares of the Company’s common stock were issued resulting in cash proceeds of $10,500.

BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED DECEMBER 31, 2015

During the six months ended December 31, 2015, Smith and various consultants elected to convert $82,861 and $88,856 of deferred compensation, respectively, into 99,159 and 109,715 shares, respectively, of the Company’s common stock at conversion rates ranging from $0.76 to $1.15 per share.

Warrants:

As of December 31, 2015, the Company had approximately 8.4 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 December 31, 2015 is 4.2 years.

During the six months ended December 31, 2015, warrants to purchase 957,806 shares of common stock of the Company at prices between $2.25 and $3.10 per share expired.

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.

During the six months ended December 31, 2015, 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 $74,320 and $4,000 for the three months ended December 31, 2015 and 2014, respectively, and $89,640 and $4,000 for the six months ended December 31, 2015 and 2014, respectively. The Company granted 100,000 and zero options during the six months ended December 31, 2015 and 2014, respectively. During the six months ended December 31, 2014, 397,500 options expired.

The fair value of the options granted during the six months ended December 31, 2015 and 2014 were estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Weighted Average, December 31, 2015		Range, December 31, 2015		Weighted Average, December 31, 2014		Range, December 31, 2014
Volatility		74%		74%		80%		80%
Dividend yield		-		-		-		-
Risk-free interest rate		1.75%		1.75%		0.51%		0.51%
Expected term (years)		5		5		2		2

BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED DECEMBER 31, 2015

A summary of option activity under the 2006 Plan for the six months ended December 31, 2015 is as follows:

	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at July 1, 2015		4,413,870	$	1.88		4.1		-
Granted		100,000		0.92
Exercised		-		-
Forfeited		-		-
Expired		-		-
Outstanding at December 31, 2015		4,513,870	$	1.86		3.9	$	36,050
Exercisable at December 31, 2015		4,413,870	$	1.89		3.7	$	22,050

The following table presents information relating to nonvested stock options as of December 31, 2015:

	Options			Weighted Average Grant-Date Fair Value
Nonvested at July 1, 2015		100,000		$	0.76
Granted		100,000			0.59
Vested		(100,000	)		(0.59	)
Nonvested at December 31, 2015		100,000		$	0.76

The total fair value of stock options that vested during the six months ended December 31, 2015 and 2014 was $59,000 and nil, respectively. As of December 31, 2015, the Company had $19,826 of 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, 2015 and 2014 are as follows:

	Three months ended December 31, 2015		Three months ended December 31, 2014		Six months ended December 31, 2015		Six months ended December 31, 2014
General and administrative:
Fair value of stock bonus expensed	$	69,000	$	-	$	69,000	$	-
Change in fair value from modification of option terms		42,550		11,783		42,550		11,783
Fair value of stock options expensed		62,371		4,000		64,209		4,000
Total	$	173,921	$	15,783	$	175,759	$	15,783

Research and development:
Fair value of stock options expensed	$	11,949	$	-	$	25,431	$	-
Total	$	11,949	$	-	$	25,431	$	-