SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required] FOR THE
FISCAL YEAR ENDED June 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] OR THE
TRANSITION PERIOD FROM __________ TO __________
Commission file number 0-19333
Bion Environmental Technologies, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-1176672
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 17th St., Suite 3310
Denver, Colorado 80202
(Address of principal (Zip Code)
executive offices)
(303) 294-0750
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) and/or 12(g) of the
Exchange Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-K contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB/A or
any amendment to this form 10-KSB/A. [ X ]
The aggregate market value as of September 23, 1996 of voting
stock held by non-affiliates of the Registrant was $3,292,988
based upon the average of the closing bid and ask prices on the
Over the Counter Electronic Bulletin Board exchange as of that
date.
As of September 23, 1996, 1,739,960 shares of Registrant's Common
Stock, no par value, and 18,834 shares of Series B Convertible
Preferred Stock were issued and outstanding.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
Bion Environmental Technologies, Inc. (the "Registrant") is
a Colorado corporation organized on December 31, 1987. The
Registrant maintains its principal executive offices at
Suite 3310, 555 Seventeenth Street, Denver, Colorado, 80202
and its phone number is (303) 294-0750.
Substantially all of the business and operations of the
Registrant are conducted through two wholly owned
subsidiaries, Bion Technologies, Inc. (a Colorado
corporation organized September 20, 1989) and BionSoil, Inc.
(a Colorado corporation organized June 3, 1996). The
Registrant and its subsidiaries are here after referred to
as the "Company".
The Company has offices located in Colorado, Florida, New
York, North Carolina and Washington.
Business of the Company
General Description
The Company currently conducts its business in two
complimentary business areas: first, the Company designs,
markets and installs waste and wastewater treatment systems,
primarily in the agricultural area; and second, produces and
markets BionSoilO, a nutrient rich, organic, soil-like by-
product produced by certain types of the Company's
agricultural systems.
Principal products and services and their markets
In the waste and wastewater (and stormwater) treatment
system area, the Company designs, markets, monitors the
construction and installation of, and assists its customers
in the operation of environmentally sound and economically
practical treatment systems (based on patented and/or
proprietary processes) for the biological treatment of
wastewater, stormwater and related environmental problems.
The Company's wastewater and stormwater treatment systems
are designed to reduce pollutant levels in waters discharged
from agricultural and food processing operations in order to
enable purchasers to meet existing and prospective
environmental regulatory requirements and to avoid fines,
penalties, or citizen lawsuits.
In the BionSoil area, the Company has introduced technology
which converts animal manures, or other materials and
nutrients which have been removed from wastewater, into
nutrient rich organic soil, BionSoil, which the Company
sells as an organic fertilizer or soil amendment type
product. In this application area, the Company processes
the BionSoil produced in the BionSoil NMSO systems and
markets and sells the BionSoil to customers in bulk or
bagged form.
Currently the Company has systems designed for and operating
in market segments which include the dairy and hog farming
industries, sugar cane farming, and fruit processing plants.
Technology adaptations and related marketing efforts are
planned to expand utilization of the Company's technology by
designing systems to treat additional agricultural waste
streams (feedlots, beef, poultry, fruit and vegetable farms,
etc.), additional food processing plants, and to treat other
types of high-intensity and non-point source waste and
wastewater discharges.
The Company's systems, based on the commercial application
of its patented and/or proprietary technologies, solve or
mitigate a broad range of environmental problems by
combining advanced biological technology with chemical
processing, engineering, and management principles. The
Company studies each proposed site of application carefully
to determine the best system design to solve the client's
existing problems, oversees system construction and start-
up, and then works to promote the conditions under which
system performance will be optimized. The result is an
enhanced natural system generally consisting of a bioreactor
(with aerobic, facultative, and anaerobic bacterial
populations for initial waste breakdown), an ecoreactor (a
managed high intensity wetland-like area), and, in some
applications, a georeactor (a treatment zone of porous
material underlying the bioreactor and ecoreactor). Such a
system removes odors, nutrients such as nitrogen and
phosphorus, and other materials from wastes and wastewaters.
The materials are then bioconverted into some or all
(depending on the specific application) of the following
desirable end products: a high protein feed crop, BionSoil,
clean water, and wetlands habitats. The Company's systems
offer technical, economic, and environmental advantages over
existing competitive technologies and produce superior
treatment results in appropriate situations. The Company
holds patents that cover the basic concepts of the
technology.
Marketing and Distribution
The Company's marketing efforts for system sales and
installations have been concentrated in the agricultural and
food processing waste management area.
The Company has implemented a step-by-step marketing
strategy for penetrating desired market segments and
selected geographic areas with two major focuses. First, a
particular technology application is developed and initial
sales are made in the selected market segment within a
single geographic area where a substantial number of
potential customers exist. Based on performance of the
initial systems, the specific market segment is developed in
the geographic area through the sales of additional systems.
Simultaneously, other potential customers with similar
problems in the geographic area are identified, and new
applications of the technology are developed and marketed to
them based on the Company's demonstrated track record in
solving similar problems in the initial market segment.
Second, as the success of each particular technological
application is demonstrated in an initial geographic market,
marketing commences in other geographical regions.
Following this basic approach, the Company is currently
developing and/or marketing systems applicable to high
intensity animal raising facilities (dairy, beef, poultry
and swine) in the Florida, New York, Washington, Colorado,
and North Carolina regional markets.
The Company contacts potential customers who have
wastewater treatment needs that can be solved by the
Company's systems, or who have large animal raising
facilities where a BionSoil NMS system will solve
environmental problems facing the producer and also produce
BionSoil in commercial quantities. Following initial
customer contact, a proposal is prepared for the design,
installation, and initial operation of one of the Company's
systems which is specifically suited to the customer's
situation and site. The proposal presents a description of
the appropriate technology, confidentiality agreement, the
system configuration, a budget for the project, and an
agreement for execution by the customer authorizing
commencement of the project. A detailed design package is
then prepared containing all specifications and drawings
needed for permitting and construction of the system.
Appropriate regulatory agencies are contacted for review of
the project concept and to secure all necessary permits,
approvals or waivers for the project. This process may
involve modifications to the system design, preparation of
specified drawings, presentation of data, or other
activities to fully demonstrate that the proposed system
should be permitted or approved.
The Company normally does not actually construct or install
any part of any of its systems, nor does it sell any of the
equipment necessary to operate any of the systems. Once
regulatory approval is secured, the Company (in consultation
with The customer) selects contractors and/or subcontractors
to construct the system in accordance with the contract
specifications. Under monitoring by the Company, all
necessary construction and equipment installation activities
are completed to the design and specifications delineated in
the contract.
Upon completion of construction, the system commences
operation under careful monitoring by the Company. As
operations proceed, the Company reduces its involvement with
daily operation and then conducts periodic visits to insure
that optimal performance is achieved.
For many of the Company's systems, a long term system
management contract is required in order for the customer's
site license to utilize the technology to remain in effect.
The management contract covers ongoing oversight of the
system's biological components, regulatory reporting, and
system performance. It provides an annual economic return
to the Company from each system.
BionSoil
Until recently the marketing and sales success of the
Company depended almost exclusively on enforcement actions
and pressures from environmental regulatory agencies at the
federal, state, and local levels. While responding to these
types of actions and pressures is, and will be, a continuing
part of the Company's business, the introduction of the
BionSoil NMS technology has significantly expanded the types
of marketing approaches available.
With the BionSoil NMS, it is now possible to demonstrate to
a prospective customer in the large animal agricultural area
that positive economic benefits can be achieved from the
Company's waste management system. These benefits result
from a reduction of manure handling expense, more economical
management of nutrients in animal wastes so that they are
incorporated into crops more efficiently, and the sale or
utilization of the nutrient rich, organic BionSoil.
Management believes that this new approach will prove to be
much more effective with prospective clients, many of whom
tend to resist regulatory pressure as long as possible but
do respond positively to a way to save money or generate a
new income stream.
To manage this new aspect of the business, the Company
formed BionSoil, Inc., a wholly owned subsidiary (organized
in Colorado) on June 3, 1996. BionSoil, Inc. will purchase
from Bion Technologies, Inc. all BionSoil produced by the
BionSoil NMS systems installed by Bion Technologies, Inc.
BionSoil, Inc. will remove the BionSoil from the production
sites to processing facilities located strategically near
clusters of farms producing BionSoil. Once transported to
these processing facilities, BionSoil, Inc. will
appropriately process the BionSoil (using a combination of
some or all of turning, drying, screening, shredding,
blending and bagging) to create products that suit the
requirements of various targeted customer groups. BionSoil,
Inc. will then market and distribute the finished product to
these targeted customers.
This targeted customer base for BionSoil is made up of many
individual, retail and commercial users who have recognized
the environmental, economic, and horticultural benefits of
using organic and recycled products. Organic materials
provide better sources of nitrogen, phosphorus, and
potassium for plants. Such products are economical and
support sustainable development for individuals and
communities.
With the first commercial quantities of BionSoil available
in the summer and fall of 1996, the Company believes it can
accelerate the marketing and sale of the BionSoil products.
Preliminary studies indicate that BionSoil is a high quality
organic material with relatively high levels of stabilized
nutrients. As such, it is expected to command a premium
position in the rapidly expanding organic soil related
market.
A partial listing of possible markets and uses for BionSoil
includes:
- a blending component for potting soil and topsoils
- nurseries and greenhouses
- home gardens and lawns
- landscapers for
private homes
businesses
universities, colleges and governmental campuses
cemeteries and parks
- sod farming
- fruit and vegetable farms including
orchards and vineyards
organic farms
- horticultural and potted plant growers
- silviculture and reforestation projects for
timber and mining companies
US Park Service, and
- sports turfs
golf courses
athletic fields
At the present time the Company has not established a
distribution system for BionSoil and sales to date have been
only sporadic and primarily intended to test the market for
this product. Commercial operations are expected to begin
this year. These operations are contingent upon the
Company's ability to attain commercially sufficient
inventories of consistent BionSoil product, establish a
distribution system, implement sales and marketing
strategies, and raise adequate working capital to obtain
equipment and hire additional personnel to assist in this
area of the business.
Competition
Competition in the biological wastewater treatment industry
is intense. The Company faces significant competition from
many firms involved in the design, construction, and
operation of conventional wastewater treatment systems, as
well as developers of constructed wetlands which are similar
but not identical to the Company's technology.
Additionally, there are companies that are capable of
developing systems similar to those being developed by the
Company and that have developed and are capable of
developing systems based on other technologies that are or
may be competitive with the Company's systems. Many of
those companies are well-established, have substantially
greater financial and other resources than the Company and
have established success in the development, sale and
service of their systems. These companies may succeed in
developing competing systems that are more effective than
those developed by the Company. The Company's ability to
compete will be dependent upon its ability to obtain
required approvals and licenses of regulatory authorities
and upon the Company's ability to introduce its systems in
the appropriate markets. The Company believes, however,
that in the market segments on which it has focused to date,
its systems offer a less expensive and more flexible process
with better economic and remedial performance than
conventional systems offered by competitors.
