Note 7. Notes Payable and Subordinated Convertible Note Payable - CD Financial, LLC

12 Months Ended

Jun. 30, 2012

CD Financial LLC [Member]

Debt Disclosure [Text Block]

Note 7. Notes Payable and Subordinated Convertible Note Payable – CD Financial, LLC

On February 21, 2008, the Company entered into two Securities Purchase Agreements (the "SPAs") relating to a private placement of securities with two investors, one of whom is an affiliate of Carl DeSantis, a director of the Company and a major shareholder, which resulted in gross proceeds, in the aggregate, of $17,337 to the Company. The private placement involved the sale of (i) 6,000 shares of newly designated Series C Redeemable Convertible Preferred Stock (the “Series C Preferred Stock”) with a stated value of $1,000 per share (the Series C Preferred Stock were converted into shares of the Company’s Common Stock in July and August 2008), (ii) $4,500 in principal amount of 9.5% Subordinated Convertible Note Payable (the “Original CD Note”), (iii) $7,000 in principal amount of 8.0% Notes Payable (the “Notes Payable”) and (iv) 200,000 shares of the Company’s common stock. The Notes Payable and the Original CD Note were secured by a pledge of substantially all of the Company’s assets.  The Notes Payable were paid in full and the Original CD Note was refinanced on June 27, 2012. See Note 8(a) and (b).

On November 24, 2009, MDC, a wholly owned subsidiary of the Company, entered into a $300 promissory note (the “CD MDC Note”) with CD Financial, a related party.  The CD MDC Note matured on November 24, 2010 and bore interest at the rate of 5%, which interest was payable quarterly.  Interest was accrued monthly and was payable upon maturity.  The CD Note was refinanced on June 27, 2012.  See Note 8(b).

On July 29, 2010, MDC, a wholly owned subsidiary of the Company, entered into a second promissory note in the amount of $40 (the “CD MDC $40 Note”) with CD Financial.  The CD MDC $40 Note matured on October 29, 2010 and bore interest at the rate of 5%.  Interest was accrued monthly and was paid on maturity.  MDC repaid the CD MDC $40 Note on October 29, 2010.

The following table presents the stated value/principal of each of the securities issued in connection with the debt outstanding as of June 30, 2011:

	Amended Notes Payable			Convertible Note Payable			Notes Payable		Derivative Liabilities
Stated Value / Principal	$	7,805		$	4,500		$	300	$	78
Discount Applied		(805	)		(98	)		-		-
Derivative liabilities		(186	)		(2,757	)		-		-
		6,814			1,645			300		78
Plus: Accretion of Discount		805			98			-		-
Accretion of embedded derivative liabilities		186			2,757			-		-
Change in fair value		-			-			-		(62	)
Total	$	7,805		$	4,500		$	300	$	16

(a) In connection with  a SPA, CD Financial provided gross proceeds of $7,500, exclusive of a $163 discount to be repaid by the Company at a future date (included in accrued expenses as of June 30, 2011 in the accompanying Consolidated Balance Sheet), in exchange for 3,000 shares of Series C Preferred Stock, with a stated value of $1,000 per share (the Series C Preferred Stock were converted into shares of the Company’s Common Stock in August 2008), and $4,500 in principal amount of Original CD Note. The Company allocated the proceeds and the discount based on the relative fair value of the Original CD Note and the Series C Preferred Stock. The Company amortized to interest expense the discount applied to the Original CD Note over the term of the note, and charged to Additional Paid in Capital the discount applied to the Series C Preferred Stock.

The Company used the following assumptions to calculate the fair value of the embedded derivative liability associated with the price protection provision on the conversion feature (assuming that 2,250,000 shares of common stock are converted) using the Black-Scholes option pricing model:

	June 30, 2011			Issuance Date
Risk Free Interest Rate		0.01	%		2.23	%
Volatility		131.90	%		73.00	%
Term (years)	0.00			3
Dividend Rate		0.00	%		0.00	%
Closing Price of Common Stock	$	0.10		$	2.93

The Original CD Note bore interest at an annual rate of 9.5% and matured on February 21, 2011. On June 27, 2012, the Company refinanced the Original CD Note, see Note 8. Senior Credit Facility, Subordinated Convertible Note Payable, net - CD Financial, LLC and other Long Term Debt.   The Original CD Note was convertible, at any time and at the holder’s option, into shares of our common stock based on a conversion price as set out in the Original CD Note. The conversion price was a formula based on the conversion price being the greater of (i) 90% of the average Volume Weighted Average Price market price of our common stock for 20 trading days immediately preceding the conversion date and (ii) $2.00, subject to adjustment in the event of a stock dividend, stock split or combination, reclassification or similar event and upon certain issuances below the conversion price.

