SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(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 or any amendment to this form 10-KSB.
[ X ]
The aggregate market value as of September 23, 1996 of voting stock
held by non-affiliates of the Registrant was $3,124,425 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, 1,732,960 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.
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
<S> <C> <C>
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
</TABLE>
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.
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
Salary(1) Bonus Compensation
Name and Principal 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 Underlying LTIP Annual
Name and Principal Salary(1) Award(s) Options/ Payouts Compensation
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(4) - - - -
Officer and 1994(6)15,000 - - - -
Treasurer
</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) 44.1%
1922 W. Sanibel Court
Littleton, CO 80120
Jere Northrop 500,690 Shares(2,3) 25.0%
1961 Tonawanda Creek Road
Amherst, NY 14228
LoTayLingKyur, Inc. 385,697 Shares(4) 22.0%
1280 Terminal Way, #3
Reno, NV 89502
Harley E. Northrop 174,018 Shares 9.9%
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 53.5%
(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 1,300,000 shares which LTLK 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
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 - 6
Notes to Consolidated Financial Statements F - 8
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
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 6) 16,112
Accrued payroll (Note 7) 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, 7
and 9)
Stockholders' (deficit) (Notes 6 and 7)
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)
Consolidated Statements of Operations
</TABLE>
<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
Consolidated Statement of Changes in Stockholders' (Deficit)
</TABLE>
<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
Continued on the following page.
Consolidated Statement of Changes in Stockholders' (Deficit)
</TABLE>
<TABLE>
<CAPTION>
Continued from previous page.
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
services 11,838 - - 11,838
Issuance of
common stock for
cash - - - 21,500
Issuance of
Preferred B Stock
for cash - - - 95,482
Issuance of common
stock for
services - - - 315,000
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
cash - - - 371,230
Conversion of note
payable to common
stock and interest - - - 57,920
Issuance of common
stock for services - - - 95,225
Dividends declared, preferred
stock Series B - - (16,112) (16,112)
Net loss - - (1,848,895) (1,848,895)
Balance at
June 30, 1996 $ 49,538 $ - $(5,903,824) (2,273,534)
Consolidated Statements of Cash Flows
</TABLE>
<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,
compensation and interest 148,848 326,838
Issuance of note payable for services
and interest 80,921 339,383
Loss on disposition of assets - 1,934
Gain on sale of marketable equity
securities (143,371) -
Changes in assets and liabilities -
Receivables 38,026 6,963
Costs and estimated excess of billings
on contracts 243,707 (255,173)
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
activities (1,633,340) (1,055,353)
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
activities 1,401,125 64,424
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
activities 347,026 973,314
Net increase (decrease) in cash and cash
equivalents 114,811 (17,615)
Cash and cash equivalents at beginning of
period 3,801 21,416
Cash and cash equivalents at end of
period $118,612 $3,801
Continued on following page.
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).
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.
Note 1 - Summary of Significant Accounting Policies (continued)
Revenue and Cost Recognition (continued)
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.
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.
Note 1 - Summary of Significant Accounting Policies (continued)
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.
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.
Note 1 - Summary of Significant Accounting Policies (continued)
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.
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>
<TABLE>
<CAPTION>
<S> <C>
June 30,
1996
Costs incurred on contracts $1,023,774
Estimated (losses) (201,321)
822,453
Less billings to date (706,834)
$ 115,619
</TABLE>
Note 3 - Cost and Estimated Earnings on Uncompleted Contracts
(continued)
<TABLE>
<CAPTION>
<S> <C>
Included in the accompanying balance
sheet under the following captions
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.
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
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>
Note 4 - Note Payable - Stockholder and Capital Leases (continued)
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 (16,243)
interest
$ 61,529
</TABLE>
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.
Note 5 - Stockholders' Deficit (continued)
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> <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) $5.00
</TABLE>
(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.
(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 36 month period beginning August 1, 1995
and ending July 31, 1996.
Note 5 - Stockholders' Deficit (continued)
Warrants (continued)
(6) Class F-2 warrants may be exercised to purchase 50,000 shares
of common stock for a 48 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 60 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 7 - 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.
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.
Note 7 - Related Party Transactions (continued)
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 8 - 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 9 - 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.
Note 9 - Subsequent Events (continued)
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.
In July 1996, a corporation owned by the majority shareholder granted
the Company 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, $80,000 was outstanding.
In consideration for the establishment of the line-of-credit, Bion
issued the related corporation 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 10 - 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.
Note 10 - Fair Value of Financial Instruments (continued)
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.
The estimated fair values of the Company's financial instruments at
June 30, 1996 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Carrying Fair
Amount Value
Assets
Cash $ 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
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>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 118,612
<SECURITIES> 0
<RECEIVABLES> 271,756
<ALLOWANCES> (30,000)
<INVENTORY> 0
<CURRENT-ASSETS> 362,496
<PP&E> 72,760
<DEPRECIATION> (6,544)
<TOTAL-ASSETS> 556,310
<CURRENT-LIABILITIES> 573,262
<BONDS> 0
0
95,482
<COMMON> 3,485,270
<OTHER-SE> (5,854,286)
<TOTAL-LIABILITY-AND-EQUITY> 556,310
<SALES> 120,256
<TOTAL-REVENUES> 267,881
<CGS> 176,019
<TOTAL-COSTS> 1,897,915
<OTHER-EXPENSES> 74,588
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218,861
<INCOME-PRETAX> (1,848,895)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,848,895)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,848,895)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> 0
</TABLE>