There is also extensive competition in the potting soil,
organic soil amendment, and organic fertilizer markets.
There are many companies which are already selling similar
type products. These companies have established marketing
and sales organizations and retail customer commitments, are
supporting their products with advertising, sometimes on a
national basis, and have developed brand name recognition
and customer loyalty in many cases. Gaining a share of this
market may take time and could require substantial resource
allocation for advertising, packaging, and product
introductions. Further competition will come from a variety
of composting operations being run by municipal and other
governmental agencies, and by private industry, to dispose
of various waste products including industrial and municipal
wastewater sludges, yard and landscaping wastes, and other
industrial or commercial organic wastes. These composted
materials may be sold by the various organizations at low
cost just to reduce or defray disposal expense, thereby
creating downward pressure on the price the Company may be
able to get for its products. Many of the competing
organizations and companies are well-established, have
substantially greater financial and other resources than the
Company and have already established success in the
development, and sale of their products. The Company
believes it can compete successfully with these
organizations in its market niche because BionSoil is
generally a higher quality product which qualifies as an all-
organic material. It will, however, take time, a well
organized marketing program, and further product development
to realize the market potential that BionSoil currently
appears to offer.
Dependence on one or a few major customers
The Company's operating results are not dependent upon a
limited number of large contracts. Although some of the
Company's customers accounted for more than 10 percent of
the Company's revenues during the past fiscal year resulting
from the installation of new systems, no such customer is
expected to account for more than 10 percent of the
Company's revenue during the current fiscal year. The
nature of the Company's business is such that significant
sales are generally expected to be "one-time" contracts
pursuant to which single systems are sold and installed,
with income to be received after the first year of operation
from the sale of by-products produced by the systems and
from maintenance contracts.
Patents
The Company is the sole owner of four United States patents
and one Canadian patent:
U.S. Patent No. 5,078,882, Bioconversion Reactor and
System. The patent describes the Meta System Reactor (MSR)
which is the underlying technology for the Company's current
wastewater treatment and BionSoil NMS systems. This patent
describes in detail the MSR containing three primary
treatment zones, bioreactor, ecoreactor and georeactor,
which are cyclically connected by a series of recycle flows
and organism movements to bioconvert the contained
materials. The MSR, with modification, is the basis of the
Company's NMS and BionSoil NMS which have been developed for
managing nutrient rich waste streams from dairies, farms and
food processing facilities.
U.S. Patent No. 5,472,472, Animal Waste Bioconversion
System. The patent describes a process for the
bioconversion of animal wastes produced at a Confined Animal
Feeding Operation into economically desirable or
ecologically neutral materials. There are two essential
aspects of the process. One involves treatment of the
solids fraction of the waste stream, resulting in a variety
of soil-like materials ranging from a high nutrient, organic
soil to a peat-like substance. The other aspect of the
process entails treatment of the waste stream liquids by
means of a microbial activation zone and a constructed
wetland zone. The end-products are clean, virtually
nutrient-free water, a high humus soil, and an attractive
wetland environment. This patent covers the technology for
the BionSoil NMS.
U.S. Patent No. 5,538,529, Bioconverted Nutrient Rich
Humus. The patent describes the process which is an
improved process to create nutrient rich humus through the
biological transformation of animal wastes into ecologically
manageable materials. This patent describes the process of
creating BionSoil and its characteristics. Prior to the
issuance of this patent a continuation-in-part was filed
describing addition attributes of BionSoil and how it can be
mixed with other substances to create additional useful
products.
U. S. Patent No. 4,721,569, Phosphorus Treatment Process.
The patent describes a process developed to substantially
reduce the phosphorus content of an aqueous influent stream
containing biodegradable substrates. This process, in
essence, reduces the capital expenditures required to reduce
phosphorus levels in either air or oxygen-based wastewater
treatment plants, as compared to more conventional
biological phosphorus removal or chemical precipitation
systems. The process also allows further savings to be
realized in operations due to the elimination or significant
reduction of the chemical loading required by conventional
systems to accomplish the same removal rate.
Canadian Patent No. 1,336,623, Aqueous Stream Treatment
Process. This patent extends Canadian patent protection to
a combination of the features included in U.S. Patents No.
4,721,569 and 5,078,882.
The Company also filed US patent application No. 08/165,172
regarding technology (known as the "Storm Water Remediatory
Bioconversion System") relating to a process for the
treatment of agricultural, municipal, or residential storm
water runoff or the like through the capture and
bioconversion of nutrients and contaminants in a constructed
wetland treatment zone entailing the addition of non-toxic
chemical additives and the establishment of chemical-
microbial-vegetative complexes.
Management intends to file such additional patent
applications in the future as it may deem necessary or
appropriate to protect any future modifications to the
Company's existing technology.
There can be, however, no assurances: that any additional
patents will be granted to the Company; that, if granted,
the patents will be defendable against competitors'
potential infringement actions, if any; and/or that the
patents, if granted, will provide any substantial protection
of the Company's technology.
Research and Development
The Company maintains an active research program and
continues the generation of potentially marketable and
patentable applications of the Company's waste and
wastewater treatment technology. Current research and
development efforts are focused on enhancements of the MSR
and derivative technologies as utilized in the Company's
existing systems in order to apply these technologies to
opportunities that exist in additional geographic areas and
industry segments. As each new geographic market and
industry application area is entered, there will be a need
for additional research efforts to adapt the Company's
systems.
Environmental Protection/Regulation
The Company is a provider of systems and services which
result in reduction of pollution and as such is not itself
under direct enforcement or regulatory pressure. However,
because the Company is involved in wastewater treatment, it
is subject to environmental regulations with at least three
different focuses. Specifically:
(1) The marketing and sales success of the Company depends,
to a substantial degree, on the pollution clean-up
requirements of various governmental agencies from the
Environmental Protection Agency (EPA) at the federal
level to various state departments of environmental
affairs to local governmental agencies at the county
and city levels. As guidelines or directives are
established at the highest of these levels, lower
jurisdictions are generally required to at least meet
or, in many instances, exceed the standards
established. Without these governmentally-induced
pressures to solve pollution problems, many
municipalities, industries and individuals will not
expend the capital necessary to purchase systems to
treat their wastewater streams. While the current
administration in Washington, D.C. has verbally placed
emphasis on pollution clean-up targets, there can be no
assurance that these statements will lead to actions
which will result in regulations and/or enforcement
activity that will significantly accelerate the
Company's business.
(2) Federal, state and local environmental agencies
frequently change required final effluent standards for
treatment systems which introduces a degree of
uncertainty in system design and performance criteria.
As these requirements change, the marketability of the
Company's systems may be impacted both negatively and
positively.
(3) Additionally, most of the Company's systems require
governmental permits or approval prior to installation
as they are treating situations for customers where
government regulations specify permit requirements for
operation.
(g) Employees
The Company employed twenty persons with sixteen persons
full-time as of June 30, 1996. Three of these full-time
persons are engaged in management; eleven in operations,
sales and marketing; and two in clerical.
ITEM 2. DESCRIPTION OF PROPERTY
Office and Processing Facilities
The Company's executive offices are located at 555 17th Street,
Suite 3310, Denver, Colorado. The Company subleases four offices
(plus use of common facilities, office equipment and certain
services) from Delta Petroleum Corporation (which owns
approximately 7.8% of the Company's currently issued and
outstanding common stock) on a month-to-month basis pursuant to
an oral arrangement between the parties. The Company has
additional offices at Baird Research Park, 1576 Sweet Home Road,
Amherst, New York which lease expired on August 31, 1994 (the
Company is renting on a month to month basis until October 15,
1996. The Company has signed a new three year lease for space at
606 N. French Road, Suite 5&6, Amherst, NY 14228); 206 North
Parrott Avenue, Okeechobee, Florida; 6 South 2nd Street, Suite
1008, Yakima, Washington; and 619-C South Third Street,
Smithfield, North Carolina. The Company also rents three
BionSoil processing sites located at State Road 710 and SE 74th
Trail, Okeechobee, Florida, 5905 Courier Road, Arcade, NY and
Upper Reservation Road, Castile, NY. All leases are with non-
affiliated parties.
ITEM 3. LEGAL PROCEEDINGS
The Company knows of no material pending legal proceedings to
which the Company (or the Subsidiary) is a party or to which any
of its systems is the subject and no such proceedings are known
to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There has been no submission of matters to a vote of security
holders during the fourth quarter of the fiscal year ended June
30, 1996.
PART II
ITEM 5. MARKET FOR BION ENVIRONMENTAL TECHNOLOGIES, INC. COMMON
STOCK AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company has had during the past two years only sporadic
trading in its common stock in the over-the-counter market,
and there is no assurance that such trading will expand or
even continue. The Company's stock may not be traded in
certain states unless the Company is able to qualify its
stock in such states. During the past year there have been
quotations for various transactions in the Company's shares
which are not necessarily representative of an established
public trading market.
At present, the Company's Common Stock trades under the
symbol "BIET" on the NASD's OTC Bulletin Board. The
following quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not
represent actual transactions.
Quarter Ended High Bid Low Bid
September 30, 1994............... $ 7.50 $7.00
December 31, 1994................ $ 7.56 $7.50
March 31, 1995................... $ 7.75 $1.00
June 30, 1995.................... $ 7.75 $1.00
September 30, 1995............... $ 4.97 $1.50
December 31, 1995................ $ 4.63 $2.25
March 31, 1996................... $ 3.75 $3.00
June 30, 1996.................... $ 4.00 $2.50
On September 23, 1996 the bid and asked prices of the
Common Stock were $3.875 and $5.50, respectively.
(b) Holders
The number of holders of record of the Company's Common
Stock at September 23, 1996 was approximately 207.
(c) Dividends
The Company has never paid any cash dividends on its Common
Stock. The payment of dividends, if any, in the future is
within the discretion of the Board of Directors and will
depend on the Company's earnings, if any, its capital
requirements and financial condition, and other relevant
factors. The Board of Directors does not intend to declare
any cash or other dividends in the foreseeable future, but
instead intends to retain earnings, if any, for use in the
Company's business operations.
Class B Preferred stockholders are entitled to receive,
upon conversion, redemption or liquidation, cumulative
dividends at the per annum rate of $.54 per share on the
issued and outstanding Class B Preferred Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in
conjunction with the Company's consolidated financial statements
and the Notes thereto included elsewhere in this 10-KSB/A.
As noted in the attached Consolidated Financial Statements for
the fiscal years ended June 30, 1996 and 1995, the Company is a
relatively new company and caution should be used in evaluating
the comparative data presented. The Company has just begun to
establish the BionSoil subsidiary and will be marketing a limited
supply of the material in several geographic areas during the
next fiscal year. The Company will explore financing
alternatives in the coming fiscal year to attempt to insure
sufficient funds are available to carry out its business plan.