The derivative liability associated with the price protection provision had no value as of June 30, 2011, therefore, there was no loss to be recognized in connection with the troubled debt restructuring of the Original CD Note.  (See Note 8. Senior Credit Facility, Subordinated Convertible Note Payable, net - CD Financial, LLC and other Long Term Debt).

Included in Interest Expense in the accompanying Consolidated Statement of Operations, is the following accretion costs resulted from the original stock issuance allocation and the derivative liability associated with the Original CD Note:

	Year Ended June 30, 2011
Discount	$	21
Derivative liability discount accretion		837
Total accretion to interest expense	$	858

Also, in accordance with the Original CD Note, the Company was required to issue and deliver to CD Financial, for no additional consideration, 50,000 shares of common stock, on a quarterly basis in arrears, commencing with the three-month anniversary of the issuance date, until the Original CD Note was repaid in full, after which the Company's obligations to issue shares of common stock would no longer be applicable.  Accordingly, in each of the fiscal years ended June 30, 2012 and 2011, the Company issued 200,000 shares to CD Financial.  Pursuant to the terms of the CD Convertible Note, the Company’s obligation to issue these shares ceased effective May 21, 2012.  (See Note 8. Senior Credit Facility, Subordinated Convertible Note Payable, net - CD Financial, LLC and other Long Term Debt).

(b) On February 21, 2008, in connection with a SPA, Imperium Master Fund, Ltd (“Imperium”) provided gross proceeds of $9,837, including a discount of $163, in exchange for 3,000 shares of Series C Preferred Stock, with a stated value of $1,000 per share (the Series C Preferred Stock were converted into shares of the Company’s Common Stock in July and August 2008), $7,000 in principal amount of 8.0% Notes Payable and 200,000 shares of the Company’s common stock. The Notes Payable originally matured on February 21, 2009. The Company allocated the proceeds and the discount based on the relative fair value of the Notes Payable, the Series C Preferred Stock and the Company’s common stock. The Company amortized, to interest expense, the discount applied to the Notes Payable over the term of the notes and charged to Additional Paid in Capital the discounts applied to the Series C Preferred Stock and the common stock.

On October 14, 2008, the Company and the holders of the Notes Payable (the “Note Payable Holders”) amended their SPA to extend the maturity from February 21, 2009 to November 15, 2009 and the Note Payable Holders agreed to forgo the 200,000 shares of common stock.  In consideration for extending the maturity of the Notes Payable,  (i) a 11.5% premium was granted on the principal, thus aggregating a principal balance due of $7,805 and certain other amounts payable under the Notes Payable, if any, (ii) certain new covenants were applicable to the Company effective October 14, 2009, (iii) the Company issued warrants to purchase 500,000 shares of the Company’s Common Stock, with a five year term at an exercise price of $0.80 per share, subject to certain price protection provisions and (iv) the Company agreed to register the resale of the shares of the Company’s Common Stock for which the warrants are exercisable. On June 27, 2012, the Company repaid in full all amounts owed to the Note Payable Holders.  See Note 8. Senior Credit Facility, Subordinated Convertible Note Payable, net - CD Financial, LLC and other Long Term Debt.

The Notes Payable in the amount of $7,000 bore interest at a rate of 8.0% ($7,805 as of October 1, 2011) and matured on November 15, 2009. The Company accreted the premium of $805 over the term of the amendment, using the effective interest method.  As of June 30, 2012 and 2011, the related embedded derivative liability with respect to the amended Notes Payable had estimated fair values of $7 and $16, respectively.

In the fiscal year ended June 30, 2012, the Company incurred forbearance fees aggregating $1.1 million relating to the Notes Payable, $1.0 million of which was pursuant to the Forbearance Agreement, dated as of October 4, 2011, entered into between the Company and the collateral agent for the Note Payable Holders (the “Forbearance Agreement”) which extended, among other things, the due date of the Notes Payable until March 31, 2012.  Several extensions of the Forbearance Agreement were granted from December 31, 2011 through February 8, 2012; however, on February 8, 2012, the forbearance period under the Forbearance Agreement expired. On June 13, 2012, the Company incurred and paid an additional $0.1 million in forbearance fees to the collateral agent for the Note Payable Holders in consideration of their forbearance until the closing of the senior credit facility.  See Note 8. Senior Credit Facility, Subordinated Convertible Note Payable, net - CD Financial, LLC and other Long Term Debt.

