Note 5 - Deferred Compensation:

9 Months Ended

Mar. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

5.     DEFERRED COMPENSATION:

The Company owes Edward Schafer (“Schafer”), the Company’s Executive Vice Chairman, and three other key employees, aggregate deferred compensation of $250,333 as of March 31, 2013.  The balance is payable at various times depending upon the cash reserves of the Company.

As of March 31, 2013, the Company owed Brightcap Capital Ltd. (“Brightcap”), for services provided by Bassani, deferred compensation of $846,855, including interest of $83,855, which is due and payable on January 15, 2014.  Of the $846,855, $210,375 of the deferred compensation accrues interest at 10% per annum and is convertible into the Company’s restricted common stock at $1.50 per share.  The remaining $636,480 of deferred compensation accrues interest at 8% per annum and is convertible into Units which consist of one share of the Company’s common stock and one warrant to purchase a share of the Company’s common stock. Conversion of this deferred compensation is at the sole discretion of Brightcap and Bassani.

As of March 31, 2013, the Company owes Smith, deferred compensation of $459,645, including interest of $26,891 which is due and payable on January 15, 2014.  The deferred compensation accrues interest at 8% per annum.  The deferred compensation plus accrued interest of $636,480 and $459,645 owed to Brightcap and Smith, respectively, may be converted, at the sole election of Brightcap and Smith, into Units consisting of one share of the Company’s common stock and one warrant to purchase a share of the Company’s common stock, at an initial price of $2.50 per Unit until December 31, 2016.  As the conversion price of $2.50 per Unit approximated the fair value of the Units at the date of the agreements, no beneficial conversion feature exists at March 31, 2013.  In addition, the conversion price of the deferred compensation plus accrued interest will be the lower of the $2.50 per Unit price or the lowest price at which the Company sells its common stock between April 1, 2012 and January 15, 2014 (extended subsequent to March 31, 2013, to January 15, 2015). As of March 31, 2013, the lowest price at which the Company had sold its common stock during the relevant period is $1.64 per share, pursuant to a formula for conversion of deferred compensation in an existing compensation agreement.  Subsequent to March 31, 2013 the Company sold common stock at a price of $1.25 per share, which is now the lowest price at which the Company has sold its common stock during the relevant period, pursuant to a formula for conversion of deferred compensation in an existing compensation agreement. Management evaluated the terms and conditions of the embedded conversion features based on the guidance of Accounting Standards Codification (“ASC”) 815-15 “Embedded Derivatives” to determine if there was an embedded derivative requiring bifurcation. An embedded derivative instrument (such as a conversion option embedded in the deferred compensation) must be bifurcated from its host instruments and accounted for separately as a derivative instrument only if the “risks and rewards” of the embedded derivative instrument are not “clearly and closely related” to the risks and rewards of the host instrument in which it is embedded.  Management concluded that the embedded conversion feature of the deferred compensation was not required to be bifurcated because the conversion feature is clearly and closely related to the host instrument, and because of the Company’s limited trading volume that indicates the feature is not readily convertible to cash in accordance with ASC 815-10, “Derivatives and Hedging”.

On May 5, 2013, the Board of Directors approved agreements with Bassani and Smith, with effective dates of May 15, 2013, under which, Bassani and Smith  have agreed to continue to defer their respective cash compensation for up to an additional year until April 30, 2014 (unless the Board of Directors elects to re-commence cash payment on an earlier date) and to extend the due date of their respective deferred cash compensation until January 15, 2015 on the same terms as are set forth in the paragraph above.  The Company will provide Bassani and Smith with convertible promissory notes which reflect all the terms of these agreements to which future accruals will be added as additional principal.  Smith has agreed to add $25,000 of loans payable – affiliates he made to the Company and approximately $30,000 of unreimbursed expenses to the principal of his convertible promissory note.   As part of the agreements, Bassani and Smith have also forgiven any possible obligations that Bion may have owed each of them in relation to unused vacation time for periods (over 10 years) prior to the current fiscal year.  In consideration of these agreements, Bassani and Smith : a) have been granted ‘execution/exercise’ bonuses to be effective upon future exercise of outstanding (or subsequently acquired) options and warrants owned by Bassani and Smith (and their respective donees) and in relation to contingent stock bonuses; b) their warrants and options, if due to expire prior to December 31, 2018, have been extended to that date (with possible further extensions) and c) other modifications have been made to existing agreements.