During the current fiscal year management is also focusing a
major emphasis on securing a significant number of additional
contracts for BionSoil NMS installation. While management
believes that the trends which might be drawn from the results
set forth below or reflected in the Financial Statements are
useful to illustrate the increase in the Company's level of
activity and the progress of the business to date, the results
should be carefully reviewed.
(a) Liquidity and Capital Resources
At June 30, 1996 the Company's total assets were $554,210
compared to $1,953,442 as of June 30, 1995. The change is
primarily attributable to a decrease in marketable
securities, work in progress and deferred long term
contract costs (see "Note 3 to Consolidated Financial
Statements"), partially offset by an increase in cash and
equipment (see "Note 4 to Consolidated Financial
Statements") during the period.
During the year, due to the lack of working capital, the
Company decided to cancel the remaining deferred revenue
contracts for systems that the Company was to build and
finance. The result of this was a one time write off of
$146,000 which was a reduction in deferred revenue and work
in progress. The Company also expensed $29,200 for work
performed to date on these deferred contracts.
The Company's current ratio as of June 30, 1996 was .63 : 1
as compared to 2.90 : 1 as of June 30, 1995. Cash for the
period ended June 30, 1996, increased $114,811 as compared
to a decrease of $17,615 for the period ended June 30,1995.
The Company has incurred losses since inception totaling
$5,903,824 and is currently experiencing liquidity problems.
Continued losses without additional outside funding raise
doubt about its ability to continue as a going concern.
Managements plans include continuing efforts to obtain
additional capital to fund operations until such time, if
ever, as contract sales along with the sales of BionSoil are
sufficient to fund operations. The Company is currently
negotiating with independent third parties to obtain the
necessary additional funding for the Company. No assumption
can be made that the Company will be able to successfully
attain profitable operations and/or raise sufficient capital
to sustain operations.
(b) Results of Operations
Comparison of Fiscal Year Ended June 30, 1996 with Fiscal
Year Ended June 30, 1995
During the twelve months ended June 30, 1996 the Company
performed work on 23 projects as compared to 20 projects in
the corresponding period that ended on June 30, 1995.
Contract revenue was slightly higher due to the increased
amount of project activity. The ability to staff projects
with experienced personnel provided efficiencies and
therefore lower contract costs.
The company recorded a $68,000 write off of contract
receivables and work in progress and reduced the reserves
for bad debt by $30,000 during the year.
General and administrative expenses have decreased due to
lower marketing, public relations, consulting, legal and
accounting costs. These decreased expenses are partially
offset by increased compensation costs. The Company
anticipates that General and Administrative expenses could
increase in the future as the business grows.
The Company incurred $218,871 of interest expense on Notes
Payable to LoTayLingKyur and other shareholders of the
Company (see "Notes to Consolidated Financial Statements").
The interest on these notes could be as high as $250,000 if
none of the principal is paid during the fiscal year ending
June 30, 1997.
The Company also sold marketable securities during the year
for a gain of $143,371.
Comparison of Fiscal Year Ended June 30, 1995 with the
Transition Period Ended June 30, 1994
During the twelve months ended June 30, 1995 the Company
performed work on 20 projects as compared to 14 projects in
the three-month period ended June 30, 1994. Contract
revenue was low due to the change in the way the Company
recognizes revenue on BionSoil contracts. During the period
ended June 30, 1994 the Company made a decision to offer
deferred fee contracts in certain market areas at certain
times to help establish the BionSoil NMS product line. The
deferred fees are delayed and paid out of revenue generated
by the sale of the BionSoil produced by these systems. Fees
in the amount of $263,000 were deferred during the year
ended June 30, 1995. Contract costs were high due to delays
in obtaining adequate working capital and the subsequent
project delays. The delays created inefficiencies and
increased costs. The reduced revenues and increased costs
as discussed above combined to equal a gross loss of
$131,614.
General and administrative expenses increased due to higher
employee costs (approximately $150,000) caused by more
employees and higher consulting fees for marketing and
public relations ($655,000).
Interest income consisted of approximately $99,000 from the
sale of collateral that exceeded the face value of an
investment instrument and approximately $26,000 of interest
on a promissory note of Delta Petroleum Corporation.
The Company incurred $24,365 of interest expense on Notes
Payable to LoTayLingKyur and other shareholders of the
Company (see "Notes to Consolidated Financial Statements").
The interest on these notes could be as high as $225,000 if
none of the principal is paid during the fiscal year ending
June 30, 1997.
The Company sold marketable securities during the year for
a loss of $44,604. The loss was incurred due to the timing
of the sale of these securities to obtain working capital.
(c) Seasonality
The Company's business is not seasonal in nature, except to
the extent that weather conditions at certain times of the
year in certain geographic areas may temporarily affect
construction and installation of its systems. However, the
Company's projects and markets are geographically spread so
that when weather conditions limit construction activity in
southern market areas, projects in northern markets can
proceed, and when northern area weather is inappropriate,
southern projects can proceed.
(d) Inflation and Changes in Prices
The Company is unable to predict the impact of inflation on
the Company's activities; however, at this time it is
minimal.
ITEM 7. FINANCIAL STATEMENTS
Financial Statements and Supplementary Data are included on
Pages F-1 through F-16.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Within the twenty-four (24) months prior to the date
of its most recent Financial Statements, the Company
has had no disagreements with its accountant on
accounting or financial disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
(a) Executive Officers and Directors
The following table sets forth the names, ages and
positions held with respect to each Director and Executive
Officer of the Company along with the period served as a
Director.
<TABLE>
<CAPTION>
Name Age Position(s) Period of Service
<S> <C> <C> <C>
Jon Northrop 53 Chairman of the Board, April 9, 1992 to
Chief Executive Officer, Present
Secretary, and Director
Jere Northrop 54 Chief Operating Officer, April 9, 1992 to
President, and Director Present
M. Duane Stutzman 57 Chief Financial Officer, August 31, 1993 to
Treasurer, and Director Present
Ronald G. Cullis 60 Director November 1, 1994 to
Present
John Schwanekamp 48 Director August 31, 1993 to
Present
</TABLE>
All officers and directors will hold office until the next
annual meeting of shareholders. There is no person who is
not a designated officer or director who is expected to make
any significant contribution to the business of the Company.
The following sets forth biographical information as to the
business experience of each current Director and Executive
Officer of the Company.
Jon Northrop has been Chairman of the Board, Chief Executive
Officer, and Secretary of the Company since April 9, 1992.
Mr. Northrop is a founder of Bion Technologies, Inc. and has
been its Chief Executive Officer since its inception in
September 1989. Before founding Bion Technologies, Inc., he
served in a wide variety of managerial and executive
positions. He was most recently the Executive Director of
Davis, Graham & Stubbs, one of Denver's largest law firms,
from 1981 to 1989. Prior to his law firm experience, Mr.
Northrop worked at Samsonite Corporation's Luggage Division
in Denver, Colorado, for over 12 years. His experience was
in all aspects of manufacturing, systems design and
implementation, and planning and finance, ending with three
years as the Division's Vice President, Finance. Mr.
Northrop has a bachelors degree in Physics from Amherst
College,
Amherst, Massachusetts (1965), an MBA in Finance from the
University of Chicago, Chicago, Illinois (1969), and spent
several years conducting post-graduate research in low
energy particle physics at Case Institute of Technology,
Cleveland, Ohio. Jon Northrop is the brother of Jere
Northrop.
Jere Northrop has been President, Chief Operating Officer,
and a Director of the Company since April 9, 1992. Dr.
Northrop is a founder of Bion Technologies, Inc. and has
been President since October of 1989. He has ten years of
recent experience in the management of operations and
process control of a large municipal advanced wastewater
treatment plant at Amherst, New York (1979-1989). He also
has 25 years of experimental research on both individual and
complex systems of microorganisms. Dr. Northrop has a
bachelors degree in Biology from Amherst College, Amherst,
Massachusetts (1964), a doctorate degree in Biophysics from
Syracuse University, Syracuse, New York, (1969) and has done
post doctoral work at both the University of California at
Davis, Davis, California, and The Center for Theoretical
Biology, State University of New York at Buffalo, Buffalo,
New York. Jere Northrop is the brother of Jon Northrop.
M. Duane Stutzman has been a Director of the Company since
August 31, 1993. Immediately prior to joining the Company
as a full time employee on May 1, 1994, he spent 11 years
with Davis, Graham & Stubbs, a large Denver law firm, ending
as its Chief Financial Officer for the last four years.
Prior to his employment at Davis, Graham & Stubbs, Mr.
Stutzman worked for 18 years in various accounting and
financial positions at Samsonite Corporation's Luggage
Division in Denver and the Bendix Corporation's Aerospace
Division in Denver and Teterboro, New Jersey. Mr. Stutzman
received a Bachelor of Science degree in Accounting from
Florida Southern College, Lakeland, Florida in 1964. Mr.
Stutzman became Chief Financial Officer on May 1, 1994 and
Treasurer on June 30, 1995.
Ronald G. Cullis has been a director of the Company since
November 1, 1994. He has spent the last ten years with
PENSA and Altman Weill Pensa, national consulting firms
oriented towards law firms, in-house legal departments and
other service enterprises as a consultant, manager, and
partner. From 1980 to 1985, Mr. Cullis served as the
Executive Director of Milbank, Tweed, Hadley & McCloy, a New
York City law firm. Prior to that time he worked for 20
years in various positions including Vice President-Finance,
Treasurer for Oceaneering International, Inc., Senior Vice
President Finance, Treasurer and Director for Vetco, Inc.,
Vice President and Controller for Fluor Corporation, and in
various planning and analysis capacities with a number of
other corporations. Mr. Cullis received a B.A. degree in
economics from Williams College in Williamstown,
Massachusetts in 1960.
John Schwanekamp has been a Director of the Company since
August 31, 1993. He has over 20 years of experience in
public administration. From 1971 to 1973 he served as a
lieutenant at the U.S. Army Medical/Bioengineering Research
and Development Laboratory in New York and Maryland. The
laboratory designed, fabricated and tested prototype devices
and equipment for field medical needs and prostheses. Since
1973 he has worked at the Chautauqua County Department of
Personnel in Mayville, New York, and currently serves there
as deputy director. That work includes a broad range of
general management duties in public personnel administration
and labor relations. Mr. Schwanekamp received a B.S. degree
in Business Administration from Canisius College in Buffalo,
New York in 1970.
The Company has an Executive Committee consisting of Messrs.
Jon Northrop, Jere Northrop, and Duane Stutzman. The
Company has Audit and Compensation Committees which consist
of Messrs. Schwanekamp and Cullis. These committees were
formed on August 31, 1993.
(c) Family Relationships
Jon Northrop and Jere Northrop are brothers.