The Company used the following assumptions to calculate the fair value of the derivative liability relating to the warrants issued on October 14, 2008 using the Black-Scholes option pricing model:

	June 30,						Issuance
	2012			2011			Date
Risk Free Interest Rate		0.21	%		0.45	%		3.01	%
Volatility		144.10	%		131.90	%		85.00	%
Term (years)		1.08			2.08			5
Dividend Rate		0.00	%		0.00	%		0.00	%
Closing Price of Common Stock	$	0.09		$	0.10		$	0.54

Notes Payable, Other Payables [Member]

Debt Disclosure [Text Block]

Note 8. Senior Credit Facility, Subordinated Convertible Note Payable, net - CD Financial, LLC and other Long Term Debt

As of June 30, 2012, the Company had the following debt outstanding:

	As of June 30, 2012
	Principal Amount			Interest Rate			Maturity Date
Revolving advances under Senior Credit Facility with PNC Bank, National Association	$	2,677			3.25	%	2017-06-27
Installment Note with PNC Bank		3,727			3.75	%	2017-06-27
Promissory Note with CD Financial, LLC		1,714			6.00	%	2017-07-07
Promissory Note with Vitamin Realty, LLC		686			4.00	%	2017-07-07
Promissory Note with E. Gerald Kay		27			4.00	%	2017-07-07
Promissory Note with Acura Financial Services		40			1.90	%	2017-04-15
Total outstanding debt		8,871
Less: Revolving Advances		(2,677	)
Current portion of long term debt		(1,496	)
Long term debt	$	4,698
Convertible Note payable - CD Financial, LLC	$	5,350
Discount for embedded derivative		(554	)
Convertible Note payable, net - CD Financial, LLC	$	4,796

SENIOR CREDIT FACILITY

On June 27, 2012, the Company, MDC, AgroLabs, IHT, IHT Properties Corp. (“IHT Properties”) and Vitamin Factory (collectively, the “Borrowers”) entered into a Revolving Credit, Term Loan and Security Agreement (the “Loan Agreement”) with PNC Bank, National Association as agent and lender (“PNC”) and the other lenders party thereto.

The Loan Agreement provides for a total of $11,727 in senior secured financing (the “Senior Credit Facility”) as follows: (i) discretionary advances (“Revolving Advances”) based on eligible accounts receivable and eligible inventory in the maximum amount of $8,000 (the “Revolving Credit Facility”) and (ii) a term loan in the amount of $3,727 (the “Term Loan”). The Senior Credit Facility is secured by all assets of the Borrowers, including, without limitation, machinery and equipment, real estate owned by IHT Properties, and common stock of iBio owned by the Company. Revolving Advances bear interest at PNC’s Base Rate or the Eurodollar Rate, at Borrowers’ option, plus 2.75% (3.25% as of June 30, 2012). The Term Loan bears interest at PNC’s Base Rate or the Eurodollar Rate, at Borrowers’ option, plus 3.25% (3.75% as of June 30, 2012).  Upon and after the occurrence of any event of default under the Loan Agreement, and during the continuation thereof, interest shall be payable at the interest rate then applicable plus 2%.  The Senior Credit Facility matures on June 27, 2017 (the “Senior Maturity Date”).

On June 27, 2012, the Company borrowed an initial Revolving Advance of approximately $2.7 million, and the proceeds of this initial Revolving Advance, combined with the proceeds of the Term Loan and the CD Notes (as defined below) provided aggregate cash of $8.1 million (the “Refinancing Proceeds”).  The Refinancing Proceeds together with the Company’s cash provided from its operating activities were used to (i) repay in full the Notes Payable, (ii) to pay to Imperium, in its capacity as collateral agent for the Note Payable Holders, (A) the 11.5% premium ($805), which was payable at the maturity of the Notes Payable on November 15, 2009, (B) the $1.0 million forbearance fee payable under the Forbearance Agreement, dated as of October 4, 2008, by and among the Company and Imperium, in its capacity as collateral agent for the Note Payable Holders,  (C) $45, representing accrued interest in respect of the Notes Payable, and (D) $87, representing fees and expenses owed by the Company to the Note Payable Holders under the terms of the their SPA. (See Note 7. Notes Payable and Subordinated Convertible Note Payable – CD Financial, LLC).

The principal balance of the Revolving Advances is payable on the Senior Maturity Date, subject to acceleration, based upon a material adverse event clause, as defined, subjective accelerations for borrowing base reserves, as defined or upon the occurrence of any event of default under the Loan Agreement or earlier termination of the Loan Agreement pursuant to the terms thereof.  The Term Loan shall be repaid in sixty (60) consecutive monthly installments of principal, the first fifty nine (59) of which shall be in the amount of $44, commencing on the first business day of August, 2012, and continuing on the first business day of each month thereafter, with a final payment of any unpaid balance of principal and interest payable on the first business day of July, 2017. The foregoing is subject to customary mandatory prepayment provisions and acceleration upon the occurrence of any event of default under the Loan Agreement or earlier termination of the Loan Agreement pursuant to the terms thereof.