ITEM 10. EXECUTIVE COMPENSATION
(a)&
(b) Summary Compensation
The following table shows the aggregate direct remuneration
paid by the Company for the fiscal years ended June 30, 1996
and 1995, and the three month transition period ended
June 30, 1994, to each executive officer.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Other
Annual
Salary1 Bonus Compensation
Name and Princial Position Year ($) ($) ($)
<S> <C> <C> <C> <C>
Jon Northrop 1996 133,333 2 - -
Chairman of the Board, Chief
Executive Officer and
Secretary 1995 100,000 3 - -
1996 6 25,500 - -
Jere Northrop 1996 133,333 2 - -
President and Chief 1995 100,000 3 - -
Operating Officer
1994 6 25,500 - -
Duane Stutzman 1996 110,000 5 - -
Chief Financial Officer and 1995 90,000 4 - -
Treasurer
1994 6 15,000 - -
</TABLE>
Continued below
<TABLE>
<CAPTION>
Awards Payouts
Restricted Securities All Other
Stock Award Underlying LTIP Annual
Salary1 (s) Options/ Payouts Compensation
Principal Position Year ($) ($) SARs (#) $ $
<S> <C> <C> <C> <C> <C> <C>
Jon Northrop 1996 133,333 2 - - - -
Chairman of the
Board, Chief 1995 100,000 3 - - - -
Executive Officer
and Secretary 1996 6 25,500 - - - -
Jere Northrop 1996 133,333 2 - - - -
President and 1995 100,000 3 - - - -
Chief Operating
Officer 1994 6 25,500 - - - -
Duane Stutzman 1996 100,000 5 - - - -
Chief Financial 1995 90,000 - - - -
Officer and
Treasurer 1994 6 15,000 - - - -
</TABLE>
_______________________
1 Includes compensation paid by Bion Technologies, Inc., the
Company's wholly-owned subsidiary.
2 Includes $33,333 of salary that was deferred by management
and accrued as a liability to conserve cash for operation.
3 Includes $25,000 of salary that was deferred by management
and accrued as a liability to conserve cash for operations.
4 Includes $18,750 of salary that was deferred by management
and accrued as a liability to conserve cash for operations.
5 Includes $20,000 of salary that was deferred by management
and accrued as a liability to conserve cash for operations.
6 Three-month transition period ended June 30, 1994.
There were no Option/SAR grants made to any executive officer
during the fiscal year ended June 30, 1996. Additionally, there
were no executive officer aggregated Option/SAR exercises or Long
Term Incentive Plan awards during the fiscal year ended June 30,
1996.
(f) Compensation of Directors
Effective September 1, 1993, outside Directors are
compensated at a rate of $75.00 per month for their
contributions to the Company. No additional compensation is
paid for their involvement in the Audit and Compensation
Committees. On June 14, 1996 the Board of Directors of the
Company adopted the 1996 Nonemployee Director Stock Plan.
There were no awards made during the fiscal year ended June
30, 1996.
(g) Employment Contracts and Terms of Employment and Change in
Control Arrangements
On July 12, 1993, the Company entered into separate
employment agreements (both of which are substantially
identical) with each of Jon Northrop (the Company's Chief
Executive Officer) and his brother, Jere Northrop (the
Company's President) for the period commencing on July 1,
1993 and ending on March 31, 1998 (unless earlier terminated
as discussed below). Among other things, each of the
subject employment agreements provides that the affected
employee is to be paid a salary of $100,000 per year (which
amount has been reduced from $150,000 per year to preserve
cash flow for the continued operation of the Company),
receive reimbursement for certain business expenses
(including but not limited to expenses for travel,
entertainment and similar items) and receive payment of
certain benefits including parking, health, hospitalization
and life insurance, four weeks of paid vacation each year
and such other benefits as the Company's Board of Directors
may deem appropriate from time to time. Effective November
1, 1995 the Compensation Committee increased Messrs.
Northrop's salaries to $150,000 per year of which $50,000
per year will be accrued until such time as cash flow
permits payment of the accrued amounts.
The Company's Board of Directors is required to review
Messrs. Northrop's salaries no less often than once annually
with a view to making such increases in each employee's
salary or declaring such bonuses or other benefits as may be
merited and warranted in light of factors considered
pertinent by the Board of Directors at that time.
In the event of disability (as defined in the employment
agreements) prior to the end of the employment period in
each case, the affected employee is entitled to receive his
full compensation under his employment agreement during the
full term of the disability. The Company may require such
evidence of disability as it deems appropriate. Also, in
the event the employee dies during the term of the
agreement, the Company will be required to pay to the
employee's legal representative all of the compensation due
to the employee under the agreement for a period of one year
or the end of the employment period, whichever occurs
earlier.
In the event the employee is terminated for cause (which is
defined generally as conduct including, among other things,
criminal activity, willful misconduct, gross neglect of
duties, or breach of the employment agreement by the
employee), the Company is entitled to terminate the affected
employment agreement without any further liability to the
employee. In the event the employee is terminated for any
reason other than "for cause," the employee is entitled to
receive his full compensation under the agreement for the
entire duration of the employment period.
In the event that a change in control of the Company occurs
at any time during the term of either of the affected
employment agreements (as a result of which the Board of
Directors appoints a person other than the employee to serve
in the capacity for which the employee is employed under the
affected employment agreement or as a result of which the
employee elects to resign his executive position with the
Company), each affected employee is nevertheless entitled to
all of the benefits and compensation under his employment
agreement for the entire term thereof, regardless of whether
the employee continues to perform any services for the
Company. Each of the employment agreements is binding upon
the Company and its successors and assigns and any person
acquiring, whether by merger, consolidation, liquidation,
purchase of assets or otherwise all or substantially all of
the Company's equity or business.
The employment agreements allow each of the respective
employees to terminate employment without liability upon 90
days' written notice to the Company, and to directly and
indirectly engage in other business activities that are not
directly competitive with the business of the Company.
Neither of the subject agreements contains any non-
competition or similar provisions.
On January 1, 1995, the Company entered into an employment
agreement with Mr. M. Duane Stutzman (the Company's Chief
Financial Officer and Treasurer) for the period commencing
on January 1, 1995 and ending on December 31, 1997 (unless
earlier terminated as discussed below). Among other things,
the employment agreement provides that the affected employee
is to be paid a salary of $90,000 per year, receive
reimbursement for certain business expenses (including but
not limited to expenses for travel, entertainment and
similar items) and receive payment of certain benefits
including parking, health hospitalization and life
insurance, four weeks of paid vacation each year and such
other benefits as the Company's Board of Directors may deem
appropriate from time to time. Effective November 1, 1995
the Compensation Committee increased Mr. Stutzman's salary
to $120,000 per year of which $30,000 per year will be
accrued until such time as cash flow permits payment of the
accrued amounts.
The Company's Board of Directors is required to review Mr.
Stutzman's salary no less often than once annually with a
view to making such increases in employee salary or
declaring such bonuses or other benefits as may be merited
and warranted in light of factors considered pertinent by
the Board of Directors at that time.
In the event of disability (as defined in the employment
agreement) prior to the end of the employment period, Mr.
Stutzman is entitled to receive his full compensation under
his employment agreement for a period of twelve months from
the date of his disability. The Company may require such
evidence of disability as it deems appropriate. Also, in
the event the employee dies during the term of the
agreement, the Company will be required to pay to the
employee's legal representative all of the compensation due
to the employee under the agreement for a period of six
months or the end of the employment period, whichever occurs
earlier.
In the event the employee is terminated for cause (which is
defined generally as conduct including, among other things,
criminal activity, willful misconduct, gross neglect of
duties, or breach of the employment agreement by the
employee), the Company is entitled to terminate the affected
employment agreement without any further liability to the
employee. In the event the employee is terminated for any
reason other than "for cause," the employee is entitled to
receive his full compensation under the agreement for a
period of twelve months or until the end of the employment
period, whichever comes first.
In the event that a change in control of the Company occurs
at any time during the term of the employment agreement (as
a result of which the Board of Directors appoints a person
other than the employee to serve in the capacity for which
the employee is employed under the affected employment
agreement or as a result of which the employee elects to
resign his executive position with the Company), the
employee is nonetheless entitled to all of the benefits and
compensation under his employment agreement for the entire
term thereof, regardless of whether the employee continues
to perform any services for the Company. The employment
agreement is binding upon the Company and its successors and
assigns and any person acquiring, whether by merger,
consolidation, liquidation, purchase of assets or otherwise
all of substantially all of the Company's equity or
business.
The employment agreement allows the employee to terminate
employment without liability upon 90 days' written notice to
the Company and to directly and indirectly engage in other
business activities that are not directly competitive with
the business of the Company. The subject agreement does not
contain any non-competition or similar provisions.
(c) Incentive Compensation Plans
On July 9, 1993, the Board of Directors of the Company
adopted the Fiscal Year 1994 Incentive Plan ("Plan"), which
Plan was ratified by the Company's shareholders on August
30, 1993. The maximum number of shares of Common Stock
which may be issued under the Plan is the greater of 250,000
shares or 20% of the Company's outstanding Common Stock.
Shares issued under the Plan may be authorized but unissued
shares of Common Stock or treasury shares, at the discretion
of a committee (the "Committee") of not fewer than two
directors appointed under the Plan to administer the Plan.
The Company's Compensation Committee, which presently
consists of John Schwanekamp and Ronald G. Cullis,
administers the Plan.
The Plan provides for the grant of (i) non-qualified stock
options, (ii) incentive stock options, (iii) limited stock
appreciation rights, (iv) tandem stock appreciation rights,
(v) stand-alone stock appreciation rights, (vi) shares of
restricted stock, (vii) shares of phantom stock, and (viii)
stock bonuses (collectively, "Incentive Grants"). In
addition, the Plan provides for the grant of cash bonuses
payable when a participant is required to recognize income
for federal income tax purposes in connection with the
vesting of shares of restricted stock or the grant of a
stock bonus. Employees, officers (whether or not they are
directors), and advisors of the Company and its subsidiaries
will be eligible to participate in the Plan.
The Committee will determine which persons receive Incentive
Grants, the type of Incentive Grants granted and the number
of shares subject to each Incentive Grant. No Incentive
Grant may be granted under the Plan after April 1, 2002.
Subject to the terms of the Incentive Plan, the Committee
will also determine the prices, expiration dates and other
material features of the Incentive Grants granted under the
Plan. The Committee may, in its absolute discretion, (i)
accelerate the date on which an option or stock appreciation
right granted under the Incentive Plan becomes exercisable,
(ii) accelerate the date on which a share of restricted
stock or phantom stock vests and waive any conditions
imposed by the Committee on the vesting of a share of
restricted stock, and (iii) grant Incentive Grants to a
participant on the condition that the participant surrender
to the Company for cancellation such other Incentive Grants
(including, without limitation, Incentive Grants with higher
exercise prices) as the Committee specifies.
The Committee will have the authority to interpret and
construe any provision of the Plan and to adopt such rules
and regulations for administering the Plan as it deems
necessary. All decisions and determinations of the
Committee are final and binding on all parties. The Company
will indemnify each member of the Committee against any
cost, expense or liability arising out of any action,
omission or determination relating to the Plan, unless such
action, omission or determination was taken or made in bad
faith and without reasonable belief that it was in the best
interests of the Company.