The Revolving Advances are subject to the terms and conditions set forth in the Loan Agreement and are made in aggregate amounts at any time equal to the lesser of (x) $8.0 million or (y) an amount equal to the sum of: (i)up to 85%, subject to the provisions in the Loan Agreement, of eligible accounts receivables (“Receivables Advance Rate”), plus (ii) up to the lesser of (A) 65%, subject to the provisions in the Loan Agreement, of the value of the eligible inventory (“Inventory Advance Rate” and together with the Receivables Advance Rate, collectively, the “Advance Rates”), (B) 85% of the appraised net orderly liquidation value of eligible inventory (as evidenced by the most recent inventory appraisal reasonably satisfactory to PNC in its sole discretion exercised in good faith) and (C) the inventory sublimit in the aggregate at any one time (“Inventory Advance Rate” and together with the Receivables Advance Rate, collectively, the “Advance Rates”), minus (iii) the aggregate Maximum Undrawn Amount of all outstanding Letters of Credit, minus (iv) such reserves as Agent may reasonably deem proper and necessary from time to time.

The Loan Agreement contains customary mandatory prepayment provisions, including, without limitation, (i) the requirement that if the trading price per share of the iBio Stock falls below a certain amount, the Company must sell the iBio Stock and use the proceeds to repay the Term Loan and (ii) the outstanding amount of all loans in an amount equal to fifty percent (50%) of Excess Cash Flow for each fiscal year commencing with the fiscal year ending June 30, 2013, payable upon delivery of the financial statements to PNC referred to in and required by the Loan Agreement for such fiscal year but in any event not later than one hundred twenty (120) days after the end of each such fiscal year, which prepayment amount shall be applied ratably to the outstanding principal installments of the Term Loan in the inverse order of the maturities thereof until the aggregate amount of payments made with regard to the Term Loan pursuant to Loan Agreement equals $1.0 million.  The Loan Agreement also contains customary representations and warranties, covenants and events of default, including, without limitation, (i) a fixed charge coverage ratio maintenance requirement and (ii) an event of default tied to any change of control as defined in the Loan Agreement.

Interest in respect of the Senior Credit Facility is payable in arrears on the first day of each month with respect to Revolving Advances or the Term Loan bearing interest at PNC’s Base Rate plus 2.75% and 3.25%, respectively, and at the end of each interest period with respect to Revolving Advances or the Term Loan bearing interest at the Eurodollar Rate plus 2.75% and 3.25%, respectively.

In connection with the Senior Credit Facility, each of E. Gerald Kay, an officer, director and major stockholder of the Company, and Carl DeSantis, a director and major stockholder of the Company (collectively, the “Guarantors”), entered into Continuing Limited Guarantees (collectively, the “Individual Guarantees”) with PNC whereby each Guarantor irrevocably and unconditionally guarantees the full, prompt and unconditional payment, when due, whether by acceleration or otherwise, of any and all obligations of the Borrowers under the Loan Agreement and the other loan documents. The liability of each Guarantor under his respective Individual Guarantee is limited to a maximum of $1.0 million. The Individual Guarantees will automatically terminate upon the satisfaction of certain conditions set forth in the Loan Agreement.

Also, in connection with the Senior Credit Facility, PNC and CD Financial entered into the Intercreditor and Subordination Agreement (the “Intercreditor Agreement”), which was acknowledged by the Borrowers, pursuant to which, among other things, (a) the lien of CD Financial on assets of the Borrowers is subordinated to the lien of PNC on such assets during the effectiveness of the Senior Credit Facility, and (b) priorities for payment of the debt for the Company and its subsidiaries (as described in this Note 8) are established.

In addition, in connection with the Senior Credit Facility, the following loan documents were executed: (i) the Company has entered into a Stock Pledge Agreement with PNC, pursuant to which the Company pledged to PNC the iBio Stock; (ii) IHT Properties has entered into a Mortgage and Security Agreement with PNC; and (iii) the Borrowers have entered into an Environmental Indemnity Agreement with PNC.