The Board of Directors may at any time amend the Plan in any
respect; provided, that no amendment may (i) increase the
number of shares of Common Stock that may be issued under
the Plan, (ii) materially increase the benefits accruing to
individuals holding Incentive Grants, or (iii) materially
modify the requirements as to eligibility for participation
in the Plan.
On September 1, 1993, Incentive Grants were approved by the
Compensation Committee that resulted in the issuance of
8,500 shares of restricted and legended common stock. No
grants were made to any executive officers of the Company.
On June 14, 1996, the Board of Directors of the Company
adopted the 1996 Nonemployee Director Stock Plan ("Director
Plan"), which plan will be submitted for ratification by the
Company's shareholders at the next meeting of the
Shareholders. The maximum number of shares of Common Stock
which may be issued under the Director Plan is 100,000
shares.
Shares issued under the Director Plan may be authorized but
unissued shares of Common Stock at the discretion of a
committee (the "Director Plan Committee") of not fewer than
two directors appointed under the Director Plan to
administer the Director Plan who are not eligible to
participate in the Director Plan.
The Director Plan provides for the grant of stock options to
participants. All nonemployee directors shall participate
in the Director Plan so long as they remain eligible to
participate in the Director Plan. No stock option may be
granted under the Director Plan after June 13, 2001. Each
participant shall be granted an option for 5,000 shares of
Common Stock for each 12 months they serve as a director, or
if a director for less than the prior 12 months, a pro rata
portion of 5,000 shares of Common Stock based on the number
of months such participant was a nonemployee director of the
Company. The exercise price of the stock option to be
granted under the Director Plan shall be 50% of the market
price determined at the date of grant. The stock options
granted under the Director Plan shall be exercisable as set
forth in the option agreement commencing on the date such
option is granted, provided that each option shall expire
five years after the date such option was granted.
The Director Plan Committee will have the authority to
interpret and construe any provision of the Director Plan
and to adopt such rules and regulations for administering
the Director Plan as it deems necessary. All decisions and
determinations of the Director Plan Committee are final and
binding on all parties. Neither the Company nor any member
of the Board or the Director Plan Committee or designee
thereof will be liable for any damages resulting from any
action or determination made by the Board or the Director
Plan Committee with respect to the Director Plan or any
transaction arising under the Director Plan or any omission
in connection with the Director Plan in the absence of
willful misconduct or gross negligence.
The Board of Directors may at any time amend the Director
Plan in any respect; provided, that no amendment may (i)
change the class of persons eligible to receive stock
options under the Director Plan or otherwise modify the
requirements as to eligibility for participation in the
Director Plan, (ii) materially increase the benefits
accruing to participants under the Director Plan, or (iii)
increase the number of shares of Common Stock which may be
issued under the Director Plan without the approval of the
stockholders of the Company.
On June 6, 1996 a Form S-8 Registration Statement under the
Securities Act of 1933 was filed registering 330,928 shares
under the Fiscal Year 1994 Incentive Plan and 100,000 shares
under the 1996 Nonemployee Director Plan. No awards were
made under either plan during fiscal year ended June 30,
1996.
(d) Indemnification
The Articles of Incorporation and the Bylaws of the Company
provide that the Company may indemnify its officers and
directors for costs and expenses incurred in connection with
the defense of actions, suits or proceedings where the
officer or director acted in good faith and in a manner he
reasonably believed to be in the Company's best interest and
is a party by reason of his status as an officer or
director.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) & (b) Security Ownership of Certain Beneficial Owners and
Security Ownership of Management
The following table sets forth information as of
September 23, 1996 (treating all 18,834 outstanding
shares of Series B Convertible Preferred Stock
["Preferred Stock"] as if each share of Preferred Stock
were converted into Common Stock) based on information
obtained from the persons named below, with respect to
the beneficial ownership of Common Stock by (i) each
person known by the Company to be the owner of more
than 5% of the outstanding Common Stock, (ii) each
officer and director, and (iii) all officers and
directors as a group:
Name and Address Shares of Common Percentage of
Common
of Beneficial Owner Stock Owned Stock Outstanding
Jon Northrop 881,887 Shares 1,3 43.9%
1922 W. Sanibel Court
Littleton, CO 80120
Jere Northrop 500,690 Shares 2,3 24.9%
1961 Tonawanda Creek Road
Amherst, NY 14228
LoTayLingKyur, Inc. 385,697 Shares 4 21.9%
1280 Terminal Way, #3
Reno, NV 89502
Harley E. Northrop 145,058 Shares 8.3%
P.O. Box 188
Westfield, NY 14787
Delta Petroleum 259,456 Shares 3 14.8%
Corporation
555 17th Street, #3310
Denver, CO 809202
John Schwanekamp 125 Shares 5 nil
Sherman Road
Westfield, NY 14787
M. Duane Stutzman 10,250 Shares 0.6%
7483 West Laurel Avenue
Littleton, CO 80123
Ronald G. Cullis 5,110 Shares 0.3%
Management as a Group 1,138,452 Shares 53.4%
(5 Persons)
___________________
1 Includes 8,000 shares owned by the Family Trust U/A 3rd U/W
Catherine Northrop. Additionally, includes 385,697 shares
which Jon Northrop (the Company's Chief Executive Officer) has
the right to vote through March 14, 2004, all of which shares
are owned by LoTayLingKyur, Inc. ("LTLK"), an entity owned and
controlled by the Company's former President. Jon Northrop
also has the right to vote any shares which LTLK may acquire
in
exercise of its Class E Warrants in the future. No such exercise
has taken place as of September 23, 1996. The calculations
include all shares which were issued to LTLK in conversion of
its convertible note. Additionally, Jon Northrop owns a
currently exercisable Class A Warrant to purchase 125,000
shares of common stock at $10.00 per share until April 8,
1997, which warrant is included in this calculation. Does not
include 4,000 shares owned by his wife and 58,550 shares owned
by adult children of Jon Northrop each of which Mr. Northrop
disclaims beneficial ownership, or any of up to 400,000 shares
which Jon Northrop may in the future acquire pursuant to Class
E Warrants. Jon Northrop has voting power for 881,887 shares
and investment rights to 244,580 shares.
2 Includes 8,000 shares owned by the Family Trust U/A 3rd U/W
Catherine Northrop. Additionally, Jere Northrop owns a
currently exercisable Class A Warrant to purchase 125,000
shares of common stock at $10.00 per share until April 8,
1997, which warrant is included in this calculation. Does not
includes 4,000 shares owned by his wife and 54,550 shares
owned by an adult child of Jere Northrop, each of which Mr.
Northrop disclaims beneficial ownership or any of up to
400,000 shares which Jere Northrop may in the future acquire
pursuant to Class E Warrants. Jere Northrop has voting power
for 500,690 shares and investment rights to 249,080 shares.
3 Includes 126,610 shares owned by Delta Petroleum Corporation
which Jon Northrop and Jere Northrop jointly have the right to
vote until December 31, 1999. Delta Petroleum Corporation
also holds a currently exercisable Class A Warrant to purchase
125,000 shares of common stock at $10.00 per share until April
8, 1997, which warrant is included in this calculation. Delta
Petroleum has voting power for 7,846 shares and investment
rights to 259,456 shares.
4 LoTayLingKyur, Inc. ("LTLK") (the assignee of shares
previously owned by Stonehenge Capital Corporation). The
figure indicated includes 381,697 shares owned by LTLK
directly and 4,000 shares owned by Mark Smith's wife. Jon
Northrop (the Company's Chief Executive Officer) has the right
to vote all 385,697 shares pursuant to a voting agreement that
expires on March 14, 2004. Does not include any of up to
600,000 shares which the president, his wife, or family may in
the future acquire pursuant to Class E Warrants. LTLK has
investment rights and no voting power to all 385,697 shares.
5 Does not include 125 shares owned by Mr. Schwanekamp's wife of
which he disclaims beneficial ownership. Mr. Schwanekamp has
full voting power and investment rights on his stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective December 20, 1994, the Company entered into a
Settlement Agreement and General Release (the
"Settlement Agreement") with Underwriters Financial
Group ("UFG") and Delta Petroleum Corporation ("Delta")
pursuant to which Delta delivered to the Company 20,000
restricted shares of Delta's common stock (as an
inducement to the Company to enter into the subject
Settlement Agreement with UFG), and UFG delivered to
the Company 100,000 restricted shares of UFG's common
stock as full and final payment of all amounts due and
owing to the Company under the terms and conditions of
an investment instrument (the "UFG Investment
Instrument"), which had been the subject of some
dispute between the Company and UFG since approximately
December, 1993. The Settlement Agreement provided,
among other things, that UFG released any claims that
it might have against Delta and certain of Delta's
officers which in any manner related to the UFG
Investment Instrument or any other activity between the
Company and UFG, and further, that both UFG and the
Company fully released and discharged each other (and
each of their respective directors, officers,
attorneys, employees, members, representatives, agents,
successors, assigns, parents, subsidiaries and
affiliates) from any and all claims that either party
may have had against the other by reason of any matter,
cause or event whatsoever prior to the date of the
Settlement Agreement. As of June 30, 1996, the Company
had received an aggregate of $858,248 in net proceeds
from the sale of 152,500 of the Delta Shares (including
the $45,930 received prior to the subject dispute) held
as collateral for the UFG Investment Instrument and
84,607 shares of the UFG Stock from the Settlement
Agreement.
The Company currently subleases office space from Delta
under a month-to-month oral agreement pursuant to which
the Company subleases four offices within Delta's
existing office space, and is permitted to utilize
Delta's office equipment for an aggregate cost to the
Company of $940 per month.
On December 20, 1994, the Company entered into an
agreement (the "LTLK Agreement") with LoTayLingKyur,
Inc. ("LTLK") to secure a short term credit facility
for the Company's operations in an amount of up to
$200,000 for a period which ended on March 1, 1995.
Under the terms of the LTLK Agreement, amounts borrowed
by the Company accrued interest at the rate of 1% per
month compounded, and became due and payable in full on
March 1, 1995. Additionally, LTLK purchased 250,000
Class C Warrants for $2,500, granting LTLK the right to
purchase up to 250,000 shares of the Company's common
stock for a 36 month period commencing March 15, 1996
at a price of $9.50 per share.
On May 16, 1995, the Company, Jon Northrop (Company's
Chief Executive Officer) and Jere Northrop (Company's
President) entered into a new agreement with LTLK to
secure additional funding for the Company's operations.