CD FINANCIAL, LLC TROUBLED DEBT RESTRUCTURING

On June 27, 2012, the Company also entered into an Amended and Restated Securities Purchase Agreement (the “CD SPA”) with CD Financial, which amended and restated the Securities Purchase Agreement, dated as of February 21, 2008, between the Company and CD Financial, pursuant to which the Company issued to CD Financial a 9.5% Convertible Senior Secured Note in the original principal amount of $4,500 (the “Original CD Note”).  (See Note 7. Notes Payable and Subordinated Convertible Note Payable – CD Financial, LLC). Pursuant to the CD SPA,  the Company issued to CD Financial (i) the Amended and Restated Convertible Promissory Note in the principal amount of $5,350 (the “CD Convertible Note”) and (ii) the Promissory Note in the principal amount of $1,714 (the “Liquidity Note”, and collectively with the CD Convertible Note, the “CD Notes”). The CD Notes mature on July 7, 2017.  In accordance with the applicable accounting guidance, this transaction was accounted for as a troubled debt restructuring.  No gain on debt extinguishment was recognized in the accompanying consolidated statement of operations for the fiscal year ended June 30, 2012 as the undiscounted cash flows of the restructured debt was greater than the carrying amount of the debt prior to the restructuring.

The proceeds of the CD Notes were used to refinance (a) the Original CD Note, (b) the CD MDC Note which was assigned by MDC to the Company, (c) past due interest in the aggregate amount of $333 and (d) other expenses owed to CD Financial by the Company in the aggregate amount of approximately $217.

The CD Notes are secured by all assets of the Borrowers, including, without limitation, machinery and equipment, real estate owned by IHT Properties, and iBio Stock owned by the Company. The CD Notes bear interest at an annual rate of 6% and have a default rate of 10%.

The CD Convertible Note is convertible at the option of CD Financial into common stock of the Company at a conversion price of $0.65 per share, subject to customary adjustments including conversion price protection provisions.

Pursuant to the terms of the Loan Agreement and the Intercreditor Agreement, during the effectiveness of the Senior Credit Facility, (i) the principal of the CD Convertible Note may not be repaid, (ii) the principal of the Liquidity Note may only be repaid if certain conditions under the Loan Agreement are satisfied, and (iii) interest in respect of the CD Notes may only be paid if certain conditions under the Intercreditor Agreement are satisfied.

The CD SPA contains customary contains customary representations and warranties, covenants and events of default, including, without limitation, an event of default tied to any change of control as defined in the CD SPA.

In connection with the CD SPA, the Borrowers entered into an Amended and Restated Security Agreement and Amended and Restated Subsidiary Guaranty.

As of June 30, 2012, the related embedded derivative liability with respect to the CD Convertible Note has an estimated fair value of $555.

The Company used the following assumptions to calculate the fair value of the derivative liability using the Black-Scholes option pricing model:

	June 30, 2012			Issuance Date, June 27, 2012
Risk Free Interest Rate		0.72	%		0.72	%
Volatility		144.10	%		144.10	%
Term (years)		5			5
Dividend Rate		0.00	%		0.00	%
Closing Price of Common Stock	$	0.09		$	0.09

OTHER LONG TERM DEBT

On June 27, 2012, MDC and the Company entered into separate promissory notes with Vitamin Realty Associates, LLC (“Vitamin Realty”) and E. Gerald Kay, the Company’s Chief Executive Officer, Chairman of the Board, President and a majority shareholder, in the principal amounts of approximately $686 (the “Vitamin Note”) and $27 (the “Kay Note”), respectively (collectively the “Related Party Notes”). The principal amount of the Vitamin Note represents the aggregate amount of unpaid, past due rent owing by MDC under the Lease Agreement, dated as of January 10, 1997, between MDC, as lessor, and Vitamin Realty, as landlord, pertaining to the real property located at 225 Long Avenue, Hillside, New Jersey.  (See Note 13. Commitments and Contingencies (a) Leases – Related Parties).  The Kay Note represents amounts owed to Mr. Kay for unreimbursed business expenses incurred by Mr. Kay in the fiscal year ended June 30, 2008.  (See Note 14. Related Party Transactions).  The Related Party Notes mature on July 7, 2017 and accrue interest at an annual rate of 4% per annum. Interest in respect of the Related Party Notes is payable on the first business day of each calendar month.  Pursuant to the terms of the Loan Agreement, during the effectiveness of the Senior Credit Facility, the Related Party Notes may only be repaid or prepaid if certain conditions set forth in the Loan Agreement are satisfied.

On March 31, 2012, the Company entered into an auto loan financing with Acura Financial Services, Inc, in the amount of $41, which loan is secured by an automobile and matures on April 15, 2017.  Interest and principal in the amount of less than $1 is payable monthly and bears interest at the rate of 1.9%.