Under the terms of the subject agreement, LTLK and the
Company entered into a new note which amended and
replaced the then currently outstanding note of Company
to LTLK (with accrued interest and principal at that
time of $581,114) and the Company's wholly-owned
subsidiary, Bion Technologies, Inc., became a co-maker
of the new note (the "Note"). In connection with this
transaction, LTLK transferred to the Company ownership
of 28,751 shares of common stock of Cyclopps Medical
Systems, Inc. and $660,000 in principal and interest
due under a convertible promissory note of Delta
Petroleum Corporation then owned by LTLK and valued by
the parties to such Note at an aggregate amount of
$1,345,000 (which amount is a component of the
principal due under the Note). The Note becomes due
and payable in full on May 16, 2000, and earns monthly
compounded interest at the rate of: (i) 1/2% for the
initial three months; (ii) 3/4% for the subsequent
three months; (iii) 1% thereafter; and (iv) in the
event of an uncured default of the Note and/or the
Agreement, 1.5%. Interest under the Note was accrued
through the first three months. During the period from
September 15, 1995 through February 15, 1996, half of
the interest was converted
into principal and the other half was paid. All of the
accrued interest was converted into principal on
February 15, 1996, and the Note requires that interest
currently be paid in cash on the 15th day of each
month until it is either paid in full or converted
pursuant to its terms.
The Note becomes convertible (commencing May 15, 1998
by LTLK, commencing May 15, 1999 by the Company, and
automatically converts on May 15, 2000 absent an
uncured default) to common stock of the Company at a
price equal to the lowest of: (i) $2.375 per share;
(ii) 75% of the average closing bid price of Company's
common stock over the 30 day period prior to the
conversion date; or (iii) 87-1/2% of the lowest price
at which the Company has issued common stock for cash
or other consideration during the term of the Note.
The Note is secured by a first lien on all of the
assets of the Company and the Subsidiary that are owned
or acquired during the term of the Note.
As inducement to LTLK to enter into the Note, the
Company agreed to convert all outstanding warrants of
the Company held by LTLK into Class E Warrants and
amend such Class E Warrants to reduce the exercise
price to $4.50 per share, and agreed to issue
additional amended Class E Warrants to purchase 600,000
shares of the Company's common stock (at a deemed value
of $.01 per warrant). Further, Jon Northrop and Jere
Northrop were each issued amended Class E Warrants to
purchase 400,000 shares of the Company's common stock.
LTLK's remedies in the event of default (not cured
within 20 days) include: (i) conversion of the Note
pursuant to its terms; (ii) legal action to collect the
Note or enforce the provisions of the Note; or (iii)
acceptance of title to 100% ownership of Bion
Technologies, Inc. (the subsidiary through which the
Company currently conducts substantially all of its
business operations and the loss of which would, in all
likelihood, cause the Company to cease its existence).
In the event that LTLK becomes the owner of Bion
Technologies, Inc., the agreement with LTLK requires
that the employment agreements with Jon Northrop and
Jere Northrop would remain in full force and effect for
a three year period, with that entity replacing the
Company as employer. Additionally, the subject
agreement provides that LTLK be permitted to provide
consulting services to the Company with respect to its
business operations over a seven year period which
commenced on November 15, 1995 at a cost to the Company
of $2,000 per month (which amount will increase to
$2,500 per month on November 15, 1996).
On July 29, 1993 the Company repaid Jon Northrop (an
officer and director of the Company and the Company)
$10,187.75 ($10,000 principal and $187.75 accrued
interest) to fully pay off a promissory note of the
Company held by Mr. Northrop. The note
originated as a result of cash advances from Jon
Northrop to the Company on June 3, 1993 to provide the
Company with operating capital.
On December 30, 1993 and March 3, 1994, as part of
extensive ongoing long range estate planning, Harley E.
Northrop (who was a director of Bion and subsequently
also a director of the Company until August 1993) made
aggregate gifts of 14,000 shares each (a total of
28,000 shares) of the Company's common stock to various
family members, thereby reducing his ownership position
to 96,844 shares, 6.8% ownership as of June 30, 1994.
On April 18, 1995 the Company repaid Jon Northrop (an
officer and director of the Company and the Company)
$10,500.00 to fully pay off a promissory note of the
Company held by Mr. Northrop. The note originated as a
result of cash advances from Jon Northrop to the
Company on April 14, 1995 to provide the Company with
operating capital.
On June 30, 1996 the Company converted the outstanding
principal and interest balance of $57,920 on a note
held by Harley E. Northrop into 28,960 shares of
restricted and legended common stock of the Company in
full satisfaction of the debt obligation.
All future and ongoing transactions with affiliates
will be on terms which the Company's management
believes are no less favorable than could be obtained
from affiliated parties. All future and ongoing loans
to affiliates, officials and shareholders of the
Company will be approved by a majority vote of the
disinterested directors.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits listed in the Index to Exhibits appearing at
page 34 are filed as part of this report.
(b) Reports on Form 8-K
The following current reports on Form 8-K were filed during
fiscal year 1996 and the first quarter of fiscal year 1997:
Form 8-K (dated August 1, 1995) reporting on items 5 & 7.
INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, etc.
None.
(3) Articles of Incorporation and Bylaws
3.1 Articles of Incorporation previously filed and incorporated
herein by reference.
3.2 Bylaws previously filed and incorporated herein by
reference.
(4) Instruments Defining the Rights of Holders, Inc. Indentures
Statement of Designation and Determination of Preferences of
Series A Convertible Stock previously filed and incorporated
by reference.
(9) Voting Trust Agreement. None.
(10) Material Contracts. None.
(11) Statement Re Computation of Per Share Earnings. None.
(13) Annual or Quarterly Reports, Form 10-Q. Previously filed
and incorpoated herein by reference.
(16) Letter on Changes in Certifying Accountant. None.
(18) Letter on Changes in Accounting Principles. None.
(21) List of Subsidiaries. Attached and incorporated herein by
reference.
(22) Published Report Regarding Matters Submitted to Vote. None.
(23) Consents of Experts. Attached to financial statements and
incorporated herein by reference.
(24) Power of Attorney. None.
(27) Financial Data Schedule.
(28) Information from Reports Furnished to State Insurance
Regulatory Authorities. None.
(29) Additional Exhibits. None.
EXHIBIT 21
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Subsidiary List
Bion Technologies, Inc., incorporated under the laws of the State
of Colorado.
BionSoil, Inc., incorporated under the laws of the State of
Colorado.
BION ENVIRONMENTAL
TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements and
Independent Auditors' Report
June 30, 1996 and 1995
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Table of Contents
Page
Independent Auditors' Report F - 1
Financial Statements
Consolidated Balance Sheets F - 2
Consolidated Statements of Operations F - 3
Consolidated Statement of Changes in Stockholders' Equity F - 4
Consolidated Statements of Cash Flows F - 5
Notes to Consolidated Financial Statements F - 7
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
Bion Environmental Technologies, Inc.
Denver, CO
We have audited the accompanying consolidated balance sheet of
Bion Environmental Technologies, Inc. and Subsidiaries as of
June 30, 1996 and the related consolidated statement of
operations, stockholders' deficit, and cash flows for the years
ended June 30, 1996 and 1995. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Bion Environmental Technologies, Inc. and
Subsidiaries as of June 30, 1996, and the results of their
operations and their cash flows for the year ended June 30, 1996
and 1995, in conformity with generally accepted accounting
principles.
The consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 2, the Company has incurred losses since inception
exceeding $5,900,000. Continued losses without raising
additional capital raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to
these matters are discussed in Note 2. The consolidated
financial statements do not include any adjustments that might
result from this uncertainty.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
August 22, 1996
Denver, Colorado
F - 1
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1996
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets
Cash and cash equivalents $118,612
Contract receivables (net of allowance 22,070
of $10,000)
Work in progress (net of allowance of
$20,000) (Note 3)
Completed contracts 169,186
Contracts in progress 50,500
Prepaid expenses and other 2,128
Total current assets 362,496
Property and equipment, net of 66,216
accumulated depreciation of $6,544
Other assets
Deferred long-term contact costs (Note 3) 82,433
Patents, net 40,778
Other 4,387
Total other assets 127,598
Total assets $556,310
Liabilities and Stockholders' (Deficit)
Current liabilities
Accounts payable $188,542
Accounts payable - related party 23,351
Notes payable-stockholders (Note 4) 96,050
Capital lease obligation 18,482
Accrued payroll expense 24,058
Dividends declared (Note 5) 16,112
Accrued payroll (Note 6) 206,667
Total current liabilities 573,262
Long-term liabilities
Notes payable - stockholders (Note 4) 2,007,035
Capital lease obligation 43,047
Deferred contract revenue (Note 3) 206,500
Total liabilities 2,829,844
Commitments and contingencies (Notes 2, 6
and 8)
Stockholders' (deficit) (Note 5)
Preferred stock, series B, $.001 par
value, 85,000 shares authorized, 18,834 95,482
shares issued and outstanding
Common stock, no par value, 100,000,000
shares authorized, 1,683,777 shares 3,485,270
Issued and outstanding
Common stock subscribed 49,538
Accumulated deficit (5,903,824)
Total stockholders' (deficit) (2,273,534)
Total liabilities and stockholders' $556,310
(deficit)
</TABLE>
See notes to consolidated financial statements.
F - 2
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION> Year Ended
June 30,
1996 1995
<S> <C> <C>
Contract revenues $120,256 $ 75,740
Contract costs 176,019 207,354
Gross profit (loss) (55,763) (131,614)
General and administrative expenses 1,647,308 1,851,493
Loss from operations (1,703,071) (1,983,107)
Other income (expense)
Interest income 4,254 125,659
Interest expense (218,861) (29,058)
Research and development (74,588) (59,948)
Gain/(loss) on securities 143,371 (44,604)
Net (loss) $(1,848,895) $(1,991,058)
Net (loss) per common share $ (1.16) $ (1.41)
Weighted common shares outstanding 1,597,350 1,416,727
</TABLE>
See notes to consolidated financial statements.
F - 3
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' (Deficit)
<TABLE>
<CAPTION>
Preferred Stock Series A Preferred Stock Series B Common Stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance at June 110 $ 24,750 - $ - 1,374,736 $2,585,142
30, 1994
Conversion of
Preferred A Stock (20) (4,500) - - 1,000 4,500
into Common Stock
Sale of Investment - - - - - -
Instrument
Common Stock
subscriptions for - - - - - -
services
Issuance of common - - - - 4,223 21,500
stock for cash
Issuance of
Preferred B Stock - - 18,834 95,482 - -
for cash
Issuance of common
stock for services - - - - 70,000 315,000
Net loss - - - - - -
Balance at June 90 20,250 18,834 95,482 1,449,959 2,926,142
30, 1995
Conversion of
Preferred A Stock (90) (20,250) - - 4,500 20,250
into Common Stock
Conversion of
common stock - - - - 3,723 14,503
subscriptions to
common stock
Common Stock
subscriptions for - - - - - -
services
Issuance of common - - - - 156,560 371,230
stock for cash
Conversion of note
payable to common - - - - 28,960 57,920
stock and interest
Issuance of common
stock for services - - - - 40,075 95,225
Dividends
declared, - - - - - -
preferred stock
Series B
Net loss - - - - - -
Balance at June - $ - 18,834 $ 95,482 1,683,777 $3,485,270
30, 1996
</TABLE>
Continued on the following page.
See notes to consolidated financial statements.
F - 4
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' (Deficit)
Continued from previous page.
<TABLE>
<CAPTION> Common
Stock Investment Accumulated
Subscribed Instrument (Deficit) Total
<S> <C> <C> <C> <C>
Balance at June 30, 1994 $ 7,500 $ (84,959) $(2,047,759) $ 484,674
Conversion of Preferred A - - - -
Stock into Common Stock
Sale of Investment Instrument - 84,959 - 84,959
Common Stock subscriptions for 11,838 - - 11,838
services
Issuance of common stock for - - - 21,500
cash
Issuance of Preferred B Stock - - - 95,482
for cash
Issuance of common stock for - - - 315,000
services
Net loss - - (1,991,058) (1,991,058)
Balance at June 30, 1995 19,338 - (4,038,817) (977,605)
Conversion of Preferred A Stock - - - -
into Common Stock
Conversion of common stock (14,503) - - -
subscriptions to common stock
Common Stock subscriptions for 44,703 - - 44,703
services
Issuance of common stock for - - - 371,230
cash
Conversion of note payable to - - - 57,920
common stock and interest
Issuance of common stock for - - - 95,225
services
Dividends declared, preferred - - (16,112) (16,112)
stock Series B
Net loss - - (1,848,895) (1,848,895)
Balance at June 30, 1996 $ 49,538 $ - $(5,903,827)$(2,273,534)
</TABLE>
See notes to consolidated financial statements.
F - 5
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net (loss) $(1,848,895) $(1,991,058)
Adjustments to reconcile net loss to net
cash used by operating activities -
Depreciation and amortization 4,981 3,068
Valuation allowance - 96,892
Issuance of stock for services, 148,848 326,838
compensation and interest
Issuance of note payable for services 80,921 339,383
and interest
Loss on disposition of assets - 1,934
Gain on sale of marketable equity (143,371) -
securities
Changes in assets and liabilities -
Receivables 38,026 6,963
Costs and estimated excess of billings 243,707 (255,173)
on contracts
Prepaid expenses and other (3,814) (1,513)
Accounts payable (68,409) 178,721
Accrued compensation 55,657 69,134
Deferred contact revenue (176,000) 263,000
Deferred long-term contract costs 35,009 (93,542)
215,555 935,705
Net cash (used in) operating (1,633,340) (1,055,353)
activities
Cash flows from investing activities
Sale of marketable equity securities 1,418,018 79,406
Investment in patents (16,893) (14,982)
Net cash provided by investing 1,401,125 64,424
activities
Cash flows from financing activities
Payments on shareholder notes (60,460) (10,500)
Proceeds from shareholder notes 39,047 392,155
Proceeds from sale of stock 371,230 116,982
Payment on investment instrument - 474,677
Payments on capital lease obligation (2,791) -
Net cash provided by financing 347,026 973,314
activities
Net increase (decrease) in cash and cash 114,811 (17,615)
equivalents
Cash and cash equivalents at beginning of 3,801 21,416
period
Cash and cash equivalents at end of $118,612 $ 3,801
period
</TABLE>
Continued on following page.
See notes to consolidated financial statements.
F - 6
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Continued from previous page.
Supplemental disclosure of cash flow information
Cash paid during the year for interest was $141,316 (1996)
and $0 (1995).
Supplemental disclosures of non-cash financing activities
Conversion of 90 shares of Preferred A Stock to 4,500 shares of Co
mmon Stock valued at $20,250 (June 30, 1996).
Conversion of subscribed stock to 3,723 shares of common
stock valued at $14,503 (June 30, 1996).
Conversion of note payable and accrued interest of $57,920
to 28,960 shares of common stock valued at $57,920 (June 30,
1996).
Entered into a capital lease for equipment for $64,320 (June
30, 1996).
Declared and accrued dividends of $16,112 for preferred
stock Series B (June 30, 1996).
Issuance of 70,000 shares of common stock valued at $315,000
for services (June 3, 1995).
Conversion of 20 shares of Preferred A Stock to 1,000 shares
of Common Stock valued at $4,500 (June 30, 1995).
Issuance of debt for convertible debt of Delta Petroleum
Corp. Common Stock valued at $1,220,000 (June 30, 1995).
Issuance of debt for Cyclopss Medical Systems, Inc. Common
Stock valued at $125,000 (June 30, 1995).
Issuance of debt for $325,000 to a shareholder for
satisfaction or Company accounts payable (June 30, 1995).
See notes to consolidated financial statements.
F - 7
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Nature of Business
The accompanying consolidated financial statements include the
accounts of Bion Environmental Technologies, Inc. ("Biet"), and
its wholly owned subsidiaries, Bion Technologies, Inc. ("Bion")
and BionSoil, Inc. ("BionSoil"), (collectively the Company). The
Company is engaged in the designing, marketing and overseeing the
installation and operation of environmentally effective and
economically efficient treatment systems (based on proprietary
and/or patented processes) for the bio-conversion of wastewater,
primarily for customers in New York, Washington, North Carolina
and Florida. Additionally, the Company has entered the market
with an animal waste management system, BionSoil NMS, which
converts flushed or scraped animal wastes into an economically
valuable product, BionSoil, which the Company intends to market
and sell.
Principles of Consolidation
The consolidated financial statements as of June 30, 1996 and
1995 include the accounts of Biet, Bion and BionSoil. All
significant intercompany transactions and balances have been
eliminated in consolidation.
Contract Receivables
The Company grants credit in the normal course of business to
customers who are located primarily in the New York, Florida,
North Carolina and Washington state areas. To reduce credit
risk, the Company monitors the financial condition and performs
credit analysis prior to entering into contracts.
Property and Equipment
Property and equipment is stated at cost. Depreciation is
provided using the straight-line method over the estimated useful
lives of the related assets ranging from three to seven years.
For the periods ended June 30, 1996 and 1995, depreciation was
recorded in the amounts of $3,108 and $2,330, respectively.
Revenue and Cost Recognition
Treatment System Contracts
Revenues from fixed-price system development and construction
type contracts are recognized on the percentage-of-completion
method, measured by the percentage of costs incurred to date to
total estimated contract costs for each contract. This method is
used because the Company considers cost to date to be the best
available measure of progress on these contracts.
Contract costs include all direct material and labor costs and
those indirect costs related to contract performance. General
and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined. Changes in
job performance, job conditions and estimated profitability,
including those arising from contract penalty provisions, and
final contract settlements may result in revisions to costs and
income and are recognized in the period in which the revisions
are determined.
F - 8
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Revenue and Cost Recognition (continued)
BionSoil Contracts
Beginning in fiscal year 1994, the Company entered into contracts
for producing BionSoil with fees to be paid through a defined
portion of the net profit from the sale of the product. The
contractual fees as of June 30, 1996 are $267,500 for these
systems.
Since the Company is paid from the sales proceeds of BionSoil,
all costs and revenue earned with the construction of the systems
are deferred until the sale of BionSoil commences.
All capitalized BionSoil system costs for each contract are
amortized on the unit-of-production method once sale of BionSoil
commences using estimates of sales. If the results of an
assessment indicate that the contract is impaired, the amount of
the impairment is expensed. As of June 30, 1996, no material
sales of the product have been consummated and accordingly, no
revenue has been recognized in the financial statements on these
contracts. At June 30, 1996, no contracts are deemed to be
impaired.
Income Taxes
Deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. The
measurement of deferred tax assets is reduced, if necessary, by
the amount of any tax benefits that, based on available evidence,
are not expected to be realized.
Patents
Patent applications are recorded at cost and are amortized when
the patent is issued over a period of the lesser of the patent's
estimated economic or legal life. For the periods ended June 30,
1996 and 1995, amortization was recorded in the amount of $1,873
and $738, respectively.
Research and Development Expenses
Research and development expenses are expensed as incurred and
include both expenses for new technology development and expenses
for ongoing efforts to improve existing technologies.
(Loss) Per Common Share
Net (loss) per common share is based on the weighted average
number of common shares outstanding. Common stock equivalents
were not considered as their inclusion would be antidilutive.
F - 9
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Accounting Standards Not Yet Adopted
Statement of Financial Accounting Standards No. 121 - Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed is effective for fiscal years beginning after
December 15, 1995. This Statement establishes standards for the
impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable
intangibles to be disposed of.
Management believes the adoption of this standard will not have a
material impact on the consolidated financial statements.
In October 1995, the FASB issued Statement No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123"). FAS 123 establishes
financial accounting and reporting standards for stock-based
employee compensation plans. FAS 123 is effective for
transactions entered into in fiscal years beginning after
December 15, 1995. The Company currently accounts for stock-
based compensation awards to employees under the provisions of
Accounting Principles Board Opinion No. 25, as permitted by FAS
123, and intends to continue to do so.
Concentration of Credit Risk
Cash accounts potentially subject the Company to concentration of
credit risk. The Company places its cash with high credit
quality financial institutions and, by policy, limits the amount
of credit exposure to any one financial institution. At June 30,
1996, there was approximately $14,000 in one bank in excess of
the federally insured limit.
Note 2 - Continued Operations
The accompanying financial statements have been prepared on a
going concern basis which contemplates the realization of assets
and liquidation of liabilities in the ordinary course of
business. In prior years, the Company had been in the
development stage and its principal activities had consisted of
raising capital, performing research and development activities
and the development of their products. The Company has not yet
begun earning significant revenue from its planned principal
operations. Consequently, as of June 30, 1996, the Company has
incurred accumulated losses totaling approximately $5,900,000,
resulting in a accumulated stockholders deficit of approximately
$2,300,000. Cash flows from current operations are not
sufficient to meet the obligations of the Company. Management
plans include continuing efforts to obtain additional capital to
fund operations until contract sales along with sales of BionSoil
are sufficient to fund operations. There can be no assurance
that the Company will be able to successfully attain profitable
operations or raise sufficient capital.
F - 10
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Note 3 - Cost and Estimated Earnings on Uncompleted Contracts
The Company's costs and estimated earnings on uncompleted
treatment system contracts consist of the following:
<TABLE>
<CAPTION>
June 30,
1996
<S> <C>
Costs incurred on contracts $1,023,774
Estimated (losses) (201,321)
822,453
Less billings to date (706,834)
$ 115,619
</TABLE>
Included in the accompanying balance
sheet under the following captions
<TABLE>
<CAPTION>
<S> <C>
Costs and estimated earnings in excess
of billings on completed contracts $169,186
Costs and estimated earnings in excess
of billings on uncompleted contracts 50,500
Deferred long-term contract costs 82,433
Allowance 20,000
Less deferred revenue (206,500)
Total costs and estimated earnings in
excess of billings on contracts $115,619
</TABLE>
Due to uncertainties in the estimation process, it is at least
reasonably possible that completion costs could be further
revised in the near term, and that the change may be material.
Note 4 - Note Payable - Stockholder and Capital Leases
On May 16, 1995, Bion entered into an agreement with a
shareholder whereby the Company received 28,572 shares of common
stock of Cyclopss Medical Systems, Inc., valued at $125,000 and a
convertible promissory note of Delta Petroleum Corporation with a
face value of $660,000, valued at $1,220,000 all in exchange for
a note payable to the shareholder in the amount of $1,345,000.
All of the of Delta Petroleum Corporation promissory note was
converted at a rate of $3.30 per share for a total of 200,000
shares. In addition, the Company received 8,042 shares for
accrued interest through November 20, 1995. Commencing May 15,
1998 the shareholder will have the option to convert all or part
of the outstanding sums due under the note to common stock of the
Company at a price equal to the lowest of $2.375 per share, 75%
of the closing average market bid price over 30 days prior to
conversion or 87 1/2 % of the lowest price for which common stock
has been issued during the term.
F - 11
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Note 4 - Note Payable - Stockholder and Capital Leases
(continued)
In addition, the Shareholder advanced the Company $235,000 in
cash and satisfied $325,000 of Company accounts payable for a
total of $560,000, accruing interest at 12%. The shareholder
also provided legal services to the Company in the amount of
$11,375. Total interest accrued on the note was $80,921 for the
year ended June 30, 1996.
<TABLE>
<CAPTION> June 30,
1996
<S> <C>
Notes payable to stockholders, due on demand, interest
ranging from 11% to 12%, payable monthly. $ 96,050
Note payable to stockholder, interest at 12%, accrued
through June 30, 1996, due May 16, 2000. 2,007,035
2,103,085
Less current portion (96,050)
$ 2,007,035
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Capital lease - finance company; with monthly
installments of $2,287, including interest at 18%,
through May 1999; collateralized by equipment with a
net book value of approximately $62,000. $61,529
Less current portion (18,482)
$ 43,047
</TABLE>
Future maturities of notes payable and capital leases.
<TABLE>
<CAPTION>
Year Ending Capital Notes
June 30, Lease Payable Total
<S> <C> <C> <C>
1997 $ 27,449 $ 96,050 $ 123,499
1998 27,449 - 27,449
1999 22,874 - 22,874
2000 2,007,035 2,007,035
77,772 $2,103,085 $2,180,857
Less amount representing interest (16,243)
$ 61,529
</TABLE>
F - 12
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Note 5 - Stockholders' Deficit
Preferred Stock Series B
Class B Preferred Stock entitles the holder to convert the
Preferred stock at the rate of one Class B Preferred Share for
one share of Common Stock of the Company, subject to adjustment
from time to time. The holders of the Class B Preferred Stock
have the option to convert all the outstanding shares of the
stock at any time after December 31, 1994. Class B Preferred
Stock holders are entitled to receive, upon conversion,
redemption or liquidation, cumulative dividends at the per annum
rate of $.54 per share on the issued and outstanding Class B
Preferred Stock. The holders of the Series B Convertible
Preferred Stock may require the Company to redeem all of the
outstanding shares of Series B Preferred Stock at any time on or
after December 31, 1996. Series B Preferred Stock holders have
liquidation preference to the extent of their par value over
holders of common stock and other series of preferred stock. As
of June 30, 1996, 18,834 shares were issued and outstanding.
Preferred Stock Series A
In 1992, the Company established a series of 50,000 shares of no
par value preferred stock to have the designation of "Series A
Convertible Preferred Stock". Each share can be converted into
50 shares of common stock at the option of the holder or
automatically converts into common stock on the earlier of the
two years from issuance or upon the effectiveness of a
registration statement, which includes the shares of common stock
underlying conversion. During the year ended June 30, 1996 the
Company converted all 90 shares of Series A convertible preferred
stock, then outstanding, into 4,500 shares of common stock at
$4.50 per share.
Warrants
As of June 30, 1996, the Company has outstanding the following
warrants:
<TABLE>
<CAPTION>
Number of Expiration Exercise
Warrant Shares Date Price
<S> <C> <C> <C>
Class A 375,000 (2) (1)
$10.00/share
Class E 2,100,000 (4) (3)
$4.50/share
Class F-1 50,000 (5)
$2.00
Class F-2 50,000 (6)
$4.00
Class F-3 100,000 (7)
$6.00
Class G 25,000 (8)
</TABLE> $5.00
(1) Class A Warrants may be exercised to purchase 375,000
shares of common stock for a 36 month period beginning
April 9, 1994 and ending April 8, 1997.
(2) Two officers of Biet own 125,000 Class A Warrants each.
Additionally, 125,000 Class A Warrants are owned by a
shareholder.
F - 13
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Note 5 - Stockholders' Deficit (continued)
Warrants (continued)
(3) Class E Warrants may be exercised to purchase 2,100,000
shares of common stock for a 36 month period beginning
September 1, 1997.
(4) Two officers of Biet own 400,000 Class E warrants each.
Additionally, 1,300,000 Class E warrants are owned by the
majority shareholder.
(5) Class F-1 warrants may be exercised to purchase 50,000
shares of common stock for a 12 month period beginning
August 1, 1995 and ending July 31, 1996.
(6) Class F-2 warrants may be exercised to purchase 50,000
shares of common stock for a 24 month period beginning
August 1, 1995 and ending July 31, 1997.
(7) Class F-3 warrants may be exercised to purchase 100,000
shares of common stock for a 36 month period beginning
August 1, 1995 and ending July 31, 1998.
(8) Class G warrants may be exercised to purchase 25,000 shares
of common stock for a 36 month period beginning June 20,
1996 and ending June 20, 1999.
Options
The Company established the Fiscal Year 1994 Incentive Plan (the
Plan) in July 1993. Under the Plan, incentive stock options can
be granted at prices not less than 100% of the Fair Market Value
of a share of Common Stock on the date on which the Incentive
Stock Option is granted. Options are exercisable within ten years
from the date of grant, subject to early termination as provided
in the Plan.
It is the Company's policy to recognize compensation expense to
the extent the fair market value of the stock exceeds the option
exercise price on the date of grant. To date, the Company has
not recognized any compensation expense as all options have been
granted at a price equal to the fair market value of the stock on
the date of grant.
Pursuant to employment agreements, several employees have been
guaranteed equity compensation in the form of legended and
restricted shares of Biet common stock in quarterly amounts of
$20,935, totaling $49,538 at June 30, 1996. As of June 30, 1996,
2,223 shares have been issued.
Note 6 - Related Party Transactions
As of June 30, 1996, there were $206,667 of accrued salaries due
to officers included in accrued payroll.
During the year ended June 30, 1996, a shareholder of the Company
provided legal services to the Company in the amount of $20,893.
F - 14
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Note 6 - Related Party Transactions (continued)
For the period ended June 30, 1996, a shareholder of the Company
provided office space to the Company. Rent expense for the year
totaled $11,280.
During the year ended June 30, 1996, the Company converted a
$49,000 note payable to a shareholder of the Company into common
stock.
Note 7 - Income Taxes
The Company recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based
on the difference between the financial statements and tax basis
of assets and liabilities using the enacted tax rates in effect
for the year in which the differences are expected to reverse.
The measurement of deferred tax assets is reduced, if necessary,
by the amount of any tax benefits that, based on available
evidence, are not expected to be realized.
The principal temporary differences that result in a deferred tax
asset are due to the losses generated since inception. The
Company has generated a long-term deferred tax asset of
approximately $2,000,000 that is fully impaired because of a lack
of profitable operating history. Accordingly, there is no net
deferred tax asset reflected in the accompanying financial
statements.
The Company is a taxable corporation and has carry-forward
operating losses of approximately $5,300,000 which expire in the
following years.
<TABLE>
<CAPTION>
<S> <C>
2005 $ 12,259
2006 242,016
2007 258,090
2008 337,884
2009 223,945
Thereafter 4,239,634
$5,313,828
</TABLE>
Note 8 - Subsequent Events
In July 1996, the Company issued 7,846 shares of common stock to
a shareholder in exchange for rent of $23,540 included in
accounts payable at June 30, 1996.
The Company also entered into lease agreements for equipment
subsequent to year end. The lease payments in aggregate are
$94,569 over the life of the leases through 2000.
F - 15
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Note 8 - Subsequent Events (continued)
In July 1996, the Company secured a $250,000 line-of-credit,
interest at 12% per annum payable monthly, with all outstanding
principal and interest due December 31, 1998. As of August 22,
1996, $75,000 was outstanding.
In consideration for the establishment of the line-of-credit, the
Company issued Class G warrants to purchase 200,000 shares of
common stock for a 36 month period beginning January 1, 1998 and
ending January 1, 2001, at a price of $4.50 per share. Should
the Company pay off the outstanding balance on the line-of-credit
on or before December 31, 1997, the warrants to purchase 200,000
shares will be reduced to 100,000 shares.
In August 1996, the Company entered into an agreement to issue
warrants to purchase 10,000 shares of common stock at a price of
$5.00 per share and 14,500 shares of common stock at a price of
$3.00 per share for $30,000. The warrants are effective
beginning August 21, 1996 and exercisable for a 60 month period
ending August 21, 2001.
In August 1996, the Company issued warrants to employees under
the 1994 Incentive Compensation Plan, to purchase 60,000 shares
of common stock at $5.00 per share. The warrants are effective
for a 60 month period beginning September 1, 1996 through
September 1, 2001.
Note 9 - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value. Fair value estimates are
made at a specific point in time for the Company's financial
instruments; they are subjective in nature and involve
uncertainties, matters of significant judgment and, therefore,
cannot be determined with precision. Fair value estimates do not
reflect the total value of the Company as a going concern.
Cash and Accounts Payable
The carrying value approximates fair value due to its liquid or
short-term nature.
Notes Payable - Stockholders and Capital Lease Obligation
Rates currently available to the Company for debt and capital
lease obligations with similar terms and remaining maturities are
used to estimate the fair value of existing debt.
F - 16
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Note 9 - Fair Value of Financial Instruments (continued)
Notes Payable - Stockholders and Capital Lease Obligation
(continued)
The estimated fair values of the Company's financial instruments
at June 30, 1996 were as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
<S> <C> <C>
Assets
Cash $ 118,612 $118,612
$ 118,612 $118,612
Liabilities
Accounts payable 211,893 $211,893
Notes payable - stockholders 2,103,085 2,103,085
Capital lease obligations 61,529 61,529
$2,376,507 $2,376,507
</TABLE>
F - 17
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be
signed on its behalf by the undersigned thereunto duly
authorized.
BION ENVIRONMENTAL TECHNOLOGIES,
INC.
Date: September 30, 1996 By: /s/ Jon Northrop
Jon Northrop Chief
Executive Officer
In accordance with the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates
indicated.
Name and Capacity Date
/s/ Jon Northrop September 30, 1996
Jon Northrop, Chief Executive
Officer, Director
/s/ Jere Northrop September 30, 1996
Jere Northrop, President, Director
/s/ M. Duane Stutzman September 30, 1996
M. Duane Stutzman, Chief Financial
Officer, Treasurer, Director
/s/ John Schwanekamp September 30, 1996
John Schwanekamp, Director
/s/ Ronald G. Cullis September 30, 1996
Ronald G. Cullis, Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 118,612
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
